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ECONOMIC HISTORY
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From Paleolithic Times to the Present

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A CONCISE ECONOMIC
HISTORY OF THE WORLD
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 A CONCISE ECONOMIC
HISTORY OF THE WORLD
From Paleolithic Times
to the Present

FOURTH EDITION

RONDO CAMERON
LARRY NEAL

New York Oxford

OXFORD UNIVERSITY PRESS
2003
Oxford University Press
Oxford New York
Auckland Bangkok Buenos Aires Cape Town Chennai
Dares Salaam Delhi Hong Kong Istanbul Karachi Kolkata
Kuala Lumpur Madrid Melbourne Mexico City Mumbai Nairobi
Sao Paulo Shanghai Singapore ‘Taipei Tokyo Toronto

and an associated company in Berlin

Copyright © 1989, 1993, 1997, 2003 by Oxford University Press, Inc.

First published in 1989 by Oxford University Press, Inc,

198 Madison Avenue, New York, New York 10016

Oxford is a registered trademark of Oxford University Press

All rights reserved. No part of this publication may be reproduced,

stored in a retrieval system, or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording, or otherwise,
without the prior permission of Oxford University Press.

Library of Congress Cataloging-in-Publication Data

Cameron, Rondo E.
A concise economic history of the world : from Paleolithic times to the present—4th ed. / Rondo Cameron and
Larry Neal.
p. cm.
Includes bibliographical references and index.
ISBN 0-19-512704-8 — ISBN 0-19-512705-6 (pbk.)
1. Economic history. I. Neal, Larry, 1941— II. Title.
HC21.C33 2002
330.9—dc20 2001051380

987654321

Printed in the United States of America

on acid-free paper
 Contents

List of Figures ix
List of Tables Xlil
Preface bay

1. Introduction: Economic History and Economic Development

Development and Underdevelopment 4
Growth, Development, and Progress 8
Determinants of Economic Development 9
Production and Productivity 12
Economic Structure and Structural Change 14
The Logistics of Economic Growth 16
Appendix 19

2. Economic Development in Ancient Times 20

Economics and the Emergence of Civilization 553
The Economic Foundations of Empire 29
Trade and Development in the Mediterranean World by)
Economic Achievements and Limits of Ancient Civilization oe,

3. Economic Development in Medieval Europe 44

The Agrarian Basis 44
Rural Society 48
Patterns of Stability 49
Forces of Change 50
Europe Expands 54
The Revival of Urban Life 39
Commercial Currents and Techniques 61
Industrial Technology and the Origins of Mechanical Power 68
The Crisis of the Medieval Economy TZ
Vi Contents

4. Non-Western Economies on the Eve of Western Expansion #0

The World of Islam 77
The Ottoman Empire 80
East Asia &2
South Asia 85
Africa 89
The Americas 9]

5. Europe’s Second Logistic 94

Population and Levels of Living 96
Exploration and Discovery 98
Overseas Expansion and the Feedback to Europe 103
The Price Revolution 105
Agricultural Technology and Productivity 106
Industrial Technology and Productivity TIS
Trade, Trade Routes, and Commercial Organization 119

6. Economic Nationalism and Imperialism 128

Mercantilism: A Misnomer 128
The Common Elements 130
Spain and Spanish America bz,
Portugal 139
Central, Eastern, and Northern Europe 14]
Colbertism in France 146
The Prodigious Increase of the Netherlands 150
“Parliamentary Colbertism” in Britain 154

7. The Dawn of Modern Industry 160

Characteristics of Modern Industry 161

The Industrial Revolution: A Misnomer 163
Prerequisites and Concomitants of Industrialization 164
Industrial Technology and Innovation LT,
Regional Variation 181
Social Aspects of Early Industrialization 183

8. Economic Development in the Nineteenth Century:

Basic Determinants 187

Population 187
Resources 192
The Development and Diffusion of Technology 193
Prime Movers and Power Production 195
Cheap Steel 197
Transport and Communications 199
The Application of Science 205
 Contents vil

The Institutional Framework 206

Legal Foundations 207
Economic Thought and Policy 209
Class Structure and Class Struggles Ze
Education and Literacy BUS)
International Relations DAW)

9. Patterns of Development: The Early Industrializers 219

Great Britain 220
The United States 224
Belgium ger
France 230
Germany 238

10. Patterns of Development: Latecomers and No-Shows 244

Switzerland 245
The Netherlands and Scandinavia 248
The Austro-Hungarian Empire 252
Southern and Eastern Europe 256
The Iberian Peninsula 257
Italy 259
Southeastern Europe 261
Imperial Russia 263
Japan 265

11. Strategic Sectors 270

Agriculture 270
Finance and Banking 276
The Role of the State 285

12. The Growth of the World Economy 290

Britain Opts for Free Trade 290

The Free Trade Era 292
The “Great Depression” and the Return to Protection 295
The International Gold Standard 299
International Migration and Investment 301
The Revival of Western Imperialism 307
Africa 307
Asia Sulll
Explanations of Imperialism 3/4

13. Overview of the World Economy in the Twentieth Century 317

Population BLT.
Resources 324
Technology 52)
Vill Contents

Institutions S0il
International Relations 33iL
The Role of Government 334
The Forms of Enterprise 336
Organized Labor Spi!
Informal Institutions 338

14. International Economic Disintegration 339

The Economic Consequences of World War I 939
Economic Consequences of the Peace 342
The Great Contraction, 1929—33 348
Rival Attempts at Reconstruction 352.
The Russian Revolutions and the Soviet Union 356
Economic Aspects of World War II 359

15. Rebuilding the World Economy, 1945-73 362

Planning for the Postwar Economy 363
The Marshall Plan and Economic “Miracles” 364
The Era of High Growth 368
The Emergence of the Soviet Bloc afd
The Economics of Decolonization S77
The Travails of the Third World 381
The Origins of the European Union JO”

16. The World Economy at the Beginning of the

Twenty-First Century 387
The Collapse of the Soviet Bloc 390
The Evolution of the European Union 397
Limits to Growth? 398

Annotated Bibliography 403

Index 45/,
 List of Figures

NUMBER SHORT TITLE PAGE NO.

1-1 Logistic curve, S-curve, growth curve 16

1-2 Relationship between population and epochal
innovations 18
2-1 Paleolithic tools 21
2-2 Cave paintings 22
2-3 Early cities and civilizations a
2-4 Greek and Phoenician colonization 34
2-5 Greek coins 37
2-6 The Roman Empire—117a.p. 38
2-7 Roman aqueduct—Segovia, Spain 43
3-1 A medieval manor 46
3-2 The heavy wheeled plow ol
3-3 City-states of Northern Italy in 1200 60
3-4 The medieval economy at its peak 63
3-5 Tuscan banker 67
3-6 Knitting (picture of the Virgin Mary knitting) 69
3-7 Waterwheel 71
3-8 Mechanical clock 73
4-] The Muslim world, about 1200 78
AR) Growth of the Ottoman Empire, 1307-1683 81

4-3 The Mongol Empire and its neighbors, about 1300 84

4-4 India, about 1600 86
4-5 The Taj Mahal 88
4-6 Mayan temple 92
5-1 Portuguese discoveries—fifteenth century 99
5-2 Portuguese carrack 100
 List of Figures

5-3 World voyages of discovery—fifteenth and

sixteenth centuries 102
5-4 Transhumance routes in Spain 110
5-5 The Dutch fluyt ship 116
5-6 Jacob Fugger II “The Rich” 124
sy The Amsterdam Exchange 126
6-1 The quay at Amsterdam 132
6-2 Empire of Charles V 134
6-3 Expulsion of the Jews 137
6-4 Courland and its neighbors 144
6-5 The port of Venice 147
6-6 Dutch merchant (Daniel Bernard) Pops
Colonial possessions in North America, 1763 158
7-1 English industry in 1700 162
7-2 Open fields 165
7-3 The last enclosures in England 166
7-4 Token coin 168
7-5 Inland navigation 170
7-6 Turnpikes in 1770 171
7-7 Coalbrookdale at night 17S
7-8 The iron bridge over the Severn River 174
7-9 Cort’s puddling furnace 175
7-10 The Newcomen engine 176
7-11 English industry in 1800 182
8-1 Population densities in Europe, 1750, 1914 188
8-2 Coalfields of Europe 192
8-3 The Bessemer converter 199
8-4 Steam locomotives 200
8-5 Steamboat on the Rhone River 204
9-1 Index of Europe’s GNP 220
9-2 Harvesting wheat in Nebraska 22D
9-3 The Cockerill works at Seraing, Belgium 230
9-4 Per capita production of coal, 1820-1913 236
9-5 Per capita consumption of coal, 1820-1913 25]
9-6 The Ruhr River and valley 240
9-7 The Ruhr industrial area 240
10-1 Coal consumption per capita, 1820-1913 245
10-2 Swiss handloom weaver, 1850 247
10-3 Swedish sawmill, about 1860 OeeM|
 List of Figures xl

10-4 Production and consumption of coal, 1820-1913 256

10-5 Industry and railways in Russia, about 1914 264
12-1 The Europe of the trade treaties, about 1871 294
12-2 Index of annual volume of exports of European
countries 295
12-3 Regional distribution of world trade, 1913 298
12-4 Distribution of foreign investments in 1914 304
12-5 The partition of Africa to 1914 308
12-6 Imperialism in Asia and the Pacific to 1914 312
13-1 Third World shantytown 322
13-2 Range of practical speeds for continental and
intercontinental travel, 1825—2000 326
13-3 Ford’s first assembly line 330
14-1 Economic collapse, 1929-32 350
15-1 The economic recovery and growth of western
Europe, 1948-71 369
16-1 The economic progress of major economies during
globalization, 1971-98 400-401
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 List of Tables

NUMBER SHORT TITLE PAGE NO.

1-1 GDP per Capita 2)

1-2 Indicators of Economic Development 6
7-1 Populations of England and Wales and Great Britain 184
8-1 Growth of Population 189
8-2 The Growth of Railways 201
8-3 Adult Literacy of Selected Countries 2A
8-4 Primary School Enrollment Rates 216
9-1 Rates of Growth of Output and Labor Productivity
in Germany, 1870-1913 242
13-1 World Population by Continents 318
13-2 Crude Birth and Death Rates 319
13-3 Infant Mortality, Selected Countries 320
13-4 Life Expectancy at Birth in Selected Countries 521
13-5 Urban Population SP)
13-6 World Primary Energy Production, 1996 325
13-7 Production of Electricity, 1999 329
13-8 World Trade (Imports and Exports), 1913 and 1999 532
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 Preface

With the approach of the new millennium in 2001, Rondo Cameron felt compelled to
update his concise but comprehensive economic history of the world. With his health
rapidly failing in the summer of 2000, however, it was not possible for him to com-
plete the task. As he had generously given me more credit than warranted for the many
revisions he had made in the third edition, I was asked to do the necessary work to
prepare this fourth edition. My revisions, completed just as the twentieth century
ended in December 2000, were never seen by Rondo—he passed away on January 1,
2001, in his seventy-fifth year.
In addition to being one of the most cosmopolitan of American economic histo-
rians—with visiting professorships in the United Kingdom, France, Germany, Brazil,
and Japan—and serving as vice president of the International Economic History As-
sociation, Rondo Cameron supervised the dissertations of some of Europe’s leading
economic historians, including Gabriel Tortella in Spain, Richard Tilly in Germany,
and Franklin Mendels in Switzerland. Known among economic historians for his
trailblazing work on the role of financial institutions in promoting the spread of in-
dustrialization and his insistence on the essential continuity of historical progress, he
nevertheless maintained a balanced overview of the respective roles of technology,
population growth, natural resources, and institutions in his textbook for beginning
students and the interested layperson. While I have tried to maintain the crisp writing
style and objectivity that characterized Rondo’s textbook, it is a daunting task to re-
vise a book that has been translated into thirteen languages and is used worldwide.
Throughout his career Rondo was dedicated to the service of others, not only in
his professional duties as an economic historian, where he served as editor of the Jour-
nal of Economic History and then president of the Economic History Association, but
also in support of the Albert Schweitzer Foundation and especially its Lambaréné Fel-
lows Program. After serving as a naval aviator in World War II, Rondo was motivated
to study economics with the goal that through a better understanding of economics
and economic development we could avoid war in the future. This book was con-
ceived and devoted to that grand end, and it is an honor to continue it into the next
millennium.
Thanks go first to Rondo for his collegiality over the years and his responsive-
ness to the constructive criticisms he received from so many of his economic histo-
rian colleagues, but also to the continued care and attention to his work by Ken
McLeod, the initial editor at Oxford University Press. Two anonymous referees have
XVI Preface

helped sharpen the presentation of my updates and revisions, while Paul Donnelly,
the economics editor at Oxford, has ensured timeliness in the production of this fourth
edition.

Larry Neal
Urbana, Illinois
A CONCISE ECONOMIC
HISTORY OF THE WORLD
 1
Introduction: Economic History and
Economic Development

Why are some nations rich and others poor? This seemingly simple question is di-
rected at the heart of one of the world’s most pressing contemporary problems, that
of uneven economic development. Only war and peace, population pressure, and en-
vironmental salubrity—and thus the survival of the human race—are issues of sim-
ilar magnitude. Because of unequal economic development, revolutions and coups
d’état have occurred; totalitarian governments and military dictatorships have de-
prived whole nations of political liberty, and many individuals of their personal free-
dom and even their lives. Millions have died miserably and unnecessarily of starva-
tion, malnutrition, and disease—not because food and other resources were
unavailable, but because they could not be delivered to those in need. The United
States and several other wealthy nations have expended billions of dollars in well-in-
tentioned attempts to assist their less fortunate neighbors. In spite of these varied ef-
forts, the income gap between the relatively small number of affluent nations and the
vast majority of impoverished ones not only persists but grows wider year by year.
The situation appears to be paradoxical. If some nations are rich and others poor,
why do not the poor ones adopt the methods and policies that have made the others
rich? In fact, such attempts have been made but, in most instances, without striking
success. The problem is far more complicated than it appears on the surface. In the
first place, there is no general agreement on which methods were responsible for the
higher incomes of the wealthy nations. Second, even if such agreement existed, it 1s
by no means certain that similar methods and policies would produce the same results
in the different geographical, cultural, and historical circumstances of today’s low-in-
come nations. Finally, although much research has been devoted to the problem,
scholars and scientists have not yet produced a theory of economic development that
is operationally useful and generally applicable.
There are various approaches to the study of economic development—fortunately
not mutually exclusive. The historical approach employed in this book does not aim
at producing a general, universally applicable theory of economic development. In-
stead, historical analysis can focus, as other approaches cannot, on the origins of the
presently existing unequal levels of development. A correct diagnosis of the origins
of the problem does not, in itself, guarantee an effective prescription, but without such
a diagnosis one can scarcely hope to remedy the problem. Second, by focusing on in-
4 A CONCISE ECONOMIC HISTORY OF THE WORLD

stances of growth and decline in the past, the historical approach isolates the funda-
mentals of economic development, undistracted by arguments over the efficacy or de-
sirability of particular policies for specific current problems. In other words, it is an
aid to objectivity and clarity of thought.
Policymakers and their staffs of experts, faced with the responsibility of proposing
and implementing policies for development, frequently shrug off the potential contri-
butions of historical analysis to the solution of their problems with the observation that
the contemporary situation is unique and therefore history is irrelevant to their concerns.
Such an attitude contains a double fallacy. In the first place, those who are ignorant of
the past are not qualified to generalize about it. Second, it implicitly denies the unifor-
mity of nature, including human behavior and the behavior of social institutions—an
assumption on which all scientific inquiry is founded. Such attitudes reveal how easy
itis, without historical perspective, to mistake the symptoms of a problem for its causes.
This book is offered as an introduction to the study of both economic history and
economic development. It is not, however, intended to be comprehensive in either
area. There are many valid reasons for studying history apart from its potential con-
tribution to solving contemporary practical problems; for a complete understanding
of the problem of economic development other methods of study and observation
must be employed as well. In this general survey of the economic development of hu-
mankind from prehistoric times to the present, certain “lessons of history” are high-
lighted. Although some historians believe their function is to “let the facts speak for
themselves,” “facts” respond only to specific questions posed by the analyst who
deals with them; posing such questions inevitably involves a process of selection,
conscious or unconscious, especially in so brief and synoptic a volume as this.
Before we undertake the historical narrative it is necessary to define certain terms
and to formulate some basic concepts to guide the subsequent analysis.

Development and Underdevelopment

In 1999, the average (or per capita) annual income of residents of the United States
was nearly $30,000. In Norway, the most prosperous country in Europe, it amounted
to more than $26,000. (These figures are adjusted to account for purchasing power
parity.) For western Europe as a whole, the average was almost $23,000. The United
States and western Europe together contain just over 11 percent of the world’s popu-
lation but account for over 56 percent of the world’s measured economic output. If
we add Japan, Canada, Australia, and New Zealand to include all the world’s high-
income industrialized economies, the figures rise to over 14 percent for population
and to nearly 77 percent of economic output (gross domestic product in purchasing
power parity dollars). There are an equal number of other high-income countries, but
they are comprised mainly of urban enclaves such as Hong Kong and Singapore, the
small Gulf oil states, or small islands concentrating on money laundering, all of which
cater to the demands of the industrialized world.' Clearly, the key to high per capita
' The modern nation-state is used as the unit of analysis here because comparative data are collected
and presented in national terms, and the state is usually the policy-making entity; but it is not the ideal unit
of analysis for all purposes.
 Introduction: Economic History and Economic Development >)

TABLE 1-1. GNP Per Capita, Selected Countries, ca. 1999 (in 1999 Dollars)
(Purchasing Power Parity)

High-Income Economies Lower-Middle Income

United States $29,605 Russian Federation $6,271

Canada $23,582 Turkey $6,177
Japan $23,257 Colombia $5,954
Germany $22,169 Thailand $5,757
France $21,175 E] Salvador $4,069
Israel $20,585 China $3,345
United Kingdom $20,906 Egypt $3,263
Spain $16,212 Indonesia $2,626

Upper-Middle Income Low-Income Economies

South Korea $14,806 Bolivia $2,245

Portugal $14,701 India $2,217
Greece $13,943 Ghana $1,823
Hungary $10,814 Bangladesh $1,430
Poland $7,980 Tanzania $480
Brazil $6,524 Sierra Leone $425

Source: World Bank, World Development Indicators, 2000 (New York, 2000).

income is to create a modern industrial economy or to find a way to provide impor-

tant services to such economies.
At the other extreme, per capita income in Sierra Leone, currently the world’s
poorest economy, was about $425. Per capita income in Tanzania was about $480
(which is actually $100 less than in 1993), $2,200 in India, and $1,430 in Bangladesh.
In the People’s Republic of China, which contains more than one-fifth of the world’s
population, per capita income is believed to be about $3,345. Per capita income in
South America ranged from $11,524 in Argentina—which is nearly double the $6,524
in Brazil—to $2,245 in Bolivia. Table 1-1 shows recent per capita income for a rep-
resentative sample of nations.
In 1998 there was a total of sixty-three nations in which per capita incomes were
lower than $760, and an additional ninety-three where the average income was be-
tween $760 and $9,360. The nations in these two latter categories are variously re-
ferred to as “poor,” “low income,” and “underdeveloped” (or, euphemistically, “less
developed” or “developing”’). It is obvious that, because of their low incomes they are
poor, but why are they underdeveloped?
Statistics of per capita income are, at best, crude measures of the level of eco-
nomic development. In the first place, they are only approximations. Moreover, for a
number of technical reasons, international comparisons of income are especially un-
reliable. But there are other measures of development and underdevelopment that, al-
though less global or comprehensive, are more graphic. Table 1-2 presents a number
of these, ranging from how long a typical citizen might expect to live to how easy it
is to communicate with others or travel to another place. As a consequence of high
death rates, life expectancy ranges from forty to sixty-nine years in the underdevel-
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8 A CONCISE ECONOMIC HISTORY OF THE WORLD

oped nations of Africa, Asia, and Latin America, whereas it is well over seventy years
in western Europe and North America. Most of the difference is explained by much
higher rates of infant mortality in poor countries. In the light of these figures it is not
surprising that health care facilities are more plentiful in the wealthy nations: in the
United States there are approximately 370 people per physician, and in Austria this
ratio is 345. Compare this with 769 in Bolivia, 1,818 in Iraq, 25,000 in Nepal, and
over 33,000 in Niger! In even more materialistic terms, for every 1,000 people in the
United States there are 767 passenger automobiles, 530 in France, but only 9 on av-
erage for the 63 low-income economies and 116 for the world as a whole.

Growth, Development, and Progress

In ordinary discourse the terms growth, development, and progress are frequently
used as though they were synonymous. For scientific purposes, however, it is neces-
sary to distinguish among them, even if the distinctions are somewhat arbitrary. Eco-
nomic growth is defined in this book as a sustained increase in the total output of
goods and services produced by a given society. In recent decades this total output
has been measured as gross domestic product (GDP), the total of all goods and ser-
vices produced within the territory of a country. In today’s global economy, it is in-
creasingly difficult for statistical authorities to keep track of income payments be-
tween countries, especially when goods and services are produced by their citizens in
other countries. These payments have to be netted out to measure national income and
gross national product (GNP). For most discussions in this book, the difference in
these concepts can be ignored because the three aggregates almost always move to-
gether in the same direction. Although no national income data exist for earlier
epochs, they can in some cases be estimated; in any case, even without specific quan-
titative data, one can usually determine, on the basis of indirect evidence, whether
total product increased, decreased, or remained roughly constant during any given
period.
Growth in total output may occur either because the inputs of the factors of pro-
duction (land, labor, and capital) increase or because equivalent quantities of the in-
puts are being used more efficiently. If population is increasing, there may be growth
in total output but not in output per capita; indeed, the latter may even decrease if the
rate of population growth exceeds that of output. For welfare comparisons, economic
growth is meaningful only if it is measured in terms of output per capita.
Difficulties also arise in comparing the outputs of two different societies or out-
puts within the same society at widely different points in time, for two main reasons.
As a rule, national income and similar measures are given in monetary units, but val-
ues of monetary units are notoriously unstable and frequently difficult to compare. In
principle, what is wanted is a measure of “real” income—that is, income measured
in units of constant real value. We are not concerned here with the practical obstacles
to obtaining such a measure, but assume that the reader will bear them in mind in eval-
uating the comparisons made hereafter. A second difficulty is that of comparing the
values of outputs of two different economies when the composition of the two out-
puts differs greatly —for example, when one consists mainly of vegetable products
 Introduction: Economic History and Economic Development 9

consumed directly or with negligible processing and the other consists largely of
highly processed manufactured goods. This problem has no clearcut, definitive solu-
tion, but normally its quantitative dimensions do not hinder fruitful analysis.
Economic development, as the term is used in this book, means economic growth
accompanied by a substantial structural or organizational change in the economy,
such as a shift from a local subsistence economy to markets and trade or the growth
of manufacturing and service outputs relative to agriculture. The structural or orga-
nizational change may be the “cause” of growth but not necessarily; sometimes the
causal sequence moves in the opposite direction, or the two changes may be the joint
product of still other changes within or outside the economy. The concepts of eco-
nomic structure and structural change are discussed in somewhat greater detail later
in this chapter.
Economic growth, as defined here, is a reversible process—that is, it may be fol-
lowed by decline. Logically, economic development is equally reversible, although
organizations or structures rarely revert to precisely the same forms as existed earlier.
More often, during or following a prolonged period of economic decline some form
of economic retrogression takes place—a reversion to simpler forms of organization,
though not usually identical with those that formerly existed.
Although they are widely regarded as “good things,” both growth and develop-
ment are, in principle, value-free terms in that they can be measured and described
without reference to ethical norms. Such is clearly not the case with the term eco-
nomic progress, unless it be given a highly restrictive definition. In modern secular
ethics, growth and development are frequently equated with progress, but no con-
nection necessarily exists between them. By some ethical standards an increase in ma-
terial well-being might be regarded as harmful to the spiritual nature of human be-
ings. Even by contemporary standards the increased production of the means of
chemical, biological, and nuclear warfare and the use of production processes that
poison the environment, although manifestations of economic growth, can scarcely
be regarded as signs of progress.
Another reason economic growth and development cannot be automatically
equated with progress is that an increase in per capita income tells us nothing about
the distribution of that income. What constitutes a “good” or “bad” distribution of in-
come is a normative question about which economics has very little to say. It can say
what kind of income distribution is more favorable to growth in certain situations,
but, from an ethical point of view, that amounts to circular reasoning. Given certain
ethical assumptions, it is possible to argue that lower per capita incomes, more
equally distributed, are preferable to high average incomes that are very unequally
distributed. Such arguments, however, lie outside the range of this book. In the fol-
lowing, growth and development are described and analyzed without reference to the
term progress.

Determinants of Economic Development

Classical economics evolved the tripartite classification of the “factors of produc-

tion” —land, labor, and capital. (Sometimes a fourth factor is included—entrepre-
10 A CONCISE ECONOMIC HISTORY OF THE WORLD

neurship, the effort or talent involved in combining or organizing the other three.) At
any given time, subject to certain assumptions that will be specified later, an econ-
omy’s total output is determined by the quantity of the production factors employed.
This classification and various formulas that can be derived from it, such as the fa-
mous law of diminishing returns (see more on this later), are indispensable to mod-
ern economic analysis and extremely useful in the study of economic history as well.
As a framework for the analysis of economic development, however, the classifica-
tion is much too limited. It assumes that tastes, technology, and social institutions
(e.g., the forms of economic, social, and political organization, the legal system, and
even religion) are given and fixed or, what amounts to the same thing, have no bear-
ing on the process of production. In historical fact, of course, all of these bear strongly
on the process of production, and all are subject to change. Indeed, changes in tech-
nology and in social institutions are the most dynamic sources of change in the whole
economy. They are thus the deep wellsprings of economic development.
To put the matter another way, in analyzing an economy at a given time (economic
statics), or even at successive points in time, provided the intervals are not great (com-
parative statics or dynamics), it is permissible to regard such factors as tastes, tech-
nology, and social institutions as parameters (1.e., constants) of a system within which
the quantities and prices of conventional production factors are the principal vari-
ables. In moving from short-term economic analysis to the study of economic devel-
opment, however, the parameters become the major variables. A broader classifica-
tion of the determinants of output is therefore necessary for analyzing economic
change in historical time.
One such classification envisages the total output at any point in time, and its rate
of change through time, as functions of the “mix” of population, resources, technol-
ogy, and social institutions.? Of course, these four factors are not single variables;
each one is a cluster of variables. It is not sufficient to think of population in terms of
numbers alone; the age and sex distribution, the biological characteristics (size,
strength, health, etc., of the members), the level of acquired skills (see more, later, on
the concept of “human capital”), and the rate of labor force participation, among other
features, have a bearing on a population’s economic performance.
Resources is the “land” of classical economics writ large. The term embraces not
merely the amount of land, the fertility of the soil, and conventional natural resources,
but also climate, topography, availability of water, and other features of the natural
environment, including location.
In recent centuries technological innovation has been the most dynamic source of
economic change and development. Little more than a century ago the automobile,
airplane, radio, and television, not to mention computers and numerous instruments
of destruction, did not exist; today, according to some social critics, they threaten to
dominate our lives. But technological change has not always been so rapid. Stone-
age technology endured for hundreds of thousands of years with little change. Even
today methods of agricultural production in some parts of the world remain essen-
tially unchanged from biblical times. With a given technology—whether that of me-

? See the appendix to this chapter for a simple mathematical model of this classification.
 Introduction: Economic History and Economic Development 1]

dieval Europe or of pre-Columbian America—the resources available to a society set

the effective upper limits to its economic achievements. Technological change, how-
ever, allows those limits to be expanded, both through the discovery of new resources
and by more efficient use of the conventional factors of production, especially human
labor. The continental United States today supports a population of more than 270
million at one of the highest material standards of living ever achieved. Before the
Europeans came the same area, whose inhabitants employed a stone-age technology,
could support only a few million with difficulty. The population of medieval Europe,
with a far more advanced technology than that of the pre-Columbian Americans, grew
to a maximum of perhaps 80 million at the beginning of the fourteenth century be-
fore declining to 50 million or fewer as the result of a disastrous demographic crisis.
Four hundred years later, after a long period of steady but undramatic technological
and organizational change, the population had grown to approximately 150 million.
Today, after a mere two centuries of economic growth based on modern technology,
the population of Europe is more than 500 million, and its members are far more af-
fluent than their ancestors of the fourteenth or even the nineteenth century could have
imagined.
The interrelationship of population, resources, and technology in the economy is
conditioned by social institutions, including values and attitudes. (This complex of
variables is sometimes also called the “sociocultural context,” or the “institutional
matrix” of economic activity.) At the level of national economies and other similar
aggregates, the most frequently relevant institutions are the social structure (number,
relative size, economic basis, and fluidity of social classes), the nature of the state or
other political regime, and the religious or ideological proclivities of the dominant
groups or classes and (if different) of the masses. In addition, a host of lesser institu-
tions may need to be taken into account, such as voluntary associations (business
firms, labor unions, farmers’ groups), the educational system, and even family struc-
ture (extended or nuclear) and other value-forming agencies.
One social function that institutions perform is to provide elements of continuity
and stability, without which societies would disintegrate; but in performing this func-
tion they may serve as barriers to economic development by fettering human labor,
withholding resources from rational exploitation (e.g., India’s sacred cows), or in-
hibiting innovation and the diffusion of technology. But institutional innovation is
also a possibility, with consequences not unlike those of technological innovation,
permitting a more efficient or intensive use of both material resources and human en-
ergy and ingenuity. Some historical examples are the institutional innovations of or-
ganized markets, coined money, patents, insurance, and the various forms of business
enterprise, such as the modern corporation. Many other innovations are highlighted
in the chapters that follow.
A complete list of all the social institutions of relevance to the economy would
cover many pages, and the analysis of their interactions with other relevant variables
is the most difficult and frustrating aspect of the study of economic history. But any
attempt to comprehend the nature and modalities of economic development without
reference to them is foredoomed to failure. With the present state of knowledge there
is no systematic a priori approach that can be used to study them in their relation to
12 A CONCISE ECONOMIC HISTORY OF THE WORLD

economic activity. Instead, the student or investigator must determine, in the context
of a specific problem or episode, the relevant institutions and then seek to analyze the
nature of their interactions with more purely economic variables.
Marxist scholars claim to have found the key to not only the process of economic
development but also the evolution of humanity. According to them, the “mode of
production” (roughly equivalent to technology in the schema outlined previously) is
the key element; all the rest—social structure, nature of the state, dominant ideology,
and so on—is mere “superstructure.” The dynamic element is furnished by the strug-
gle between social classes for control of the means of production. While some aspects
of the Marxist analysis are useful in understanding economic history, the system as a
whole is oversimplified and, in the hands of its practitioners, overly dogmatic. One
of its weakest points, in view of its emphasis on mode of production, is that it fur-
nishes no satisfactory explanation of the process of technological change. It also errs
in regarding social institutions as being determined exclusively by the economic sub-
structure.
A somewhat similar but less ideological theory views economic development as
the product of a permanent tension or struggle between technological change and so-
cial institutions. According to this theory, sometimes called the institutionalist theory,
technology is the dynamic, progressive element, whereas institutions uniformly re-
sist change.? This theory offers a number of brilliant insights into the process of his-
torical change, but it, too, regards technological change as an automatic or quasi-au-
tomatic process and oversimplifies the relationship between institutions and
technology. Like the Marxist theory, it also regards the ultimate outcome as pre-
dictable. In fact, as the following chapters demonstrate, the relationship between in-
stitutions, technology, resources, and population is complex, interdependent, and by
no means wholly predictable.

Production and Productivity

Production is the process by which the factors of production are combined to produce
the goods and services desired by human populations. Production can be measured in
physical units (or units of identical services) or in value—that is, monetary—terms.
One can compare the output of, say, two apple orchards in terms of the number of
bushels produced by each; comparing the output of an apple orchard and an orange
grove in these terms is much less meaningful. To get a useful comparison in that case,
it is necessary to convert the physical measure into value terms, that is, to multiply the
number of bushels of each by the respective prices to arrive at their aggregate values.
Productivity is the ratio of the useful output of a production process to the inputs
of the factors of production. As in the case of production, it can be measured in phys-
ical units—x bushels of wheat per acre, y widgets per man-hour—or in value terms.
To measure total factor productivity—that is, the combined productivity of all fac-
tors—value terms are necessary.

3 For a forceful and comprehensive exposition, see Clarence Ayres, The Theory of Economic
Progress
(Chapel Hill, NC, 1944, 1978).
 Introduction: Economic History and Economic Development 13

The productivity of the factors of production depends on a host of elements. Some

land is naturally more fertile than other land. Some workers are stronger or more skill-
ful than others. The productivity of capital is in part a function of the technology it
embodies; a mechanical tractor (in proper working order) is more productive than an
equivalent value of ox-drawn plow teams, and a hydroelectric generator is more pro-
ductive than an equivalent value of simple waterwheels. Moreover, certain combina-
tions of the factors of production increase productivity. For example, the fertility of
the soil is increased by the addition of fertilizer—that is, capital. Workers furnished
with appropriate machines are more productive than those who work with their bare
hands or with simple tools. In most instances literate workers are more productive
than illiterate ones.
That consideration brings us to a most important special combination of the fac-
tors of production, namely, the concept of human capital. Human capital (not slaves,
although they were once regarded as capital) results from investments in knowledge
and ability or skill. The investment can take the form of formal schooling or training
(a college education is a considerable investment), an apprenticeship, or “learning on
the job” (i.e., practice). However human capital is acquired, the differences in levels
of human capital per capita between the most and least advanced economies are
among the most striking and important to be observed.
Empirical measurements in recent decades show unambiguously that increased
inputs of the conventional factors of production account only in small part for in-
creased output in advanced economies. In other words, the productivity of all factors
of production has increased greatly. What accounts for those increases? Various an-
swers to that question have been advanced; it is clear that among the most important
determinants are advances in technology, improvements in organization at both the
macro and micro levels (including so-called “economies of scale”), and especially in-
creased investments in human capital. The increases in productivity have been par-
ticularly striking in the last hundred years or so, but as later chapters show, they have
been important throughout recorded history, and even before.
At this point it is useful to consider in somewhat greater detail the so-called law
of diminishing returns, which might more accurately be stated as the law of dimin-
ishing marginal productivity. A simple hypothetical example will illustrate its signif-
icance. Imagine a cultivated field of 100 acres. (The exact size is irrelevant.) A sin-
gle worker employing a given technology, whether simple or complex, is able to
produce some output—let us say 10 bushels of grain. The addition of a second worker
permits a simple division of labor, which more than doubles production to perhaps 25
bushels; that is, the marginal product is 15. A third worker may raise output still more,
to 45 bushels, for a marginal product of 20; and so on. In other words, as more work-
ers are added, up to a point, the marginal product increases. Eventually, however, as
more and more workers are added they get in each other’s way, trample on the crop,
and so on, and the marginal product declines: that is the concept of the law of dimin-
ishing returns.
Now let us transfer the lesson of this simplistic example to the case of a whole so-
ciety. Remember that the example assumed fixed resources (100 acres) and a given
technology (no productivity-enhancing innovations). If, at some point in time, the so-
ciety is underpopulated relative to its resources, its population and per capita income
14 A CONCISE ECONOMIC HISTORY OF THE WORLD

will be able to grow even without technical or institutional change—for a time. Even-
tually, however, as it fully uses its resources, the increase in numbers will result in di-
minishing marginal productivity, hence declining real incomes. In this situation only
a significant productivity-enhancing innovation (technical or institutional, or both)
could relieve the dilemma.
In 1798 the Reverend Thomas R. Malthus, an English clergyman turned econo-
mist, published his famous Principle of Population. In it he assumed that “the pas-
sion between the sexes” would cause populations to grow at a “geometric ratio” (2,
4,8, ...) but that food supply would grow in an “arithmetic ratio” (1, 2, 3,...). In
the absence of “moral restraint” such as celibacy and late marriage (he did not fore-
see artificial contraception), he concluded, the law of diminishing returns and the
“positive checks” on population of war, famine, and pestilence would condemn the
great majority of people to a bare subsistence standard of living. Now, some 200 years
later, it appears that Malthus was wrong, at least for industrializing nations. The other
thing that Malthus did not foresee, of course, was the host of productivity-enhancing
technological and institutional innovations that have repeatedly postponed the oper-
ation of the law of diminishing returns. For many countries, however, especially now
on the continent of Africa, the population checks of war, famine, disease, and natural
disaster are still a grim reality.

Economic Structure and Structural Change

Economic structure (not to be confused with social structure, although the two are re-
lated) deals with the relationships among the various sectors of the economy, espe-
cially the three major sectors known as primary, secondary, and tertiary.4 The primary
sector includes those activities in which products are obtained directly from nature:
agriculture, forestry, and fishing. The secondary sector includes those activities in
which the products of nature are transformed or processed: that is, manufacturing and
construction. The tertiary, or service, sector deals not with products or material goods
at all, but with services; these cover a wide range, from domestic and personal ser-
vices (cooks, maids, barbers, etc.) to commercial and financial (retail clerks, mer-
chants, bankers, brokers, etc.) to professional (doctors, lawyers, educators) to gov-
ernmental (postal workers, bureaucrats, politicians, the military, etc.). (There are
some ambiguities and anomalies. For example, mining logically belongs in the pri-
mary sector, but it is frequently regarded as secondary; similarly, transportation, a ser-
vice, is also often treated as part of the secondary sector. Hunting, the most important
activity of paleolithic times, is now regarded as a recreational activity—consumption
rather than production.)
For thousands of years, from the earliest civilizations until less than a century ago,
agriculture was the principal occupation of the vast majority of the human race. As a
perusal of Table 1-2 will show, this is still the case for the low-income nations. This

4 The pioneering work on economic structure is Colin Clark’s Conditions of Economic Progress (Lon-
don, 1940, 1957). Simon Kuznets made major contributions to the elaboration of the concept, notably in
Modern Economic Growth: Rate, Structure, and Spread (New Haven, 1966), and The Economic Growth
of Nations: Total Output and Production Structure (Cambridge, MA, 1971).
 Introduction: Economic History and Economic Development 15

was true because productivity was so low that mere survival required concentrating
on the production of foodstuffs. A few hundred years ago, for reasons explained in
subsequent chapters, agricultural productivity began to rise, slowly at first and then
more rapidly. As it rose, fewer workers were needed for the production of subsistence
goods and could be spared for other productive activities. Thus began the process of
industrialization, which extended from the late Middle Ages to the mid-twentieth cen-
tury (in western Europe and North America; it is still continuing in much of the rest
of the world). The proportion of the labor force engaged in agriculture fell from 80
or 90 percent of the total to less than 50 percent by the end of the nineteenth century
in the most advanced industrial nations and to less than 10 percent more recently. Con-
comitantly, the proportion of total income, or GDP, originating in agriculture also fell,
even though in absolute terms the total value of agricultural production increased
manyfold.
Meanwhile, as the percent of the labor force engaged in agriculture fell, that in
the secondary sector rose, although not in proportion; typically, in highly industrial-
ized nations, manufacturing and related occupations employ between 30 and 50 per-
cent of the labor force, with the remainder divided between the primary and tertiary
sectors. As the share of the labor force in the secondary sector rose, so did that of in-
come originating in that sector.
The twin processes of shifts in the proportions of the labor force employed and of
income originating in the two sectors are major examples of structural change in the
economy. Since about 1950 the most advanced economies have experienced a further
structural change, from the secondary to the tertiary sector.
How can these structural changes be explained? The shift from agriculture to sec-
ondary activities involved two major processes. On the supply side, increasing pro-
ductivity, as already explained, made it possible to produce the same amount of out-
put with less labor (or more output with the same amount of labor). On the demand
side a regularity of human behavior called Engel’s Law (named for Ernst Engel, a
nineteenth-century German statistician, not Friederich Engels, Karl Marx’s collabo-
rator) came into play. Based on numerous family budget studies, Engel’s Law states
that as a consumer’s income increases, the proportion of income spent on food de-
clines. (This, in turn, may be related to the law of diminishing marginal utility, namely,
the more one has of a given commodity, the less one values any single unit of it.)
The second structural change now underway, the relative shift from commodity
production (and consumption) to services, involves a corollary of Engel’s Law: as in-
come increases, the demand for all commodities increases, but at a lower rate than in-
come, with an increased demand for services and leisure partly replacing the demand
for commodities.
Changes in technology, with increased productivity, and in tastes are basically re-
sponsible for such structural changes, but the immediate motivating force for the
changes is usually change in relative prices (and wages). This is also true for many
other economic changes, such as the rise of new industries and the decline of old ones
or the shift of production from one geographic area to another. The prices of com-
modities and services are determined by the interaction of supply and demand, as
taught in elementary economics textbooks. A high relative price indicates that supply
is scarce in relation to demand; a low relative price indicates the opposite. As a gen-
 16 A CONCISE ECONOMIC HISTORY OF THE WORLD

eral rule, the factors of production move to uses for which they are best rewarded,
that is, those for which their prices are highest. The importance of relative scarcity
_and relative prices as dynamic elements in economic change will become evident in
the historical cases considered later.

The Logistics of Economic Growth

In ordinary usage the term logistics refers to the organization of supplies for a large
group of people, such as an army. But logistic (singular) is also a mathematical for-
mula. The logistic curve derived from it has the form of an elongated S and is some-
times called the S-curve (see Fig. 1-1). Biologists also call it the growth curve be-
cause it describes rather accurately the growth of many subhuman populations, such
as a colony of fruit flies in a closed container with a constant food supply. The curve
has two phases, one of accelerating growth followed by a deceleration phase; math-
ematically, at its limit the curve asymptotically approaches a horizontal line that is
parallel to the asymptote of origin.

FIGURE 1-1

It has also been observed that logistic curves can also roughly describe many so-
cial phenomena, especially the growth of human populations. In the case of Europe,
long-period surges of population growth have been identified, each being followed
by a period of relative stagnation or even decline. The first of these began in the ninth
or tenth century, probably reached peak rates in the twelfth century, began to slow
down in the thirteenth, and was abruptly terminated by the Great Plague of 1348,
when Europe lost a third or more of its total population. After a century of relative
stagnation, the population began to grow again around the middle of the fifteenth cen-
tury, reached peak rates in the sixteenth century, and again leveled off or possibly even
declined in the seventeenth century. Toward the middle of the eighteenth century the
process got underway again, this time much more powerfully, and continued at un-
precedented rates until interrupted by the world wars and related misfortunes of the
first half of the twentieth century. There is evidence of a fourth logistic, this time.on
a world scale, beginning after World War II.
Although precise quantitative data are lacking, it seems likely that the growth of
the Greek population between the ninth and fifth century B.c. followed a logistic pat-
tern, as did the population of the Mediterranean basin in the era of the pax romana
(ca. 50 B.c.—-200 A.D.). Some scholars believe the three identifiable European logis-
tics were, in fact, worldwide and related to climatic variations. The population of
China, for example, seems to have kept pace with that of Europe. We are even more
 Introduction: Economic History and Economic Development 17

ignorant about the pattern of population growth in earlier epochs, but, as Chapter 2
shows, the population of the present-day Near and Middle East definitely grew after
the advent of agriculture in the neolithic period, and the populations of the great river
valleys (the Nile, Tigris-Euphrates, Indus, and Yellow River in China) likewise grew
rapidly after the introduction of irrigation agriculture.
Whether or not the growth of population actually conforms to the logistic curve,
other related aspects of the phenomenon intrigue the scientific imagination. It is vir-
tually certain that each accelerating phase of population growth in Europe was ac-
companied by economic growth, in the sense that both total and per capita output were
increasing. (If per capita output merely remained constant as the population grew, the
total output, of course, would increase; but we are warranted in making the stronger
statement.) This is most clearly attested for the third logistic (and the incipient fourth),
for which statistical evidence is relatively plentiful; but there is also much indirect
evidence for similar behavior during the first and second logistics.
The hypothesis of economic growth accompanying the growth of population is
strongly supported by the unquestioned evidence of both physical and economic ex-
pansion of European civilization during each of the accelerating phases of population
growth. During the eleventh, twelfth, and thirteenth centuries, European civilization
expanded from the heartland of feudalism between the Loire and Rhine rivers to the
British Isles, the Iberian peninsula, Sicily, and southern Italy, into central and eastern
Europe, and even to Palestine and the eastern Mediterranean temporarily during the
Crusades. In each locale, the institutions of feudalism were adapted to local condi-
tions and customs, creating a variety of economic systems. In the late fifteenth and
sixteenth centuries maritime exploration, discovery, and conquest took Europeans to
Africa, the Indian ocean, and the Western Hemisphere. Finally, in the nineteenth cen-
tury, through migration, conquest, and annexation, Europeans established their polit-
ical and economic hegemony throughout the world.
There is also evidence that conditions of life for ordinary men and women were
becoming increasingly difficult in the decelerating phases of the first two logistics
(the first halves of the fourteenth and seventeenth centuries, respectively), suggest-
ing a decline in or at least stagnation of per capita incomes. By the seventeenth cen-
tury, however, the variety of institutional arrangements in Europe created some pock-
ets of prosperity in the midst of overall decline; for example, cities grew rapidly in
the Low Countries and northern Italy. In the third logistic the opportunity for large-
scale emigration from Europe in the late nineteenth and early twentieth centuries pal-
liated the condition of the masses; even so, a number of countries experienced local-
ized subsistence crises, of which the Irish famine of the 1840s was the most dramatic.
In the light of these observations Adam Smith’s remark, written in the accelerating
phase of the third logistic, to the effect that the position of the laborer was happiest
in a “progressive” society, dreary in a stationary one, and miserable in a declining
one, takes on a new significance.
Another noteworthy similarity is that the final phases of all the logistics, and the
intervals of stagnation or depression that followed, witnessed the spread of social ten-
sion, civil unrest and disorder, and the outbreak of unusually fierce and destructive
wars. To be sure, wars and civil strife occurred at other times as well; and there is no
obvious theoretical reason that the decline of population growth should have resulted
18 A CONCISE ECONOMIC HISTORY OF THE WORLD

in the breakdown of international relations. Possibly the wars were simply fortuitous
occurrences that ended periods of growth that were already waning. But the question
is worthy of further study.
It would no doubt strain credulity to suggest that notable periods of intellectual
and cultural ferment were also related somehow to the logistic. It is nevertheless re-
markable that the accelerating phases of each period of population growth in Europe
witnessed outbursts of intellectual and artistic creativity followed by a proliferation
of monumental architecture—medieval cathedrals, baroque palaces, and the nine-
teenth-century Gothic revival. Earlier, the “Golden Ages” of Greece and Rome—and
still earlier, those of Mesopotamia and Egypt—were periods of population growth
and ended with civil strife and internecine warfare (the Peloponnesian War, the de-
cline of Rome).
Of course, human creative efforts are not confined to specific historical periods
any more than our destructive tendencies. The origins of the Renaissance were in the
great depression of the late Middle Ages, and the century of genius that included
Galileo, Descartes, Newton, Leibnitz, and Locke spanned the interval of stagnation
and upheaval between the second and third European logistics. Still, it is possible that
periods of crisis in human affairs, when the established order appears to be breaking
down, may stimulate the best intellects in a variety of fields to reexamine accepted
doctrines. Such lofty considerations lie outside the scope of this volume, however.
A possible explanation for the correlation of population growth/stagnation/de-
cline with income movements can be fashioned by analyzing the interaction of the
fundamental determinants of economic development introduced previously (pp. 9—
12). As indicated, with a given technology the resources available to a society set
the upper limits to its economic achievements, including the size of its population.
Technological change, by increasing productivity and opening up new resources, has
the effect of raising the ceiling, as it were, thereby permitting further growth in pop-
ulation. Eventually, however, without further technological change, the phenome-
non of diminishing returns sets in, the society encounters a new ceiling on produc-
tion, and population again levels off (or declines) until a new “epochal innovation”
(the phrase is that of Simon Kuznets, a Nobel Prize winner in economics; see Chap-
ter 8) again increases productivity and opens up still newer resources. Figure 1-2
presents a simplified representation of the relationship between population and
epochal innovations.

FIGURE 1-2

“~Epochal innovation

The chapters that follow provide an empirical test for this hypothesis as they at-
tempt to explain economic development in history.
 APPENDIX

Let Y stand for national income (or output) and P, R, 7; and X for population, resources, tech-
nology, and social institutions (the “great unknown’), respectively. Then

Y= [(5 Ky Exo
and the rate of change through time is
aya _ afae
For reasons noted in the text, the equation cannot be written in operational form.
 Z
Economic Development in
Ancient Times

Humans, the tool-using animals, may have appeared on earth as long ago as 2 mil-
lion years,' but, if so, their only tools for the first 1,990,000 years or so of their
existence were rough hand tools—clubs, fist hatchets, scrapers, and such—made of
wood, bone, and stone. Although we have little definite, detailed knowledge of this
long period in our evolution, scholars have pieced together the widely scattered
fragmentary evidence with much ingenious speculation to construct a plausible
account of it.
The earliest humans, forerunners of Homo sapiens, were probably omnivorous
creatures who supplemented their basic diet of tubers, berries, and nuts with insects,
fish, mollusks (where available), the flesh of small game, and possibly carrion. Their
crude tools, either appropriated directly from nature or subjected to minimal refine-
ment, would have been used mainly for digging, scraping, and pounding—that is, as
extensions or modifications of the human hand. In successive millennia biological
evolution was accompanied, and eventually outstripped, by social and technological
evolution. Stones formerly used for pounding were chipped or flaked to make rough
cutting edges; straight sticks were given pointed ends to serve as primitive spears.
Special types of stones, such as flint and obsidian, were discovered to be especially
suitable for toolmaking, and bones, horns, and ivory entered the toolmakers’ list of
materials. In the beginning this technological evolution was probably as slow as bi-
ological evolution itself, but it must have been accelerated in the last 50,000 years or
so. Toward the end of the last (Wiirm) glaciation, some 20,000 to 30,000 years ago,
late paleolithic humans had reached a relatively advanced state of technological, and
probably also social, development. They made a great variety of chipped and flaked
stone tools, including knives, awls, and chisels, and used bones, horns, and shells for
fishhooks and needles (Fig. 2-1). For weapons they had lances, spears, harpoons,
slings, and bows and arrows. By this time humans were primarily carnivorous
hunters, at least in Eurasia, North America, and North Africa, and among their fa-

' The issue is clouded not only by a paucity of evidence but also by differing definitions of humans.
Homo sapiens, the species to which all existing races belong, is thought to be only about 250,000 years
old, but it was preceded by Homo erectus and Homo habilis. Hominoid remains recently found in Kenya,
in proximity to what may have been very crude stone tools, have been estimated to be almost 20 million
years old.

20
 Economic Development in Ancient Times 21

FiGuRE 2—1. Paleolithic tools. These stone tools had many uses. Most were fitted with
wooden hafts or handles to facilitate their use. (From Art through the Ages, 3rd ed., by Helen
Gardner, Copyright 1948, 1975 by Harcourt Brace Jovanovich, Inc. Reprinted with permis-
sion.)

vorite prey were the wild horses, bison, reindeer, and mammoths that abounded at that
time. They had long known and used fire.
The unit of social organization was the band or tribe, consisting of about half a
dozen families. It was essentially migratory, following the game, but usually limited
its migrations to a given geographical area, and might return at periodic intervals to
a ceremonial center such as a sacred grove or cave. Contact between bands or tribes
was probably rare, but not so rare as to prevent the diffusion of social traits and tech-
niques, and perhaps some primitive barter trade including the exchange of women.
Marriage and kinship rules had evolved, and incest was universally tabooed. Ani-
mistic beliefs presaged religion, just as a primitive calendar portended science. Some
indication of the level of cultural development is given by the magnificent cave paint-
ings of northern Spain and southwestern France, dating from about 20,000 years ago
(Fig. 2-2). They not only show a high level of artistic skill but also reflect aspects of
their creators’ economic activities and probably their religious conceptions. The most
common subjects are the animals they hunted; the paintings may have been intended
as memorials to particularly successful hunts, or they may have been evocations to
the spirits to supply them with plentiful game.
The seventeenth-century philosopher Thomas Hobbes described life in the state
of nature as “nasty, brutish, and short,” but that was pure speculation on his part. Re-
cent discoveries by paleo-osteographers suggest that paleolithic hunter-gatherers may
have enjoyed better health than the earliest agriculturists. Even so, they lived close to
the margin of subsistence. Given the nature of their economy, they were subject to re-
current rounds of feast and famine, depending on the movement of game and the luck
of the hunt. In periods of famine all but the strongest perished, and in prolonged
famines entire communities perished or migrated. Indeed, one of the remarkable fea-
tures of humans, prehistoric and modern, is their mobility. Their self-regulating me-
tabolisms (ability to sweat) enabled early humans to travel incredibly long distances
 (‘aouely ‘ovlasiog ‘aLioqe’] oIpms) ,ainjeusis,, syste oy) oq Aeu Sutjured oy} aaoqge
suid pury oy ‘s]uaTe) pue sani[iqisues onste ouly pey—uroy} Jo sulos 1o—a]dood orytpooreg ‘sSunured aaeg «7-7 AUNOI

22
 Economic Development in Ancient Times 23

in search of food or warmer climates. Sweat, however, often blended into tears when
migrating groups encountered new disease environments, parasites, or predators. The
most dangerous of predators, of course, were always other groups of humans also in
search of better situations. These encounters could lead as often as not to bloodshed.
Hobbes would have been more accurate had he described primitive human life as a
mix of “sweat, tears, and blood.”
In spite of these hazards, paleolithic humans were distributed widely over the face
of the earth. By the end of paleolithic times, some 10,000 or 12,000 years ago, virtu-
ally every inhabitable part of the earth, from the Arctic to South Africa, Australia, and
the Tierra del Fuego, had been occupied, however thinly or tentatively. Population
densities no doubt varied in proportion to the flora and fauna that served as their
means of subsistence, with the higher densities in tropical and subtropical areas; but
nowhere were densities high by modern standards. Modern authorities have esti-
mated, largely on the basis of deductive reasoning, that the world population of Homo
sapiens at the end of the paleolithic era could not have exceeded 20 million and more
likely was in the range of 10 million inhabitants.

Economics and the Emergence of Civilization

The retreat of the last continental glaciers about 10,000 or 12,000 years ago ushered
in a period of significant geographic and climatic change, especially in the northern
hemisphere, with correspondingly significant consequences for human history. The
amelioration of the climate of Eurasia and North America was offset by the disap-
pearance of many of the mammals that made up the basic food supply of the late pa-
leolithic hunters. The hairy mammoth and the woolly rhinoceros became extinct, and
the reindeer migrated northward to its present habitat. North Africa and central Asia
became more arid, forcing their inhabitants to migrate and adopt new ways of life,
while huge forests grew north of the Alps and great grasses covered the highland ar-
eas at the eastern end of the Mediterranean.
Whether or not they were directly related to the climatic changes, important tech-
nological changes also occurred in the four or five millennia following the retreat of
the glaciers, especially in the Near and Middle East. Stone tools (and art and religious
objects as well) became more intricate and refined. Grinding and polishing of stone
replaced the older methods of chipping and flaking. The neolithic, or new stone, age
had arrived. (Some scholars assert that a rather nebulous mesolithic, or transitional,
era occurred between the end of the ice age and the full establishment of neolithic cul-
tures in the Near and Middle East by the beginning of the sixth millennium B.c.) The
most significant new departures, however, were the invention of agriculture and the
domestication of animals.
The exact time and location of these latter achievements are open to dispute. It is
not even certain that they occurred in conjunction with one another, although it seems
likely that they did, at least for some animals. The most probable site is somewhere
on the so-called Fertile Crescent, the belt of land (perhaps more fertile then than now)
extending along the eastern end of the Mediterranean, arching across the hills of
northern Syria and Iraq, and down the valleys of the Tigris and Euphrates to the Per-
24 A CONCISE ECONOMIC HISTORY OF THE WORLD

sian Gulf. One hypothesis, as plausible as any, is that the domestication of plants was
the work of women in the hills of northern Iraq or Kurdistan. The wild ancestors of
wheat and barley grew naturally in the area. The women, left behind in temporary
camps while their men hunted sheep and goats in the nearby mountains, harvested the
wild seeds and eventually began to cultivate them. This hypothesis is reinforced by
the fact that sheep and goats were probably the first animals to be domesticated (ex-
cept for the dog, which may have been associated with paleolithic hunters). The
process (for it almost certainly was not a unique event) may have begun as early as
8000 B.c. or even earlier. What is certain is that by 6000 B.c. settled agriculture, in-
volving cultivation of wheat and barley and tending of sheep, goats, pigs, and possi-
bly cattle, was well established throughout the area from western Iran to the Mediter-
ranean and across the Anatolian highlands to both sides of the Aegean Sea. From that
area it spread gradually to Egypt, India, China, western Europe, and other parts of the
Old World. (It is possible that the cultivation of rice in Southeast Asia may have be-
gun as early as that of wheat in the Middle East.) Jared Diamond has argued persua-
sively that the spread of productivity-enhancing innovations for early humans oc-
curred most naturally and most prolifically in the Eurasian land mass. First of all, its
huge size and diversity gave rise to many more plant and animal species from which
cultivable crops and domesticable animals could be found than for any other conti-
nent. Second, its east—west orientation meant that once success was achieved any-
where in the land mass with a crop (wheat) or animal (goat), that same success could
be replicated almost anywhere along the same latitude. As the dominant migration
routes were along the east-west axis of the continent, all innovations tended to end
up either in the western end of Europe or eastern China.
The significance of these developments for human history was momentous. For
the first time people were able to establish relatively permanent settlements. This, to-
gether with the greater productivity of their efforts, enabled them simultaneously to
accumulate greater stores of material goods, or wealth, and to devote more time to
nonsubsistence activities, such as art and religion. The greater reliability of their food
supply (fluctuations were at least annual rather than daily) no doubt introduced an el-
ement of psychological as well as physical stability into personal and social relation-
ships. The entire basis of existence was thereby revolutionized, with consequences
that are very much a part of our lives in the twenty-first century.
One should not, of course, exaggerate the revolutionary nature of changes that
were accomplished over a period of hundreds, even thousands, of years. The changes
were so gradual that the people experiencing them were probably unaware, or at best
dimly aware, of them, and without written records they could have no notion of the
significance of the transition. Hunting and farming were complementary activities for
many generations, with pastoralism as a possible transitional stage. As the techniques
of agriculture were mastered and it became more efficient and productive, the eco-
nomic importance of hunting receded, but it never lost its symbolic significance: the
transition from hunter to warrior to ruler was a natural one. Insofar as one can speak
of motivation, the changes were simply a process of adaptation to a mostly hostile en-
vironment. Custom and tradition governed both social relationships and methods of
production, and the idea of deliberate invention in either area could scarcely have en-
tered the mind of neolithic humans.
 Economic Development in Ancient Times BS)

The implements used by the earliest agriculturists were simple in the extreme. The
first was a primitive sickle or reaping knife—typically a blade of flint chips or teeth
attached to a wood or bone handle—used in harvesting the seeds of wild grasses and
eventually those of cultivated grains. The first instruments of cultivation were plain
digging sticks and simple hoes made by attaching a stone blade to a wooden handle.
This type of agriculture, which subsequently spread to many parts of the world and
still persists in some remote areas, is frequently referred to as “hoe culture.” Ploughs
pulled by oxen or donkeys belonged to a later stage of development, first making their
appearance in the great river valleys in the third or fourth millennium B.c.
To this basic equipment new tools, new techniques, new crops, and new livestock
were gradually added. Cattle, if not domesticated before 6000 B.c., came into the fold
soon afterward. Lentils and peas, as well as various root crops, were cultivated in Ana-
tolia well before that date. Grain was probably first consumed in the form of gruel or
porridge, but primitive querns and mortars for grinding grain into meal or flour have
been found in some of the earliest archaeological sites, evidence that the art of bak-
ing was discovered almost as early as the invention of agriculture. By the sixth mil-
lennium grain was also fermented to make a kind of mead or ale. Pottery, more frag-
ile but requiring less labor to produce than stone containers, was invented about the
same time; pottery also provided a new esthetic outlet and was widely used for orna-
mental and ceremonial as well as utilitarian purposes. Although no evidence survives,
it seems likely that basketry preceded pottery. It almost certainly preceded the man-
ufacture of textiles (spinning and weaving), and there is evidence that linen cloth was
being made by the beginning of the fifth millennium (which also suggests the do-
mestication of flax). There is no clear evidence that woolen cloth was manufactured
before the middle of the third millennium, but, given the early domestication of sheep
and goats and the fact that the technique of making woolen yarn is simpler than that
for linen, wool was probably the first substitute for the skins and furs that clothed pa-
leolithic humans.
The sedentary existence of the peasant village permitted a finer division of labor
than that determined by age and sex. As Adam Smith pointed out more than two cen-
turies ago, division of labor involves specialization, and specialization leads to greater
efficiency and technological progress. Precisely how and when specific innovations
took place is a matter for speculation, since the surviving evidence is rarely explicit.
It seems logical, nevertheless, that advances in one area would stimulate advance in
others (“‘spin off” or “fall out” in modern research and development jargon). For ex-
ample, as migratory bands settled in one location they would replace such temporary
shelters as tents of skins or windbreaks made of boughs with more permanent and
comfortable abodes: dugouts or pit houses at first, followed by sod houses, and even-
tually (the typical dwelling of the peasant villagers in the Near and Middle East)
houses of sun-dried mud brick. Experience in making bricks needed for dwellings
may have led to the use of clay for pots, and thus to pottery. As potters refined their
art they invented the potter’s wheel, which almost certainly preceded the use of
wheels for transport.
Metallurgy may have arisen in an analogous fashion. Although some gold and
copper objects have been found that date from the sixth millennium, regular produc-
tion of copper did not begin until the fifth or perhaps even the fourth millennium, and
26 A CONCISE ECONOMIC HISTORY OF THE WORLD

bronze (an alloy of copper and tin) came even later. Copper ore occurs in the moun-
tains ofAnatolia, the southern Caucasus, Cyprus, and northern Iran. Copper may have
been accidentally smelted by potters using copper oxide for painting their pots, which
were fired at high temperatures in closed kilns. Whatever the method of its discov-
ery, however, copper smelting was widely practiced in the Near and Middle East by
the middle of the fourth millennium, and tools, weapons, and ornaments of copper
and bronze were added to (but did not wholly replace) those of stone, clay, and other
materials.
The division of labor and evolution of new crafts, such as pottery and metallurgy,
required some form of exchange or commerce. The nature of the exchange varied with
the distance over which commodities had to be transported. Within individual com-
munities the terms of exchange were probably determined by custom over the entire
range of goods produced locally. But for long-distance trade in highly localized com-
modities, such as flint stones or metal, some form of organized exchange was neces-
sary. We don’t know what the terms of trade were for such exotic goods, or how they
were determined, but some form of trade had been practiced in late paleolithic and
early neolithic times; the mining of flint stones and the manufacture of stone axes and
other weapons had become specialized crafts by the eighth millennium, as evidenced
by the widespread distribution of implements that can be identified as coming from
particular mines or mining areas. Unfortunately, we do not know who the agents of
this commerce were. The trade in stone implements may have been carried on by mi-
gratory hunters, that in metals by nomadic pastoral tribes, but this is just speculation.
After the rise of city-states and empires, organized expeditions were sent out for trad-
ing and raiding.
One of the principal consequences of the invention of agriculture was the en-
hanced ability of given areas to support their populations. Thus, the population grew
wherever neolithic agriculture was diffused. Agriculture reached the Nile valley be-
fore 4000 B.c. and the Indus valley within the next millennium. By about 2500 B.c. it
had penetrated the Danube valley, the western Mediterranean, southern Russia, and
possibly China. Modifications were sometimes introduced in the course of diffusion
because of differences in resources and climate. In northern China, for example, mil-
let and soy beans became the staple food crops. In Southeast Asia the basis of farm-
ing was first the taro root and later (after about 1500 B.c.) rice. In the latter area the
water buffalo was the most important domesticated animal. In the arid steppe lands
of southern Russia and central Asia, neolithic hoe cultures did not take root, but the
inhabitants developed a pastoral way of life; it was probably in this area that the horse
was domesticated sometime in the third millennium.
The basic unit of economic and social organization in the early agricultural com-
munities was the peasant village, consisting of from 10 to 50 families, with a total
population between 50 and 300 persons. The peasant villages may be regarded as the
logical, and perhaps in some cases the actual, successors of the late paleolithic hunt-
ing bands, although on the average they were substantially larger because of their bet-
ter adaptation to the environment. Living conditions were slightly improved over
those of hunting and gathering communities. The food supply was somewhat more
regular and dependable, and dwellings were no doubt more comfortable; but because
population tended to grow along with the means to support it, the peasants still lived
 Economic Development in Ancient Times 2H

at the margin of subsistence. A natural disaster such as a drought, flood, or plague of

insects could wreak havoc on an entire village or group of villages; and their settled
existence and denser populations than those of hunting tribes made them more sub-
ject to epidemic disease. The average length of life probably did not exceed twenty-
five years.
It was formerly believed that the neolithic peasant villages were relatively uni-
form and undifferentiated until the rise of more powerful city-states in the middle of
the fourth millennium. Recent archaeological discoveries, however, have demon-
strated the existence of communities with a fundamentally different structure from
the peasant villages, which can rightfully be called cities (Fig. 2-3). A city discovered
at Catal Hiiyiik in Anatolia, dating from the middle of the seventh millennium, had
closely set houses of uniform structure and dimensions built of clay and bricks, also
of uniform dimensions, implying a well-organized division of labor. Obsidian, the
raw material for most of its tools, was imported from volcanic deposits more than sev-
enty miles distant. At Jericho, perhaps the oldest continuously occupied site in the
world, with traces of neolithic settlement as early as 8000 B.c., a huge stone wall was
erected by 7000 B.c. This achievement was certainly beyond the capacity of a simple
agricultural village. There are traces of other such cities in the Aegean area and else-

Ficure 2-3. Early cities and civilizations.

Black Sea

Nine sci
~ Gy, tp

Wes AP BS
Cnossos Babyien
CNS ELICRETE CYPRUS | NSU
SUMERejLagash
5)

i Soo Uruk 5ie

Mediterranean : Eridu 7” }
eas) presumedhg
se ds Arabian in third millenium >
AW
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emphis Na !
ACF Roi CoA EG Y/P
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Libyan Desert q As
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28 A CONCISE ECONOMIC HISTORY OF THE WORLD

where in the Near East, and undoubtedly other yet undiscovered urban sites must have
existed before the rise of the great river valley civilizations in Mesopotamia and
Egypt. The exact function and basis for the existence of these proto-cities has not yet
been discovered. They probably served, however, as primitive manufacturing centers
and commercial entrep6ts for the surrounding agricultural communities. If so, their
existence is evidence of a far more complex organization of the economy than was
formerly believed possible for that time.
Before about 4500 B.c. Lower Mesopotamia, the region between the Tigris and
Euphrates rivers just north of the Persian Gulf, was much less densely populated than
other inhabited regions of the Near and Middle East. Its marshy soil, subject to an-
nual inundations from the rivers, was not suited to the primitive hoe culture of ne-
olithic agriculture. Moreover, the land was virtually treeless and lacked building stone
and mineral resources. During the next thousand years, however, this unpromising
area became the seat of the first great civilization known to history, that of Sumer,
with large concentrations of people, bustling cities, monumental architecture, and a
wealth of religious, artistic, and literary traditions that influenced other ancient civi-
lizations for thousands of years. The exact sequence of events that led to this culmi-
nation is unknown, but it is clear that the economic basis of this first civilization lay
in its highly productive agriculture.
The natural fertility of the black alluvial soil was renewed annually by the silt left
from the spring floods of the Tigris and Euphrates rivers. Harnessing its full produc-
tive powers, however, required an elaborate system of drainage and irrigation, which
in turn required a large and well-disciplined work force as well as skilled manage-
ment and supervision. The latter were provided by a class of priests and warriors who
ruled a large, servile population of peasants and artisans. Through tribute, taxation,
and slavery the rulers extracted the wealth that went into the construction of temples
and other public buildings and the creation of works of art and that gave them (or
some of them) the leisure time to perfect the other refinements of civilization.
The rise of civilization brought with it a far more complex division of labor and
system of economic organization. Full-time artisans specialized in the manufacture
of textiles and pottery, metalworking, and other crafts. The professions of architec-
ture, engineering, and medicine, among others, were born. Weights and measures
were systematized, mathematics was invented, and primitive forms of science
emerged. Since Sumer was virtually devoid of natural resources other than its rich
soil, it traded with other, less advanced people, thereby contributing to the diffusion
of Sumerian civilization. The scarcity of stone, for tools as well as for buildings,
probably hastened the adoption of copper and bronze. Copper, at least, was already
known before the rise of Sumerian civilization, but lack of demand for it among the
neolithic peasant villages inhibited its widespread use. In the Sumerian cities, on the
other hand, imported stone had to compete with imported copper, and the latter
proved more economical as well as more effective in a variety of uses. It was im-
ported by sea through the Persian Gulf from Oman, and downriver from the moun-
tains of Anatolia and the Caucasus. Thereafter metallurgy was regarded as one of the
hallmarks of civilization.
Sumer’s greatest contribution to subsequent civilizations, the invention of writ-
ing, likewise grew out of economic necessity. The early cities such as Eridu, Ur, Uruk,
 Economic Development in Ancient Times 2D

and Lagash were temple cities; that is, both economic and religious organization cen-
tered on the temple of the local patron deity, represented by a priestly hierarchy. Mem-
bers of the hierarchy directed the labor of irrigation, drainage, and agriculture gener-
ally and supervised the collection of the produce as tribute or taxation. The need to
keep records of the sources and uses of this tribute led to the use of simple pictographs
on clay tablets, sometime before 3000 B.c. By about 2800 B.c. the pictographs had
been stylized into the cuneiform system of writing, a distinctive characteristic of
Mesopotamian civilization. It is one of the few examples in history of a significant
innovation issuing from a bureaucratic organization.
Although writing originated in response to the need for administrative record-
keeping, it soon found many other religious, literary, and economic uses. In a later
phase of development, after the strict temple-centered organization of the economy
had given way to greater freedom of enterprise, clay tablets recorded the details of
contracts, debts, and other commercial and financial transactions.
From its earliest seat at the head of the Persian Gulf, Mesopotamian civilization
spread northward into Akkad, whose principal center was the city of Babylon, and
subsequently into the upper reaches of the Tigris and Euphrates valleys. Through their
trading expeditions in search of raw materials, especially metal and perhaps other
commodities, the Mesopotamian city-states stimulated the nascent civilizations of
Egypt, the eastern Mediterranean and Aegean area, Anatolia, and the Indus valley.
The initial response of distant communities to Mesopotamian trade expeditions was
probably to organize themselves more effectively for defense, but eventually some
became regular trade partners and maintained overland trade routes. Of these, Egypt
and the Indus valley were, like Mesopotamia itself, riverine civilizations that owed
their existence to the control and use of the flood waters of the great rivers along
which they lay. Little is known about the early development of the Indus valley civ-
ilization, although it apparently had contacts with Mesopotamia by both land and sea.
Egypt, near the end of the fourth millennium, was still in a neolithic stage of de-
velopment, but its contacts with Mesopotamia—especially those of Upper Egypt via
the Persian Gulf, Indian Ocean, and Red Sea route—stimulated a rapid development
in all aspects of civilization. By the middle of the third millennium Egyptian civi-
lization had reached a stage of maturity in its government, art, religion, and economy
that remained virtually unaltered until the beginning of the Christian era, in spite of
foreign conquests and domestic upheavals.

The Economic Foundations of Empire

One of the notable features of ancient history, reflecting the interests of the annal-
ists who chronicled it as well as those of subsequent historians, is the rise and fall of
empires. From the rise of the first great world empire of Sargon of Akkad (ca. 2350—
2300 B.c.) to the fall of the Roman Empire in the West (the traditional date is 476
A.D.), the historical record is filled with a bewildering profusion of empires and their
rulers: Babylonia, Assyria, the Hittites, the Persians, Alexander the Great, and his
successors are but a few. (The process continued in the European Middle Ages, with
the explosive exfoliation of various Islamic empires in the seventh and succeeding
30 A CONCISE ECONOMIC HISTORY OF THE WORLD

centuries, the tribulations of the venerable Byzantine Empire, and its final extinc-
tion by the Ottoman Turkish Empire in 1453 a.p.) Much less has been written about
the economic foundations of these empires. What were the economic bases of their
military exploits and political power? What did they contribute to the material
progress of civilization? What was the daily existence, the standard of living of or-
dinary men and women? The historical records relating to these questions have not
yet been analyzed extensively, but through indirect evidence (much of it archaeo-
logical) and with judicious inference and deduction, it is possible to fashion at least
tentative answers.
Before the rise of the first great urban civilizations the social structure of the ne-
olithic peasant villages appears to have been relatively simple and uniform. Custom
and tradition, as interpreted by a council of elders, governed relations among mem-
bers of the community. The concept of property would have been vague, at best. Pri-
vate ownership of tools, weapons, and ornaments was no doubt recognized, but land
and livestock were probably owned collectively. (In economic terminology, land was
not scarce, and hence would not command a premium, or rent.) Although some indi-
vidual or individuals in each village may have been accorded special status because
of wisdom, strength, courage, or other leadership qualities, it does not appear that
there were any privileged or leisured classes; the obligation of all to work was dic-
tated by both technology and resources.
In the early temple cities of Sumer, in contrast, the social structure was definitely
hierarchical. The masses of peasants and unskilled workers, probably amounting to
90 percent or more of the total population, lived in a state of servitude, if not outright
slavery; they had no rights, property or other. The land belonged to the temple (or to
its deity) and was administered by the deity’s representatives, the priests. At a some-
what later date—but not later than the beginning of the third millennium—a warrior
class, led by chiefs or kings, asserted its authority in conjunction with or over that of
the priests. Unfortunately, the details of this transition from a relatively undiffer-
entiated society to a stratified society are unknown. According to Marxist theory, it
resulted from the creation of the institution of private property out of the former com-
munal property, which allowed one segment of society to live from the labor of the
others—“‘the exploitation of man by man.” Although it is true that the priest and war-
rior Classes did not engage in economically productive activities (except to the extent
that their directive and supervisory functions were necessary), and in that sense ex-
ploited the peasants and workers, one may fairly doubt that the institution of private
property was closely associated with the phenomenon. Property relationships varied
considerably from one area to another, and over time within the same area; but
nowhere in ancient civilization did private property, in the modern sense, constitute
the legal foundation of society or state. Some form of collective or state ownership
of land was the general rule. Certain parcels of land, or a portion of its produce, were
frequently designated for the support of particular officials and warriors, and private
ownership of tools, weapons, and other personal possessions was no doubt recog-
nized, but private property was not an absolute right.
More likely, the root of class differentiation and formal political organization was
ethnic or tribal differences. Significantly, Sumerian, the first written language, was
unrelated to any of the neighboring Semitic languages—unrelated, in fact, to any
 Economic Development in Ancient Times 31

other known language. Possibly the organizers of the earliest Sumerian city-states
were alien conquerors who imposed themselves on a preexisting neolithic population.
In any event, it is clear from subsequent developments that the riches of the riverine
city-states were tempting prizes that repeatedly drew their more primitive neighbors
from the surrounding hills and deserts to invade and conquer or pillage the Sumerian
cities. In some instances the invaders merely seized what they could conveniently
carry away and departed; in others they slaughtered or subjugated the existing ruling
class and established themselves as rulers over the servile population. The numerous
references in ancient mythology to conflicts among the gods probably reflect the
struggle for mastery among the various warrior tribes, each with its own deity. Such
successions of ruling classes mattered little to the peasant populations, except when
they became accidental victims of violence or one group of rulers was more ruthless
and efficient than another in extracting tribute and taxation.
As the early city-states expanded in proximity to one another, disputes over
boundaries and water rights became additional sources of conflict and conquest. The
earliest written records from the classical Sumerian civilization of the third millen-
nium contain numerous references to the succession of dynasties that ruled the vari-
ous cities. Economic considerations were not, of course, the only motivating influences
in these struggles. The lust for power, dominion, and magnificence soon overtook mere
economic motivations. Sargon the Great not only brought all of the city-states of
Sumer and Akkad under one central administration but also extended his conquests
to Iran, northern Mesopotamia, and Syria, thus ruling virtually all of the civilized
world of his time except Egypt. Similar ambitions stirred other conquerors, great and
small, including Cyrus of Persia, Alexander of Macedonia, and Julius Caesar and his
successors, the Roman emperors. Whatever the motives, however, the economic bases
of these ancient empires lay in the booty, tribute, and taxation that the conquerors
could wring from the conquered and from the peasant masses.
Given the predatory character of ancient empires, did they make any positive
contributions to economic development? In terms of technological development the
record is extremely sparse. Almost all of the major elements of technology that
served ancient civilizations—domesticated plants and animals, textiles, pottery,
metallurgy, monumental architecture, the wheel, sailing ships, and so on—had been
invented or discovered before the dawn of recorded history. The most notable tech-
nological achievement of the second millennium (ca. 1400-1200 B.c.), the discov-
ery of a process for smelting iron ore, was probably made by a barbarian or semi-
barbarian tribe in Anatolia or the Caucasus Mountains. Significantly, the principal
use of iron in ancient times was for weapons, not tools. Other innovations, such as
chariots and specialized fighting ships, were even more directly related to the art of
war and conquest.
Although there were few major breakthroughs, many minor technical improve-
ments were made, especially in agriculture, but these can rarely be credited to gov-
ernment actions or policy. During Hellenistic times and under the Roman Empire
scores of treatises were written on various aspects of agriculture and related occupa-
tions (the famous library in Alexandria contained fifty manuscripts devoted solely to
the art of baking bread!), designed to inform wealthy landowners and their stewards
how to increase the yields of their estates. The peculiarities of climate, topography,
92 A CONCISE ECONOMIC HISTORY OF THE WORLD

and soil in the Mediterranean basin determined optimum agricultural methods, which
evolved gradually and imperfectly through many centuries of trial and error. The
wealth of the great riverine civilizations was based on irrigation agriculture, which
required a high degree of organization and discipline of the labor force. Elsewhere
(for example, in North Africa and southern Spain) irrigation sometimes supplemented
other methods, but for the most part it was uneconomic if not impossible for gener-
alized use. Instead, the technique of “dry farming” (as it came to be known in nine-
teenth-century America) evolved. Given the light, shallow soils and the long, dry
summers that characterize most of the area, arable land had to be plowed frequently
but lightly to hold and use the moisture that collected during the rainy winter season.
To maintain the fertility of the soil, with no artificial fertilizers and scarce natural ma-
nure, fields were planted only every other year (biennial rotation with fallow); more-
over, to reduce unwanted growth that would rob the fallow of its nutrients, it too had
to be plowed, usually three or four times but, optimally, up to nine times per season.
Numerous variations of this basic pattern occurred, especially in the areas where hor-
ticulture, arboriculture, and viticulture flourished. In general, however, all of them
were highly labor intensive, that is, requiring much labor per unit of land. This se-
verely limited the size of units that could be exploited by independent proprietors or
single tenants, and accordingly left little surplus for taxation. On the other hand,
where the terrain was suitable and the supply of labor adequate, large estates using
gang labor of either cheap servile workers (an agricultural proletariat) or slaves could
be profitable to both the owner and the government. From earliest times to the later
Roman Empire, the latter system gained ground at the expense of the former, espe-
cially in the most fertile regions.
In spite of the near-stagnation of technology, the economic achievements of the
ancient empires were considerable. Organized expeditions, whether for trade or con-
quest, diffused the existing elements of technology more widely and brought new re-
sources into the ambit of the economy. Explicit formulation of civil law, even if drawn
up for the enlightened self-interest of the ruler or the ruling class, contributed to
smoother functioning of the economy and society. Most important of all, perhaps, es-
tablishing order and common laws over larger and larger areas facilitated the growth
of trade and, with it, regional specialization and division of labor. The outstanding ex-
ample of this tendency is, of course, the Roman Empire.

Trade and Development in the Mediterranean World

In the millennium extending roughly from 800 B.c. to 200 A.D., the classical civiliza-
tion of the Mediterranean world achieved a level of economic development that was
not surpassed, at least in Europe, until the twelfth or thirteenth century. (Ancient
China was different, and exceptional.) Given the absence of notable technological
progress in the era, the explanation for this achievement should be sought in the ex-
tensive division of labor made possible by a highly developed network of trade and
markets. Trade was not a new phenomenon, of course; allusion has been made to the
traffic in stone tools and weapons in neolithic times and to the expeditions of the
Mesopotamian city-states and empires. The latter were usually state-sponsored, and
 Economic Development in Ancient Times 33

it was not always easy to distinguish a trading from a raiding mission. Rulers of neigh-
boring states also engaged in the ritual exchange of gifts, a disguised form of barter.
Given the high cost of land transport, however—goods were carried by pack animals
and human porters—such commerce was limited to commodities of high value in re-
lation to their bulk, such as gold, silver, and precious stones, luxury cloth, spices and
perfumes, and art and religious objects. (The only apparent exception to this rule, the
traffic in copper and bronze, was not really an exception because metals destined pri-
marily for the weapons and ornaments of the ruling classes commanded a much
higher relative price than they do today.) Mesopotamian civilizations established con-
tacts through the Indian Ocean with both Egypt and the Indus valley at a very early
date, but these routes do not appear to have carried large-scale or sustained traffic be-
cause of both the lack of suitable complementary trading goods and the hazards of
navigation in the monsoon region.
Navigation on the Mediterranean was another matter. Already at the beginning of
recorded history (ca. 3000 B.c.), a seafaring people had established themselves at the
eastern end of the Mediterranean, serving as intermediaries between the developing
civilizations of Mesopotamia and Egypt (Fig. 2-4). The Phoenicians were the first
specialized sailors and merchants; according to their own traditions, they came to the
Mediterranean from either the Persian Gulf or the Red Sea, which raises the possi-
bility that they (or their forerunners) may have been the early intermediaries between
Sumer and Upper Egypt via the Indian Ocean. In any case, they virtually monopo-
lized the commerce of Egypt for long periods, in a sense serving as the pharoahs’
agents or contract merchants. Among their commercial articles were copper from
Cyprus and the fabled cedars of Lebanon. In connection with their commerce the
Phoenicians also developed a number of processing industries, including the manu-
facture of their famous purple dye. The word Phoenicia, in fact, comes from the
Greek, meaning “land of the purple [dye].”
The Phoenicians organized themselves politically into autonomous city-states, of
which the most famous were Sidon and Tyre. Dependent, to a large extent, on the
goodwill or tolerance of their more powerful neighbors, they experienced fluctuations
of fortune, but for almost three millennia, until their cities were overrun by the armies
of Alexander the Great, they were among the foremost mercantile peoples in ancient
civilization. Their commercial activities led them to develop the alphabet as a more
efficient substitute for hieroglyphic or cuneiform writing, which the Greeks and the
Romans adopted, along with other of their commercial techniques. To foster trade as
well as to relieve population pressure in their narrow homeland, they established
colonies along the North African coast and in the western Mediterranean on Sicily,
Sardinia, the Balearic Isles, and the coast of Spain. One of the Phoenician colonies,
Carthage, later founded an empire of its own and struggled with Rome for hegemony
in the western Mediterranean. Daring sailors as well as skillful merchants, the Phoeni-
cians sailed in the Atlantic to obtain tin from Cornwall, and may have circumnavi-
gated the continent of Africa.
The other great maritime traders of the Mediterranean were the Greeks. Unlike
the Phoenicians, the Greeks were originally cultivators, but the rocky, mountainous
character of their adopted homeland (they had come from the north) soon drove them
to the sea to supplement the meager produce of their agriculture. Their excellent nat-
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 Economic Development in Ancient Times 35

ural harbors and the numerous islands of the adjacent Aegean Sea also encouraged
this departure. As early as the Mycenaean period (from the fourteenth to the twelfth
centuries B.c.), Greek merchants could be found throughout the Aegean and eastern
Mediterranean and as far west as Sicily; the Homeric epic of the Trojan War likely
reflects an episode of commercial rivalry between the Greeks and the city of Troy,
which commanded the entrance to the Black Sea, just as the legend of Jason and the
Golden Fleece probably reflects a pioneering venture to the Black Sea in search of
wool. After a “dark age” occasioned by a new wave of invasions from the north, Greek
commerce and civilization revived around the beginning of the eighth century B.c. By
that time the Aegean was already a Greek lake, with Greek settlements on the coast
of Asia Minor as well as on the islands. The pressure of population on limited re-
sources was probably at least partly responsible for the settlement of the islands and
the adjacent coast of Asia Minor; but even these measures did not relieve the pres-
sure. In the middle of the eighth century the Greeks undertook massive organized ven-
tures in colonization that resulted in the foundation of Greek cities throughout the
Mediterranean, as far west as present-day Marseilles, and on the Black Sea coasts as
well. The concentration of Greek cities in southern Italy and Sicily was so great that
the area became known as Magna Graecia (“Greater Greece’”’).
The colonization movement served economic purposes other than relieving pop-
ulation pressure at home (and incidentally relocating political dissidents). Many new
cities were located in fertile agricultural regions and could thus supply grain and other
agricultural products to the mother city. They also served as markets or trade centers
for the processed and manufactured wares of the mother city, thus introducing the in-
digenous neighboring populations (mostly neolithic cultivators) to civilization by
means of the market system. The founding cities did not generally attempt to main-
tain political control over their colonies, but ties of kinship and commercial relations
kept them closely affiliated. In these circumstances the cities of the Greek mainland
(and those of Asia Minor as well) became more specialized in commerce and indus-
try. Grain made way for grapes and olives, which, by nature, were better suited to the
Greek soil and climate, and their final products—wine and oil—had a much higher
value per unit of weight. Greek craftsmen, especially potters and metal workers, be-
came highly skilled, and their wares commanded a premium throughout the area of
classical civilization. Greek sailors and merchants also became carriers for other, non-
seafaring peoples such as the Egyptians. Some cities, such as Athens, concentrated a
number of commercial and financial functions within their boundaries in much the
same way as Antwerp, Amsterdam, London, and New York did in subsequent eras.
Banking, insurance, joint-stock ventures, and a number of other economic institutions
that are associated with later epochs already existed in embryonic form in classical
Greece; indeed, they had roots in ancient Babylon.
These commercial and financial developments were facilitated by an innovation
of minor technical significance but great economic importance—the introduction of
coined money. Money and coinage, of course, are not identical. Before the invention
of metallic coins many other commodities had served as standards of value, the most
fundamental function of money, and also as media of exchange. In an actual exchange
it was not necessary for the standard of value to be physically present or to be a part
of the exchange, as long as the commodities involved could be valued in relation to
36 A CONCISE ECONOMIC HISTORY OF THE WORLD

it. On this basis barter and even credit transactions had long preceded the use of coined
money. The latter, nevertheless, greatly simplified commercial transactions and per-
mitted the extension of the market system to many individuals and groups who would
otherwise have remained isolated in a closed subsistence economy.
As with most inventions of ancient times, the inventor of coins is unknown to his-
tory. The earliest surviving coins, dating from the seventh century B.c., came from
Asia Minor. Moralistic legends ascribe the invention to both Midas, a king of Phry-
gia who had the “golden touch,” and Croesus, a fabulously wealthy king of Lydia who
was executed by Cyrus the Great by being forced to swallow molten gold; but more
likely the first coins were struck by some enterprising merchant or banker of one of
the Greek cities on the coast as a form of advertising. In any event, their potential for
both profit and prestige was quickly recognized by governments, which arrogated the
coining of money as a state monopoly. The effigy of a ruler or the symbol of a city
(the owl of Athens, for example) stamped on a coin testified not only to the purity of
the metal but also to the glory of its issuer.
The earliest coins were apparently made of electrum, a natural alloy of gold and
silver that was found in the alluvial valleys of Anatolia, but because of the variabil-
ity in proportions of the two metals in electrum, the pure metals were preferred (Fig.
2-5). Although both gold and silver coins were struck, silver was both more plentiful
and more practical for commerce. The leading role of Athens in fifth-century com-
merce as well as culture also contributed to the predominance of silver, at least among
the Greeks; in fact, the two phenomena were intimately related. Athens’ state-owned
silver mines at Laurium, on the Attic peninsula, provided the resources for the con-
struction of the triremes. This new type of warship was decisive in the struggle of the
Greeks against Persian encroachment, and it subsequently allowed Athens to domi-
nate the Delian League to such an extent that the Aegean and surrounding territories
effectively became an Athenian empire. Silver from Laurium also helped finance
Athens’ pesistently unfavorable balance of trade (shipping and financial services were
also important sources of earnings), and thus indirectly aided in the construction of
the great public buildings and monuments for which Athens became famous. The
Athenian Golden Age, in fact, was made possible by the silver of Laurium.
The Greek cities exhausted themselves in internecine struggles, but the conquests
of Alexander the Great spread Greek (or Hellenistic) culture throughout the Near and
Middle East. Although Alexander’s empire disintegrated after his death, the cultural
and economic unity remained. The Greek language was spoken from Magna Graecia
to the Indus River. Greeks manned the civil services of the successor states, and the
Greek merchants established their precincts in all important cities. Alexandria—
probably the largest city in the world before the rise of Rome, with a population of
over 500,000—was virtually a Greek city, and the most important emporium of the
age. Through its markets passed not only the traditional exports of Egypt (wheat, pa-
pyrus, linen cloth, glass, etc.) but also hundreds of staple and exotic products from
many parts of the world, including elephants, ivory, and ostrich feathers from Africa;
carpets from Arabia and Persia; amber from the Baltic; cotton from India; and silk
from China. The mere number of these commodities testifies to the scale and extent
of commercial organization.
 Economic Development in Ancient Times Si

FIGURE 2—5. Greek coins. The coin on the left, with simple punch marks on the face (A)
and a striated surface on the back (B), is of electrum, dating from about 600 B.c. The silver
coin on the right, with the face of Athena (C) and the owl of Athens on the reverse (D), dates
from about 480 B.c.; it shows how far the technology of minting advanced in little more than
a century. (The photos are not to scale. The actual Athenian coin is much larger than the
other.) (Hirmer Fotoarchiv Miinchen.)

Economic Achievements and Limits of Ancient Civilization

The apogee of classical civilization, at least in its economic aspects, occurred during
the first and second centuries of the Christian era, under the dominance of Rome (Fig.
2-6). Rome had already absorbed Hellenistic culture before mastering the Mediter-
ranean, and with the latter feat it inherited—or appropriated—Hellenistic economic
achievements and institutions as well. The Grecian empire was essentially maritime,
building on the tradition established by the Phoenicians before them. It persisted as
long as it did by maintaining access to strategic ports along the shores of the Mediter-
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 Economic Development in Ancient Times Bo

ranean Sea, which paralleled the Eurasian land mass in its east-west orientation. As
long as the sea lanes were open, Greek cities could supply themselves with food and
supplies even if shortfalls occurred in their hinterlands. Warships could be held in re-
serve until needed, assured of adequate manpower in time of war by the supply of
sailors and oarsmen available in the merchant fleet. In contrast to maritime empires,
land-based empires such as Persia had to maintain a standing army in defense of their
perimeters. As their perimeters expanded, their military requirements multiplied,
making them increasingly vulnerable to economic shocks. The Romans, by making
the interior support routes of their empire essentially the Mediterranean shipping
lanes, managed to combine the best features of the maritime and land-based empires
that had preceded them.
The Romans were originally an agricultural people, mostly small farmers with a
high regard for property rights. In the course of their expansion they became in-
creasingly concerned with military and administrative affairs, but their traditional at-
tachment to the soil lingered. Commerce, on the other hand, did not rate highly in the
Roman system of values; it was left in the hands of inferior social classes, foreigners,
and even slaves. Nevertheless, the Roman legal system, initially adapted to an agrar-
ian regime but gradually modified by the incorporation of Greek elements, allowed
considerable freedom of enterprise and did not penalize commercial activities. In par-
ticular, it provided for strict enforcement of contracts and property rights and prompt
(and usually equitable) settlement of disputes. As Roman law spread, in the wake of
the conquering legions, it provided a uniform, coherent legal framework for economic
activity throughout the empire. (Some regions, notably Egypt, were subject to spe-
cial regimes in which their traditional customs and usages were retained.)
The urban character of the Roman Empire both stimulated and was made possi-
ble by the highly developed commercial network and the fine division of labor that
supported it. The city of Rome alone may have had a population in excess of 1 mil-
lion people at its height. Since feeding such a concentrated population from local re-
sources was manifestly impossible, great fleets were organized to bring wheat from
Sicily, North Africa, and Egypt. (These shipments also provided the occasion for one
of the major exceptions to the rule of free enterprise; grain was distributed free to as
many as 200,000 families of the Roman proletariat. To guard against nondeliveries,
which might provoke riots, the government granted special privileges to the agents
charged with providing grain, and at times even undertook the task itself.) Although
no other city could compare in size or magnificence with Rome at its zenith, many
ranged in size from 5,000 to 100,000, and a few, such as Alexandria, were much larger.
Probably no sizable area of the world was so highly urbanized again until the nine-
teenth century.
Rome’s greatest contribution to economic development was the pax romana, the
long period of peace and order in the Mediterranean basin that allowed commerce to
develop under the most favorable conditions. Although Roman legions were almost
constantly involved in conquering new territory, punishing an upstart neighbor, or
suppressing a native rebellion, before the third century these disturbances normally
took place on the periphery of the empire and rarely disturbed the most active com-
mercial routes. Piracy and brigandage, which had been serious threats to commerce
even in the Hellenistic era, were almost completely eliminated. The famed Roman
40 A CONCISE ECONOMIC HISTORY OF THE WORLD

roads were designed for strategic rather than commercial use; wheeled vehicles other
than chariots were rarely used, and not at all for long-distance transportation. Yet the
roads did facilitate communications and the transportation of light merchandise. The
major artery of transportation, however, was the Mediterranean, which flourished as
never before—and rarely since—as a highway for commercial traffic.
One major consequence of the pax romana was population growth. Estimates of
the population of the empire at its height range from 60 million to more than 100 mil-
lion, with the more recent estimates favoring the latter figure. Unfortunately there are
no reliable estimates of the population of the same area at an earlier date, such as the
time of Alexander or that of Greek colonization in the eighth century B.c. It is likely,
though, that the population of the empire at the death of Marcus Aurelius (180 A.D.)
was at least double that of the same area at the death of Julius Caesar (44 B.c.). Growth
was most marked in the western Mediterranean, including Italy, because the East was
already well populated. (Egypt, for example, probably had 5 million inhabitants as
early as 2500 B.c.; in the first century A.D. it had about 7.5 million.) In the era of
Phoenician and Greek colonization much arable land in the West was totally unin-
habited; even during the period of Roman expansion in Italy many areas of the penin-
sula were sparsely populated. Gaul, which later became one of the largest Roman
provinces, with more than 10 million inhabitants, probably had fewer than half that
number at the time of the Roman conquest. North Africa and Spain also experienced
both prosperity and population growth in the first half of the imperial period.
To what extent the average standard of living improved concurrently with demo-
graphic growth is a much more difficult question. Undoubtedly there was some im-
provement, which both permitted and encouraged population growth. A distinguished
economist, Colin Clark, has estimated that the real earnings of a typical free artisan
in Rome in the first century A.D. were approximately equivalent to those of a typical
British factory worker in 1850 and to those of an Italian worker in 1929. By extrap-
olation, this implies that Roman artisans were substantially better off economically
than millions of peasants and urban dwellers in Asia, Africa, and Latin America are
today. Such comparisons, however, contain difficult conceptual problems as well as
statistical pitfalls. Granted, one can (with adequate statistical data) compare the pur-
chasing power of the wages of distinct populations in terms of grain or bread, for ex-
ample, or perhaps the average caloric intake of foodstuffs. But how does one evalu-
ate the relative contributions to material or psychic well-being of Roman circuses and
modern transistor radios and television; of travel by foot (even on Roman roads!) and
travel by subway, private automobile, or jet aircraft; or of different types of housing,
which vary in comfort and convenience with the climatic conditions as well as with
their construction characteristics? Moreover, statistics (even if accurate) about “av-
erage” or “typical” peasants or urban workers tell us nothing about the relative dis-
tribution of income.
The prevalence of slavery in ancient times is an especially vexing problem for sta-
tistical comparisons. The absolute and relative numbers of slaves varied considerably
over time; slaves were numerous in the expansive phase of the empire, when war cap-
tives and hostages were plentiful, but much less so in later periods when the empire
was on the defensive. (The ratio was also affected by the rate of manumission and the
relative birth rates of the slave and free populations; generally, birth rates among
 Economic Development in Ancient Times 4]

slaves are not as high as those of free people.) Some slaves were no doubt well treated
by their masters, especially literate Greeks and others who served as tutors, scribes,
household servants, and business agents; but the great majority were employed in
agriculture and as common laborers and received little more than bare subsistence.
The relative numbers of slaves also affected the price of free labor; freemen rarely
worked in such unpleasant and unsafe occupations as mining, but in other areas they
might have to compete with the subsistence standards of slaves.
Another possible measure of material well-being is the average length of life.
Again, one must be wary of incomplete and inconclusive statistics, especially since
they reveal little about the relative incidence of disease and other causes of death
among different social classes. In general, however, the average length of life in the
best years of the empire appears to have been about twenty-five years—a slight im-
provement over earlier societies but still considerably below all but the very poorest
societies in recent times.

The “best years of the empire” constituted a transitory period. Even before the death
of Marcus Aurelius (180 a.D.), a number of problems foreshadowed the decline of the
empire and the economy on which it rested. Among these were Germanic incursions
from the north, localized labor shortages, and gradual monetary inflation. All of these
problems increased in severity in the third century, especially the inflation resulting
from the continual debasement of the coinage by a treasury whose expenses always
exceeded its revenue. The inflation, however, was symptomatic of more fundamen-
tal economic problems caused by the increased extent of the empire and the rising
costs of defending its expanding perimeters in the north and the east. The Emperor
Diocletian decreed price and wage controls in his Edict of 301 A.p., and he reorga-
nized the bureaucracy and the fiscal system. His reforms and those of his successor
Constantine shored up the imperial structure for a time, but they did not deal with the
fundamental problems; in fact, they exacerbated them.
Economically, the twin pillars of the Roman Empire were agriculture and com-
merce. Agricultural surpluses (production in excess of that required to maintain the
cultivator and his family), though small in terms of the individual cultivator, bulked
large when collected and concentrated through taxation. They provided the resources
that supported the army, the imperial bureaucracy, and the urban population. Effec-
tive marshaling of these surpluses, however, depended on the unimpeded flow of”
commerce throughout the empire. Barbarian invasions and depredations interfered
with this commerce, but perhaps even greater problems were the inefficiency and cor-
ruption of the imperial government itself. Pirates again infested the Mediterranean,
and robber bands controlled the mountain passes. On occasion the army itself preyed
on peaceful commerce.
Taxation grew steadily heavier, but its burden varied inversely with the benefits
government conferred. Many great estates, the property of the nobility, were exempt
from taxation, leaving the burden increasingly on those least able to bear it. During
the inflation of the third century, when tax revenues fell consistently below the ex-
penditures of the army and the bureaucracy, the government resorted to levies in kind,
which Diocletian transformed into a regular system of contribution. Although this
drastic measure achieved its purpose in the short run, it subverted the very nature of
42 A CONCISE ECONOMIC HISTORY OF THE WORLD

the economic system of the empire. Production for the market declined. Cultivators,
even small proprietors, fled the land and placed themselves under the protection of
the great lords, whose tax-exempt estates grew accordingly. Moreover, as trade de-
clined and populations of towns and cities dwindled for lack of provisions, the great
estates became more self-sufficient, not only retaining their own food production but
instituting metalworking, clothmaking, and other trades as well, thus depriving the
towns of their function. It was a vicious spiral of contraction.
Diocletian’s attempt to fix wages and prices by imperial edict failed almost com-
pletely, in spite of the severe penalties it imposed for infractions. In 332 the govern-
ment resorted to an even more drastic measure, binding cultivators to the soil they tilled
and making all occupations and offices—those of farmers, artisans, tradesmen, even
municipal officials—compulsorily hereditary. As with the requisitioning of supplies
in kind, the measure had some short-run success, but it was even more subversive of
the economic system. The economy reverted to a primitive subsistence basis as popu-
lation declined, towns and cities were deserted, and the villas of the great estates came
more and more to resemble fortified castles. By the end of the fourth century the em-
pire in the west was a hollow shell that gradually collapsed under its own weight.
The fall of the Roman Empire and the decline (or retrogression) of classical econ-
omy were not identical, in spite of their intimate relationship. Had the economy been
able to meet the demands made on it by the increasingly parasitic imperial bureau-
cracy and army, the empire might have lasted for another thousand years—as, indeed,
the Eastern or Byzantine Empire did. Conversely, if the empire, the institutional
framework within which the economy functioned, had continued to provide efficient
protection from both internal and external threats to peaceful productive activities and
an effective administration ofjustice, there is no obvious reason the economy could
not have performed as well under the Severi or Diocletian as under the Antonines. In
fact, neither of these conditions prevailed.
A still more fundamental reason for the limits to, and ultimate failure of, the clas-
sical economy transcends the immediate causes of the decline of Rome, however: the
lack of technological creativity. This technological sterility stands in sharp contrast
to the cultural brilliance of at least some periods of ancient civilization. Even today
classical art and literature provide standards against which to measure contemporary
works, and notable progress was also achieved in philosophy, mathematics, and some
branches of science. Some of the properties of steam were known to the ancients, al-
though the only applications were in producing toys and devices to mystify the cred-
ulous; the waterwheel and windmill were invented at least as early as the first cen-
tury B.c., but were not widely adopted until the European Middle Ages. Roman
engineering ingenuity manifested itself in roads, aqueducts (Fig. 2-7), and domed
buildings, but not in labor-saving machinery. Clearly, it was not lack of intelligence
that prevented the ancients from contributing more to the progress of technology.
The explanation appears to lie in the socioeconomic structure and the nature of
the attitudes and incentives that it generated. Most productive work was done either
by slaves or by servile peasants whose status differed little from that of slaves. Even
if they had had an opportunity to improve technology, they would have reaped few if
any benefits, either in terms of higher incomes or reduced labor. Members of the small
privileged classes devoted themselves to war, government, the cultivation of the fine
 Economic Development in Ancient Times 43

r
he
s Hs i
i

4
E

sates?
ay
tj

=
2
67-5
il
lavetinean
Awana
id
Nsmeneas
laguagd
scien
sae
AG
4%
AT fexg
Pere
Nal
FiGurE 2—7. This Roman aqueduct, in Segovia, Spain, still standing today, testifies to the
Romans’ engineering genius, but they did not use it to create labor-saving devices. (Arlene
DeBevoise.)

arts and sciences, and conspicuous consumption. They lacked both the experience and
the inclination to experiment with the means of production, since labor carried the
stigma of menial status. Archimedes was a scientific genius who frankly disdained
practical application of science; his one concession to practicality was to design a me-
chanical catapult for the (unsuccessful) defense of his native Syracuse against the Ro-
mans. Aristotle, who had perhaps the most encyclopedic knowledge of any ancient
philosopher or scientist, believed that the distinction between masters and slaves was
biologically determined. For him, it was a part of the natural order of the universe that
slaves should labor to provide their masters with the leisure to develop the arts of civ-
ilization. Even St. Paul wrote that “masters and slaves must accept their present sta-
tions, for the earthly kingdom could not survive unless some men were free and some
were slaves.” In view of such attitudes, it is scarcely surprising that little serious thought
should have been given to devising methods for lightening the burden of labor or im-
proving the status of the servile masses. A society based on slavery may produce great
masterworks of art and literature, but it cannot produce sustained economic growth.
 3
Economic Development in
Medieval Europe

To an earlier generation the phrase “medieval economic growth” would have seemed
a contradiction in terms. Under the influence of Renaissance authors, who belittled
their immediate predecessors in their praise of the rediscovered glories of classical
civilization, the Middle Ages have long been regarded as a period of both economic
and cultural stagnation. In fact, medieval Europe experienced a flowering of techno-
logical creativity and economic dynamism that contrasts strongly with the routine of
the ancient Mediterranean world. Moreover, the distinctive institutions created in the
Middle Ages served as a framework for economic activity until recent times; me-
dieval survivals in rural areas are still prominent features of the landscape, even in
the formerly socialized economies of eastern Europe.

The Agrarian Basis

Until the advent of industrialism in the nineteenth century, agriculture everywhere

constituted the most important sector of economic activity, in terms of both the value
and volume of output and the proportion of the labor force engaged in it. Medieval
Europe was unique among developed civilizations, however, in its agrarian orienta-
tion. From the ancient city-states of Sumer to the Roman Empire, urban institutions
determined the character of the economy and society, even though most of the popu-
lation was engaged in agricultural labor. In medieval Europe, on the other hand, al-
though the urban population grew in size and importance, especially in Italy and Flan-
ders, agrarian and rural institutions set the tone.
To understand the distinctive character of the medieval economy, one should re-
call the political and social conditions that surrounded its origins —the growing bur-
den of taxation and the increasing inefficiency and corruption of the Roman Empire,
the final breakdown of central authority and the resulting anarchy, the growth of large
self-sufficient estates, and the decline of towns and interregional trade. After the col-
lapse of the empire barbarian tribes continued to roam and ravage; petty kingdoms
rose and fell but were unable to maintain effective order for more than brief periods
or to establish regular systems of taxation. The Frankish kingdom, based in the heart-
land of medieval Europe between the Loire and Rhine rivers, maintained its existence

44
 Economic Development in Medieval Europe 45

longer than the others; but without a regular system of taxation or permanent bu-
reaucracy, it, too, depended on the uncertain loyalty of the great nobles and their re-
tainers for the preservation of order and unity.
Beginning in the eighth century, new hordes of invaders threatened the Franks and
other Europeans for more than two centuries. In 711 Muslims from North Africa in-
vaded Spain and quickly overthrew its Visigothic kingdom; by 732 they had pene-
trated as far as central France before being turned back. Although the Franks drove
the Muslims back across the Pyrenees, the latter conquered Sicily, Corsica, and Sar-
dinia and turned the Mediterranean into virtually a Muslim lake.
Later in the century the Vikings poured out of Scandinavia, dominated the British
Isles, conquered Normandy, raided coastal and riverine sites as far inland as Paris,
and even penetrated the Mediterranean. In the ninth century fierce Magyar tribesmen
crossed the Carpathians into central Europe and raided, pillaged, and extracted trib-
ute in northern Italy, southern Germany, and eastern France before settling down in
the following century in their newly chosen homeland in the Hungarian plain.
To meet these threats the Frankish kings devised a system of military and politi-
cal relationships, subsequently called feudalism, which they grafted onto the evolv-
ing economic system. Military considerations required troops of mounted warriors,
since the recent introduction of the stirrup (probably from central Asia) had made foot
soldiers almost obsolete. Directly supporting such troops was impossible in the ab-
sence of an effective system of taxation and the virtual disappearance of a money
economy. Moreover, considerations of domestic order and administration called for
numerous local officials who, again, could not be paid directly by the state. The so-
lution was to grant the warriors the income from great estates, many of which were
confiscated from the church, in return for military service; the warriors—lords and
knights—were also charged with maintaining order and administering justice on their
estates. Great nobles—dukes, counts, and marquises—had many estates encom-
passing many villages; some of these they granted to lesser lords or knights, their vas-
sals, in return for an oath of homage and fealty, similar to that which they gave the
king; this procedure was called subinfeudation.
Underlying the feudal system, but with older and quite different origins, was the
form of economic and social organization called (in English) manorialism.' Mano-
rialism began to take shape under the later Roman Empire, when the latifundia
(large farms) of Roman nobles were transformed into self-sufficient estates, and
cultivators were bound to the soil either by legislation or by more direct and im-
mediate economic and social pressures. The barbarian invasions modified the sys-
tem, mainly by introducing tribal chieftains and warriors into the ruling class, and
manorialism received its “definitive” stamp in the eighth and ninth centuries, dur-
ing the Saracen, Viking, and Magyar invasions, when it became the economic ba-
sis of the feudal system.
The earliest documentary evidence that provides direct information on the oper-
ation of the manorial system dates from the ninth century. By that time it was already
well established in the areas between the Loire and Rhine rivers (northern France, the

' Since France was the classic home of the manor, the French terms seigneurie and seigneurialisme
(or, in bastardized anglicization, seignorialism) are frequently used. Other languages have similar but not
identical terms, because of regional variations in the nature of the manor.
46 A CONCISE ECONOMIC HISTORY OF THE WORLD

southern Low Countries, and western Germany) and in the Po valley of northern Italy.
Subsequently it spread, with modifications, to England with the Norman Conquest,
to reconquered Spain and Portugal, to Denmark, and to central and eastern Europe.
Some areas, such as Scotland, Norway, and the Balkans, were never effectively mano-
rialized; even within the areas of manorial economy some regions, usually hilly or
mountainous, maintained different forms of organization.
There was no such thing as a typical manor. Variations, both geographical and
chronological, were far too numerous. It is useful, nevertheless, to construct a hy-
pothetical, idealized manor for purposes of comparison (Fig. 3-1 shows an actual
manor). As an organizational and administrative unit, the manor consisted of land,
buildings, and the people who cultivated the former and inhabited the latter. Func-
tionally, the land was divided into arable, pasture and meadow, and woodland, for-
est, or waste. Legally, it was divided into the lord’s demesne (since the English
word domain has a more general meaning, the anglicized French is preferred for
this special meaning), peasant holdings, and common land. The lord’s demesne,
sometimes though not necessarily enclosed or separated from peasant land, might

division of the manor

Ficure 3—1. A medieval manor. This map of the village of Shilbottle in Northumberland,
England, dates from the early seventeenth century, but is representative of medieval times.
Note the crofts (cottages with gardens) of the peasants surrounded by open fields and com-
mon (waste) land. The manor house is not shown, but the enclosed lord’s demesne is located
in the lower right portion of the map. (From Studies of Field Systems in the British Isles,
edited by A. R. H. Baker and R. A. Butlin. Copyright 1973 by Cambridge University Press.
Reprinted with permission.)

/-"- -SHILBOTTLE COMMON: -.-.-/

SRS SR: 122TACRES on ney ain
5.sen dapenatcess ETRE OR Gene ee ER ae SOUTH? FIELD
PO EC REY NG ae MO ae, MIR ey! 349acres

Common Enclosed
2 demesne
Fj arable VW arable ee ae,

(III pasture LOS pe

[IT[]] pasture

[---] waste So
€ crofts woodland
 Economic Development in Medieval Europe 47

account for 25 or 30 percent of the total arable land of the manor; it also included
the manor house, barns, stables, workshops, gardens, and perhaps vineyards and
orchards. The land the peasants tilled for themselves lay in large open fields sur-
rounding the manor house and village; the fields were divided into strips, with the
holdings of a single peasant household consisting of possibly two dozen or more
strips scattered throughout the fields of the manor. Meadows, pastures (including
vaine pature, fallow fields used for grazing), and woodland or forests were nor-
mally held in common, although the lord supervised their use and maintained spe-
cial privileges in the forests.
The manor house, frequently fortified, served as the residence of the lord or his
agent. In the case of very great lords owning many manors, the manor might be let to
a lesser lord, or vassal, in fee; that is, the vassal was entitled to the benefits of lord-
ship of the manor in return for military service. Religious establishments such as
cathedrals and abbeys also owned manors, which might be let to vassals, managed di-
rectly by clerics, or entrusted to lay stewards or managers. The feudal ideal was “‘no
land without a lord, no lord without land,” but it was not universally realized. In prin-
ciple the function of the lord was defense and the administration of justice; he might
take a direct interest in supervising the exploitation of his demesne, but more often
he left this to a steward or bailiff. In addition, he frequently had other perquisites, such
as ownership of the local mill, oven, and winepress.
The peasants lived in compact villages under the walls of the manor house or in
its vicinity. Their cottages were simple one- or two-room affairs, sometimes with a
loft that served as sleeping quarters. Construction might be of wood or stone, but was
more often of mud and wattle, with earthen floor, no windows, and a thatched roof
with a hole in it to serve as a chimney. There might be auxiliary buildings for live-
stock and equipment, but in winter the livestock frequently shared the living quarters
with the family. Villages were normally located in the vicinity of a stream, which pro-
vided a water supply and actuated the mill and perhaps a bellows for a forge or smithy.
Unless the manor house contained a chapel (or sometimes even if it did), a simple
church would complete the village scene.
So much for the hypothetical manor. In fact, variations were endless. Although
the ideal might have been one manor, one village, frequently one manor encompassed
several villages, or less frequently a single village was divided among two or more
manors. Sometimes the peasant subjects of the manor did not live in villages at all,
but in scattered hamlets or even isolated farmsteads. The two latter types of settle-
ment were most often found in regions of infertile soil or hilly land, where the mano-
rial form of organization existed either in a diluted form or not at all; but in the
Mediterranean basin, especially southern France and most of Italy, the small, square
enclosed fields with isolated dwellings, typical of Roman times, persisted throughout
the Middle Ages. In areas where manorialism was introduced from the outside, as it
were, such as the Iberian peninsula, eastern Germany, and even England, its features
were modified to take the soil, climate, terrain, and existing institutions into account.
Last but not least, manorialism was nowhere the static institution sometimes pictured
but was in a state of constant flux or evolution, usually gradual, almost impercepti-
ble, but ineluctable.
48 A CONCISE ECONOMIC HISTORY OF THE WORLD

Rural Society

There were various gradations of social status within the rural population. In the fully
developed theory of feudalism—which, characteristically, was not elaborated until
the institution itself was on the verge of decline—society consisted of three “orders,”
each with its assigned duty. The lords provided protection and maintained order; the
clergy looked after the spiritual welfare of society; and the peasants labored to sup-
port the two higher orders. Stated more pithily, the lords fought, the clergy prayed,
and the peasants worked. Significantly, town dwellers did not even figure in this hi-
erarchy, although by the eleventh century at least they constituted a sizable category,
certainly more numerous than either lords or clergy.
The ruling class—that is, the feudal order in the strict sense—which probably ac-
counted for less than 5 percent of the total population, in principle formed a social
pyramid ranging from the king at the apex down through the great nobles to the lowli-
est knights at the base. In fact, the situation was even more complicated, as many no-
bles held several manors (also called benefices), and thus were technically vassals of
more than one lord. In extreme cases two nobles, even kings, might be vassals of one
another with respect to particular estates. Nor surprisingly, such complexities fre-
quently led to quarrels and strife, which have given the feudal age a somewhat un-
justified reputation for lawlessness and violence.
The clerical order, the only one that was not biologically self-perpetuating (in
principle, at least, although in practice it was sometimes a different matter), also con-
tained numerous social gradations. In the first place, there was the distinction between
the regular clergy (i.e., the monastic orders), who withdrew from ordinary life into
separate communities, and the secular clergy (priests and bishops), who participated
more directly in the life of the community. In the early Middle Ages the regular clergy
had greater prestige, but the status of the secular clergy improved with the revival of
town life and the economic upswing from the tenth century onward, when bishops
and archbishops played important roles in lay as well as religious life. Second, within
both regular and secular clergy distinctions existed, based on the social status of the
individuals entering the clergy. The younger sons of noble families were often des-
tined, with or without the appropriate training, to become bishops or abbots from the
time they took holy orders, whereas humbler folk could rarely aspire to more than a
parish priesthood or a clerical office in a monastery. The opportunity for vertical mo-
bility was somewhat greater within the church than in rural society generally, but
much less than that offered by the new towns.
Even within the peasant population differences in status existed. Broadly speak-
ing there were two categories, free and servile; but these categories were not always
distinct, and degrees of servility and freedom existed within them. Chattel slavery,
such as existed under the Roman Empire, gradually died out until, by the ninth cen-
tury, almost the only remaining slaves were the household slaves of great nobles. On
the other hand, the class of freemen—peasant proprietors and tenant farmers—who
also existed under the Roman Empire, was depressed almost to the status of servile
workers. Truly free men—free to move from one village to another, to acquire or dis-
pose of land on their own initiative, to marry without their lord’s permission—were
rarities among the medieval peasantry. At the same time the power of the lords was
 Economic Development in Medieval Europe 49

limited. Serfs were not the property of their masters, but adscripti glebae, that is,
bound to the soil. Lords might come and go, but, except in periods of great stress, the
peasant cultivators whether nominally free or servile would remain secure in their
tenures, protected by the “custom of the manor” and occasionally by documentary
evidence (e.g., the English copyholders).
Two general tendencies in the social status of the peasantry are perceptible
through the Middle Ages and early modern times—tendencies closely associated with
the evolution of the manor. From the later Roman Empire to about the tenth or
eleventh century, rights and obligations of the two extremes—freemen and slaves—
were pressed closer and closer together. Then, from about the twelfth century to the
French Revolution, a progressive relaxation of the servile restrictions (not necessar-
ily economic exactions) occurred, resulting in the withering away of the institution
of serfdom in some areas of western Europe (much less in central Europe, and not at
all in eastern Europe, where a contrary evolution occurred).

Patterns of Stability

The organization of work on the manor involved a mixture of customary cooperation

and coercion, with very little scope for individual initiative. The most important op-
erations were plowing, sowing, and harvesting, which would involve almost all in-
habitants of the village. Because of the open field system, and the fact that an indi-
vidual peasant’s strips were scattered throughout the fields, the work had to be
undertaken in common. Moreover, in the heavier soils, which were also normally the
most fertile, a plow team required four, six, or even eight oxen; since peasants rarely
owned more than one or two (many none at all), cooperation was required. Harvest-
ing was also done in common, to allow the livestock to graze on the stubble.
The place of livestock in the medieval agrarian economy varied considerably
from one region to another. Their most important function was as draft animals, and
oxen, the most common of these, were found in every part of Europe. Other draft an-
imals included horses, used in northwestern Europe and in Russia from about the tenth
century, donkeys and mules, used principally in southwestern France and Spain, and
water buffaloes, used in parts of Italy. Oxen, unlike horses and mules, consumed
mainly grass and hay, were docile, and were easy to raise, which accounts for their
prevalence. Milk cows were, of course, necessary to breed oxen; in addition, they pro-
vided the raw material for butter and cheese, and in the poorest regions were also used
as draft animals. In the “Celtic fringe” of Europe (Brittany, Wales, Ireland, and Scot-
land), outside the area of manorial economy where agriculture was little practiced,
seminomadic tribes lived almost exclusively by their herds of cattle. In Scandinavia
also, especially Norway and Sweden, stock raising was more important than tillage.
In the principal manorialized areas poultry, cattle, sheep, and swine were raised for
their meat products (and sheep for wool), and incidentally for the fertilizer they pro-
duced, but stock raising was definitely secondary to field agriculture. It was most of-
ten practiced in northwestern Europe, whose moister climate provided better natural
pastures. The large forests of that region also provided forage for cattle and horses,
as well as for swine. In the south, in areas with a Mediterranean climate, stock rais-
50 A CONCISE ECONOMIC HISTORY OF THE WORLD

ing was much less important, and frequently took the form of transhumance pastur-
ing for sheep and goats: flocks wintered in the lowland areas and were driven to
mountain pastures for the spring and summer. Sometimes the passage of the flocks
damaged agricultural fields, and overgrazing in the mountains contributed to defor-
estation and soil erosion.
Most peasants were obliged to perform some labor services on the lord’s demesne,
which (in principle) took precedence over work on their own strips. The extent and na-
ture of the services varied from region to region (even from manor to manor), Over
time, and according to the social status of the peasant or the nature of his tenure. It was
not uncommon for nominally free men to hold servile tenures, and occasionally a nom-
inal serf might own a copyhold or leasehold. In general, those with servile tenures
would be called on for more work, perhaps three or four days a week on the average,
and those with freeholds did less. Women spun yarn and wove cloth, either in the lord’s
workshop or in their cottages, and children were used as servants in the lord’s house-
hold. Beginning in the tenth century a progressive movement developed, faster in some
areas than others, to suppress labor services or commute them into money rents.
In addition to labor services, most peasants normally owed their lord other dues,
rents, and fees, in money and in kind. Some of these were collected on a regular ba-
sis—a sheep or a few chickens at Christmas, for example, in addition to annual money
rents—whereas others were due on special occasions, such as the assumption of a de-
ceased peasant’s tenure by his heir or at his marriage. The nature and value of these
exactions varied enormously. For thirteenth-century England the total of peasant dues
and rents has been estimated at 50 percent of peasant income, but in some times and
places it may have exceeded even that figure. Peasants were also obliged to use the
lord’s mill, winepress, and oven, for which they paid a fee, and were subject to the
lord’s justice in the manorial court, which often involved payment of fines. They also
paid a tithe (not necessarily a tenth) to the church, and were sometimes subjected to
royal taxation as well. Peasants whose tenures were too small to support a family, as
they often were, performed additional labor on the lord’s demesne (or, less frequently,
for a more prosperous fellow peasant), for which they received wages denominated
in money, although the actual payment was frequently in kind.
The manorial system developed gradually over a period of several centuries, a pe-
riod characterized by political uncertainty, frequent outbreaks of violence, declining
commercial activity and occupational specialization, and primitive production tech-
niques. Although not consciously designed, it maintained social stability and conti-
nuity and supported a sparse population at a low but tolerable level of living. Appar-
ently antithetical to individual initiative and hence to innovation, the system
nevertheless evolved in response to the interplay of institutions and resources, giving
rise to technological changes that increased productivity and stimulated population
growth, thus altering the bases of its own existence.

Forces of Change

The most important innovation in medieval agricultural practice was the substitution
of a three-course crop rotation for the classical two-course rotation of Mediterranean
 Economic Development in Medieval Europe 51

agriculture. It was closely associated with two other significant innovations, the in-
troduction of a heavy wheeled plow (Fig. 3-2) and the use of horses as draft animals.
The latter innovation, in turn, depended on other innovations in the harness and equip-
ment for horses.
The classical two-course rotation, in which fields were planted and left fallow in
alternate years to maintain soil fertility and accumulate moisture, was adapted to the
light soils and long dry summers of the Mediterranean basin. Before the power of
Rome extended to northwestern Europe, settled agriculture was seldom practiced

FIGURE 3-2. The heavy wheeled plow (top). This plow, capable of turning the deep loam
soils of northern Europe, can be compared with the lighter Mediterranean plow (bottom).
The latter scratched the surface of the soil in small square plots, whereas the former created
ridges and furrows in long strips called “furlongs.” (From Connections, by James Burke.
Victoria and Albert Museum, London.)
52 A CONCISE ECONOMIC HISTORY OF THE WORLD

there. The Gauls and various Germanic tribes depended primarily on their herds of
cattle; when they planted field crops, they used a slash-and-burn technique to clear
the ground, moving to a new location as soon as the fertility of the soil declined. The
Romans brought with them their two-course rotation, but their plows were unable to
penetrate the heavy soils characteristic of northwestern Europe; consequently, they
cultivated sandy or chalky hills with adequate natural drainage and avoided the heav-
ier but more fertile soils of the plains and valleys.
The exact place and date of origin of the heavy wheeled plow is still a matter for
debate. It may have entered Gaul with the Franks, but if so, it was not widely used
until field agriculture acquired more importance than stock raising. Its use required
several oxen or other draft animals, and thus contributed to the cooperative nature of
cultivation in the manorial system. Unlike the lighter, simpler Roman plow, the
wheeled plow was capable of breaking and turning the heavy clay and loam soils of
northwestern Europe, which made new resources available to its users.
In the moister climate of northwestern Europe the alternative years of fallow to
allow moisture to accumulate were unnecessary. Moreover, the deeper soils could tol-
erate a steadier pull on their nutrients, especially if the crops planted in them were
varied. The first recorded instance of a regular three-course rotation occurs in north-
ern France in the latter part of the eighth century; by the beginning of the eleventh
century it was widely practiced throughout northwestern Europe. A typical rotation
was a spring crop (oats or barley, sometimes peas or beans), which would be harvested
in the summer; an autumn sowing of wheat or rye, the principal bread grains, which
would be harvested the following summer; and a year of fallow to help restore fertil-
ity to the soil. This basic pattern, however, had many variations.
The three-course rotation had several advantages. The most fundamental was the
increased productivity of the soil: for any given quantity of arable land, one-third
more could be planted in food crops. It also produced a larger yield per unit of labor
and capital; it has been calculated that a plow team sufficient for 160 acres under two-
course rotation could work 180 acres under three-course rotation, meaning an in-
creased productivity of 50 percent in terms of the crops actually grown. The three-
course rotation, with fall and spring sowing, also spread field work more evenly over
the year; it also reduced the risk of famine in the event of crop failure because, if nec-
essary, wheat or rye could be planted in the spring. Finally, with more land available
for food crops, it was possible to introduce new and more varied plants with favor-
able effects on nutrition. As a result of its superiority, the three-course rotation spread
wherever soil and weather conditions were favorable; by the eleventh century it was
in general use throughout northern France, the Low Countries, western Germany, and
southern England. In the Mediterranean area, on the other hand, its appearance was
exceptional; the classical two-course rotation remained in general use there for field
crops until the nineteenth century, although with the growth of urban demand, espe-
cially in northern Italy, much land in the vicinity of cities was given over to steady,
intensive cultivation of commercial crops, making generous use of urban manure.
Horses were not often used for plowing before the tenth century. Partly this was
a matter of cost: horses were more expensive to breed than cattle, consumed more ex-
pensive feed, and were in demand by the well-to-do for both warfare and transport.
But there was also a more fundamental reason. Before the Middle Ages the harness
 Economic Development in Medieval Europe 53

used for horses was designed in such a way that it cut across the throat and interfered
with breathing, thus reducing their effectiveness as draft animals. Sometime before
the tenth century the horsecollar, which rested on the horses’s shoulders, was intro-
duced in western Europe, probably from Asia. Soon afterward the practice of shoe-
ing horses was also introduced, to protect their hooves, which were more delicate than
those of oxen. Thereafter the use of horses as draft animals for plowing and carting
spread, but without fully replacing oxen—far from it. There was no question of the
physical superiority of the horse; it was both stronger and faster than the ox. On the
other hand, it cost more to breed, to feed (horses required oats or a similar grain), and
to equip. Contemporary authors calculated that a horse could do about as much work
as three or four oxen, but cost three or four times as much to maintain. Its adoption
therefore depended on a fine economic calculation and was practical only under cer-
tain circumstances. First, a dependable, not too costly supply of oats was needed; that
ruled out most areas where the two-course rotation survived because of soil or cli-
mate (i.e., most of the Mediterranean basin). In addition, the size of the unit of ex-
ploitation had to be sufficiently large to keep the animal fully employed and suffi-
ciently productive to make him worth his keep. In effect, horse husbandry was
confined to northern France, Flanders, parts of Germany, and England, but did not
completely replace oxen even in those areas. (Horses were also used in parts of east-
ern Europe, especially Russia, but in a different system of cultivation and with some-
what different results.) There is thus a close but not a perfect correspondence between
the use of horses for plowing and the three-course rotation and wheeled plows. Sig-
nificantly, those areas were among the most productive agriculturally in the Middle
Ages—an4d still are today.
In addition to these major innovations, medieval agriculture experienced a host
of minor innovations and improvements. As a result of new sources of supply and im-
provements in metallurgy, iron was more plentiful and cheaper in medieval Europe
than in the ancient Mediterranean; in addition to its use for knightly armor and
weapons, it found increasing use in agricultural implements: not only in the iron cut-
ting edges of wheeled plows, replacing the wooden tips of Mediterranean plows, but
also in such simple tools as hoes, pitchforks, and especially axes. Sickles for reaping
grain were improved, and the scythe was invented for cutting hay. The harrow, used
to break up clods, smooth the surface of the soil, and sometimes cover seeds, had been
known in ancient times, but its design was improved with iron parts and its use was
far more widespread. The value of animal manure for fertilizing the soil had long been
known, but more intensive efforts were made to collect and conserve it. In addition,
the practice of marling (adding chalk or lime to the soil) increased the fertility of cer-
tain kinds of soils, as did the addition of peat to others. In the thirteenth century, in
regions of intensive cultivation, the technique of “green manuring” (plowing under
clover, peas, and other nitrogenous plants) was devised to maintain or increase the
fertility of the soil. Such techniques, together with the use of vetches, turnips, and
clover as fodder crops for intensive grazing and hence heavy manuring, made it pos-
sible to introduce a four-course and even more complicated rotations in regions of in-
tensive cultivation.
One can also speak of innovation in terms of the crops grown and livestock raised.
Although the science of genetics was far in the future, even simple peasants knew
54 A CONCISE ECONOMIC HISTORY OF THE WORLD

they could grow larger horses, better milk cows, and sheep with longer wool by care-
ful breeding. Over the course of the Middle Ages a number of crops were introduced
in Europe, widely diffused, and specially cultivated. Rye, which became the standard
bread grain for much of northern and eastern Europe, was one; it was scarcely known,
if at all, in ancient times. Much the same can be said of oats, so vital to a horse-pow-
ered economy. Peas, beans, and lentils, all previously grown, became more widely
diffused and more common with the greater opportunities for cultivation, thus pro-
viding more varied and balanced diets. Many garden vegetables and fruits from the
Mediterranean and even Africa and Asia were acclimatized in northern Europe. Im-
proved varieties of fruits and nuts were obtained by the technique of grafting, proba-
bly an Arab or Moorish invention. From Muslims in Spain and southern Italy, Euro-
peans learned of cotton, sugar cane, citrus fruit, and, most important, rice, which
became a staple crop in the Po valley and elsewhere in Italy. Mulberry trees and the
culturing of silk worms also came to northern Italy by way of Islamic and Byzantine
civilizations. Lacking both olives and wine, northern Europeans learned to grow rape-
seed for oil and hops for beer. With the growth of textile industries, the demand for
woad, madder, saffron, and other natural dyestuffs increased; some small regions spe-
cialized completely in these products, importing their foodstuffs from outside.
No single explanation exists for the numerous innovations in both techniques and
products. For some innovators, the intention may have been merely to save their own
labor or reduce its burden; but the ultimate effect was to make it more efficient. One
would scarcely characterize medieval agriculture as individualistic, but in practice it
was the individuals who, either alone or in cooperative groups, introduced or adopted
innovations that usually benefited from them. This incentive for innovation was the
big difference between ancient and medieval agriculture. Similarly, the introduction
of new crops or specialization in the production of others reflected both the existence
of incentives and the ability of the cultivators to respond to them. Whether produced
for the direct consumption of the cultivators, for sale to urban consumers, or as raw
materials for growing industries, those commodities are indicative of both rising in-
comes and more diversified channels of production and distribution, hence of eco-
nomic development. The most striking evidence of development, however, was the
growth of population and its consequences, the rise of cities and the physical expan-
sion of European civilization.

Europe Expands

Numerical accuracy in establishing medieval population is out of the question, but

the population of western Europe at about 1000 a.p. has been plausibly estimated at
12 million to 15 million people. (For this purpose western Europe may be regarded
as consisting of northern Italy, France, Benelux, the German Federal Republic,
Switzerland, the United Kingdom, Ireland, and Denmark.) The population of Chris-
tian Europe (other than the Byzantine Empire) at this time—that is, with the addition
of Norway, Sweden, most of eastern Europe, and the Christian population of the Iber-
ian peninsula—was probably about 18 million to 20 million. (These figures imply a
significantly higher density for western Europe than for the rest of the continent; in
 Economic Development in Medieval Europe 55

fact, it was precisely in the areas of manorial economy, especially northern Italy and
northern France, that the population densities were greatest.) By the beginning of the
fourteenth century the population of western Europe was probably between 45 mil-
lion and 50 million, and that of Europe as a whole between 60 million and 70 million.
In western Europe the growth can be attributed almost entirely to natural increase;
elsewhere, migration from western Europe and the conquest or conversion of non-
Christian peoples helped swell the total.
What were the mechanics of such an increase in population? The mathematical
condition for a stable total population is an equivalence of crude birth and death rates.
If the birth rate rises or the death rate falls, the population grows. Partial evidence
from western Europe as well as analogies from other traditional (i.e., predominantly
agrarian) societies suggest that crude birth and death rates were in the vicinity of 35
to 40 per thousand per year. (A birth or death rate of 35 means that there were 35 live
births or deaths during the year for each 1,000 people alive at the midpoint of the
year.) Human biologists estimate that the physiological maximum birth rate, under
the most favorable conditions, is 50 to 55; but in fact such high rates are rarely en-
countered. There is no equivalent maximum for the death rate—a rate of 1,000 would
mean total destruction of the population—but rates of 250 or even 500 might be ex-
perienced for very short periods during severe famines or epidemics. If, on the aver-
age, the birth rate exceeds the death rate by only three per thousand—for example, a
birth rate of 38 or 40 against a death rate of 35 or 37—the ensuing rate of population
increase would be 0.3 percent per year, which is sufficient to produce the growth im-
plied by the estimates given earlier.
If we assume that the population of Europe was stable or falling before the tenth
century (it certainly fell between the second and seventh), what circumstances would
account for a reversal of the conditions that determined it (i.e., a rise in the birth rate
or a fall in the death rate)? The most likely explanation is better nourishment as a re-
sult of larger, more stable, and more varied food supplies. Death from outright star-
vation is rare even in today’s poorest countries, and no doubt was in medieval Europe
as well. But an undernourished population, whether because of insufficient total
caloric intake or an unbalanced diet, is more susceptible to disease than a better nour-
ished one. The increase in agricultural productivity as a result of the three-course ro-
tation and other improvements in agricultural technology could easily account for a
slight decline in the average death rate, which, if sustained for many years, would
bring about a significant rise in population. Furthermore, although we have no firm
evidence for it, the average birth rate may have increased slightly as well. Well-nour-
ished parents are more likely to bear healthy children with a greater chance of sur-
viving the rigors of infancy; and favorable economic circumstances may have en-
couraged earlier marriages, hence a longer chiid-bearing period.
Other factors may have been favorable to the growth of population, but the evi-
dence is less compelling. Insofar as warfare and pillage were less common and de-
structive, the security of life would have increased both directly and indirectly,
through its effect on production. We know too little about medical practice and sani-
tary habits to draw any conclusions about their effects, but the manufacture and use
of soap grew significantly, at least in the thirteenth century—possibly a minor factor
in reducing the death rate. The climate in northern Europe might have ameliorated
56 A CONCISE ECONOMIC HISTORY OF THE WORLD

slightly between the tenth and fourteenth centuries, but if so the influence of this
change would have been felt mainly through greater agricultural productivity. In
short, it is to the latter that we should ascribe major importance in permitting the
growth of population, and improvements in agricultural technology were mainly re-
sponsible for this.
How did the increased population distribute itself, and in what activities, produc-
tive and otherwise, did it engage? There was, above all, a notable increase in the ur-
ban population; we will return to this population and its activities. But only a fraction
of the total population, substantially less than half, was absorbed by the growing
towns. Much the larger part remained in agriculture, distributing itself in three main
ways. First, the average density of existing settlements increased. New land was
cleared on the outskirts of fields already under cultivation and, at least in the thir-
teenth century and especially in the first half of the fourteenth century, the average
size of plots was reduced as more villagers had to find a place in the by then saturated
settlements.
Second, and more important, formerly wild and unsettled land was cultivated. At
the beginning of the tenth century villages in northwestern Europe (and even more so
farther north and east) were widely scattered, with large tracts of virgin forest or
wasteland in between. A major effort of clearing and reclamation, not unlike that en-
gaged in by European colonists in America in later centuries, was needed to bring
these lands into cultivation. A similar effort was undertaken to regain polderlands
from the sea in Flanders, Zealand, and Holland. Most of these reclamation efforts
were made at the instigation, or at least with the permission, of great lords in whose
administrations the lands lay; but to attract settlers for the arduous work of clearing
and reclamation, the lords were frequently obliged to renounce the possession of
demesne land and labor service from the settlers. The latter thus became rent-paying,
but otherwise economically independent, farmers.
The movement to clear forest and reclaim marshes and other wastelands was en-
couraged and directly assisted by several religious orders, notably the Cistercian
brotherhood of monks. Founded in the eleventh century, the Cistercians followed a
discipline ofextreme asceticism, hard work, and withdrawal from the world. They es-
tablished their abbeys in the wilderness, and devoted their efforts to making them eco-
nomically productive, admitting peasants as lay brothers to assist with the work. Un-
der the leadership of Bernard of Clairvaux (St. Bernard), who joined the order in 1112,
new chapter houses proliferated throughout France, Germany, and England. By 1152
a total of 328 chapters ranged geographically from the Yorkshire moors to Slavonic
territory in eastern Germany.
Finally, European civilization expanded geographically to accommodate its larger
numbers. The gradual incorporation of Scandinavia into European civilization and
economy is a different matter, because it did not involve a migration of people nor a
forced imposition of European institutions. We can also regard the Norman conquest
of England as a domestic matter among Europeans, but this was scarcely the case with
the reconquest of the Iberian peninsula and Sicily from the Muslims, the Drang nach
Osten of German settlers in eastern Europe, and least of all the establishment of feu-
dal monarchies in the Near East during the Crusades.
Although the Franks drove the Muslims south of the Pyrenees in the eighth cen-
 Economic Development in Medieval Europe 57

tury, and a few miniscule Christian kingdoms held out in the mountainous northern
regions, for more than 400 years Islamic states and civilization dominated the greater
part of the Iberian peninsula. The Muslim (mainly Moorish) inhabitants were skilled
in agriculture, especially horticulture; they revived and extended the Roman irriga-
tion system and made southern Spain one of the most prosperous areas of Europe.
The capital, Cordova, was the largest city in Europe west of Constantinople; it was a
major intellectual center as well, serving as a bridge for the transmission of knowl-
edge from the ancient world to the emerging civilization of Europe.
The Christian reconquest of the peninsula got underway in earnest in the tenth
century, coincident with the growth of European population, and by the thirteenth cen-
tury nine-tenths of the peninsula was in Christian hands. The reconquest took on a
crusading character, and many of the warriors who took part came from north of the
Pyrenees. The kingdom of Portugal, for example, was created by Burgundian knights.
To support them and settle the wasted territory, the conquerors brought northern peas-
ants with them, encouraged the migration of others, and attempted to transplant the
manorial system. The topography and climate of Iberia, so different from that of
northern France, was not hospitable to this innovation, however; modifications were
introduced, but the end result was a hybrid system that was less productive than ei-
ther northern manorialism or intensive Moorish agriculture, which the Christian pop-
ulation was unable to maintain.
In the latter part of the eleventh century, when the Christian reconquest of Spain
and Portugal was in full swing and Duke William of Normandy successfully asserted
his claim to be king of England, other Norman warriors descended on far-off Sicily
and undertook its conquest from the Muslims. Before it was conquered by the Mus-
lims Sicily had been a part of the Byzantine empire; thus its conquest by the Normans
brought it, for the first time, into the ambit of the Western economy. For a time after
its conquest, with its medley of Greek, Arab, and Norman elements, it was one of the
most prosperous areas in Europe. Normans from Sicily also wrested southern Italy,
the last remaining Byzantine territory in the West, from Constantinople.
Perhaps the most striking evidence of the economic vitality of medieval Europe
was the German expansion into what is now Poland, Czechoslovakia, Hungary, Ro-
mania, and Lithuania. Before the tenth century that area had been sparsely populated,
mainly by Slavic tribes employing primitive agricultural techniques along with hunt-
ing and gathering. Austria had been a part of Charlemagne’s empire, but in the ninth
century invading Magyars conquered and pillaged it. In 955 German forces decisively
defeated the Magyars, after which the latter settled down in the central Hungarian
plain and Austria was resettled by colonists from Bavaria. German missionaries sub-
sequently converted the Hungarians and western Slavs to the Roman church, and the
(German) Holy Roman emperors asserted their sovereignty over much of eastern Eu-
rope. About the middle of the eleventh century—that is, about a hundred years after
the beginning of the demographic upswing in the West—German colonists began
spreading eastward across the Elbe River into what became eastern Germany, con-
quering or displacing the native Wendish (Slavic) population. In the following cen-
tury, after the devastation wrought by nomadic Mongols, the rulers and the church in
Hungary and Poland invited German settlers into their territories, granting them var-
ious immunities and allowing them to bring their own legal and economic institutions.
58 A CONCISE ECONOMIC HISTORY OF THE WORLD

Finally, in the thirteenth century the Teutonic Knights were charged with conquering,
Christianizing (and incidentally Germanizing) the still pagan lands of Prussia and
Lithuania in the eastern Baltic region.
The colonization of this vast region was accomplished in several ways, but much
of it involved a rudimentary form of economic planning. Individuals called locators,
whose function was not unlike that of a modern real estate developer, made contracts
with a great landlord or local ruler to establish a village or group of villages, and per-
haps a town. They then toured the more advanced, densely settled parts of Europe,
especially western Germany and the Low Countries, to recruit colonists. For settle-
ments in low-lying or marshy areas, such as near the mouths of rivers, colonists from
Holland and Flanders who had experience in dyking and draining were preferred.
Where forests had to be cleared or wasteland reclaimed, peasants from Westphalia
and Saxony predominated. Town-dwelling artisans and traders were also recruited,
as the colonization plans envisaged not only purely agricultural settlements but also
networks of market towns. The rural settlers brought with them the manorial form of
organization and the more advanced agricultural technology that went with it. Rents
included both money and in-kind payments to the landlord (usually after the lapse of
a stipulated number of years, while they made the land productive), but they had more
land, fewer burdens, and greater freedom than in the regions from which they came.
Locators usually received larger allotments of land than ordinary peasants; sometimes
they settled down and became headmen in the villages they established, but frequently
they sold their rights and moved on to repeat the process. Religious orders, especially
the Cistercians and of course the Teutonic Knights, were also involved in the expan-
sion. The Teutonic Knights founded numerous towns and cities, including Riga,
Memel, and KOnigsberg, and engaged themselves in commercial activities.
The overall economic results of this expansion may be summed up as a diffusion
of more advanced technology, a significant increase in population through natural in-
crease as well as immigration, a great extension of the cultivated area (new resources),
and an intensification of economic activity. As early as the middle of the thirteenth cen-
tury grain was being shipped from Brandenburg to the Low Countries and England via
the Baltic and North seas; subsequently Poland and East Prussia became major sup-
pliers not only of grain but also of naval stores and other raw materials. Finally, al-
though this consequence goes beyond the purely economic sphere, the German ex-
pansion tied eastern Europe more closely to the emerging civilization of the West.
The Crusades, unlike the German push to the East, did not result in a permanent
geographic expansion of European civilization; their causation was more complex,
involving religious and political motivations to a greater extent than economic. Yet
Pope Urban II, in advocating the first crusade in 1095, gave as one of his reasons Eu-
rope’s “overpopulation,” and without the vitality of a growing population and pro-
duction Europeans would have been unable to mount the considerable military and
economic effort the Crusades represented. Significantly, the crusading era ended with
the long secular depression of the fourteenth century. Just as a growing economy
made it possible for Europeans to undertake the Crusades, however, the latter stimu-
lated the growth of trade and production. Not only was it necessary to finance and
supply the crusading armies, but temporary conquests by Christians in the eastern
Mediterranean opened up new sources of supply and new markets for Western mer-
 Economic Development in Medieval Europe 59

chants. It is not true, as was once believed, that the Crusades were responsible for the
revival of trade—that had already occurred before the Crusades began; but they were
intimately related to its extension and continued growth.

The Revival of Urban Life

The urban population had begun to decline even before the fall of Rome. During the
early Middle Ages in northern Europe many urban sites were abandoned altogether;
others remained as hollow shells housing a few lay or ecclesiastical administrators
and their retainers. They drew their basic supplies from the immediately surrounding
countryside, frequently from their own estates. Long-distance trade was confined
largely to luxury goods, including slaves, destined for the courts of rich and power-
ful nobles, both secular and religious; its agents were foreigners, mainly Syrians and
Jews, who were granted special protection and passes by their customers.
In Italy, although the cities suffered and shrank during the centuries of invasion
and pillage, the urban tradition lingered. Before the eleventh century Italian political,
cultural, and economic contacts with the Byzantine Empire (and, after the seventh cen-
tury, with Islamic civilization) were as strong as or stronger than those with northern
Europe. Italian cities were thus in a position to act as intermediaries between the
wealthier, more advanced East and the poor and backward West, a position from which
they profited both literally and figuratively. Amalfi, Naples, Gaeta, and other port cities
in the southern half of the peninsula, which maintained their political affiliation with
Constantinople but were sufficiently distant not to be unduly hampered by imperial
regulation, were the principal intermediaries between the sixth and ninth centuries.
Venice, literally forced to the sea and to maritime trade by the Lombard invasion of
the sixth century, which cut it off from its agricultural hinterland, developed rapidly as
an entrepot. Pisa and Genoa were similarly forced to the sea to defend themselves
against Muslim raiders in the tenth century; their counterattack was so successful that
they soon found themselves in command of the entire western Mediterranean.
Urban growth began first in the port cities, but was not confined to them for long.
The Lombard and Tuscan plains formed the natural hinterlands of Venice, Genoa, and
Pisa; they were also among the most fertile agricultural regions of Italy, and they, too,
clung to the ancient urban tradition of Rome. With the increase of agricultural pro-
ductivity and the growth of population that it engendered, many peasants migrated to
the urban centers, old and new, where they took up new occupations in commerce and
industry. Milan was the outstanding example in Lombardy, Florence in Tuscany; but
there were many others, smaller but equally bustling (Fig. 3-3). The interaction be-
tween town and country was intense. The country provided the surplus population to
people the towns, but once there the new urban inhabitants provided larger markets
for the produce of the country. Under the pressure of market forces the manorial sys-
tem, designed for rural self-sufficiency, began to disintegrate. As early as the tenth
century tenant labor services were being replaced by money rents; shortly afterward
feudal lords began to lease or sell their demesne lands to commercial farmers. The
open fields of the manorial system were broken up, enclosed, and subjected to inten-
sive tillage, frequently involving irrigation and heavy manuring. Many of the new
60 A CONCISE ECONOMIC HISTORY OF THE WORLD

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agricultural entrepreneurs were urban dwellers who applied to their lands, whether
purchased or rented, the same careful calculations of cost and revenue that they had
learned in business dealings.
As we have seen, the theorists of the feudal system made no provision for towns-
people. Some kings and other great feudal lords tried to treat entire towns as vassals,
but the exigencies of urban government, the demands of merchants for freedoms not
possessed by other feudal subjects, and above all the pretensions of wealthy men of
business did not easily fit into the feudal hierarchy. In the cities of northern Italy the
more successful merchants banded together, sometimes with the cooperation of ur-
ban-dwelling lesser aristocrats who might also engage in trade, or at least lend money
to those who did; they formed voluntary associations to attend to municipal affairs,
to protect their common interests, and to settle disputes without recourse to the cum-
bersome feudal courts. In time these voluntary associations became urban govern-
 Economic Development in Medieval Europe 61

ments, called communes; they bargained with their feudal overlords for charters of
freedom, or fought them for the same objective. As early as 1035 Milan won its free-
dom by force of arms. In Italy, moreover, unlike other parts of Europe, the cities
proved strong enough to extend their power over the immediately surrounding coun-
tryside, similar to the Greco-Roman city-states of ancient civilization. A map of Italy
north of the Tiber in the thirteenth century resembles a mosaic whose tiles are the ter-
ritories of the communes. In 1176 a league of Lombard cities defeated the armies of
the Emperor Frederic Barbarossa to confirm their freedom and independence.
Elsewhere in Europe urban development began later and was less intense than in
northern Italy. Towns and cities grew—in the Low Countries, in the Rhineland, scat-
tered across northern France, in Provence and Catalonia; the locators of Germany and
eastern Europe even carried town plans with them into the wilderness—but with few
exceptions they were neither as large nor as concentrated as the cities of northern Italy.
Above all, they did not succeed to nearly the same extent in winning autonomy or in-
dependence from territorial princes. At the end of the thirteenth century, when Milan
had a population of some 200,000, the populations of Venice, Florence, and Genoa
each exceeded 100,000, and those of several other Italian cities ranged from 20,000
to 50,000, few cities in northern Europe could reach the latter figure. Paris, which
combined the functions of territorial capital and seat of a great court, commercial and
industrial town, and university center, may have equaled Milan in population, al-
though some doubt its population exceeded 80,000. As late as 1377 the population of
London was no greater than 35,000 to 40,000, and that of Cologne, by far the largest
city in Germany, was about the same.
The only region that could compare with northern Italy, in terms of urban devel-
opment, was the southern Low Countries, especially Flanders and Brabant. Although
Ghent, the largest city, had only about 50,000 inhabitants at the beginning of the four-
teenth century, the urban population as a whole may have constituted about one-third
of the total, approximately the same as in northern Italy. There are other similarities
as well. Not only did these two areas have the largest urban populations, but their
overall densities were also the greatest in Europe. Their agriculture was the most ad-
vanced and intensive, and they contained the most important commercial and indus-
trial centers. The question naturally arises, did men move to cities and turn to com-
merce and industry because there was no place for them on the land, or did the
existence of towns and trade, with their potentially lucrative markets, stimulate the
cultivators to greater production and productivity? There can be no definitive answer
to this question; undoubtedly, there were reciprocal influences. But the fact that agri-
culture was always more intensive and productive in the vicinity of towns and cities
than in the open countryside suggests an important role for urban demand and mar-
kets. It is therefore necessary to consider the development and nature of the market
mechanism in greater detail.

Commercial Currents and Techniques

The most prestigious and profitable trade was no doubt that which stimulated the
commercial revival between Italy and the Levant. Even before the Italians made it
62 A CONCISE ECONOMIC HISTORY OF THE WORLD

their own, the route had been used by Eastern merchants bringing luxury goods to
Western courts. After the Italians took charge, luxury goods—spices from as far east
as the Moluccas, silk and porcelain from China, brocades from the Byzantine Em-
pire, precious stones, and other goods—still dominated the movement from east to
west, but in addition there were such bulky goods as alum from Asia Minor and raw
cotton from Syria. In the opposite direction went common cloth of wool and linen,
furs from northern Europe, metalwares from central Europe and Lombardy, and glass
from Venice. The Venetians had traded with the Byzantine Empire from the very be-
ginnings of their history, but they secured a favored place in the latter part of the
eleventh century in return for aid against the Seljuk Turks; as a result, they obtained
free access to all ports of the empire without payment of customs duties or other
taxes—a privilege not granted even to the empire’s own merchants.
Meanwhile Genoa and Pisa, having driven the Muslims from Corsica and Sar-
dinia, descended on their strongholds in North Africa, looted their cities, and extracted
specially favorable terms for their own ships and merchants. Subsequently Genoa de-
feated Pisa for undisputed mastery of the western Mediterranean and challenged
Venice for control of the East. During the Crusades the Italian cities, in concert and
in rivalry, intensified their penetration of the Levant; they established colonies and
special privileged enclaves from Alexandria along the Palestinian and Syrian coasts,
in Asia Minor, Greece, the suburbs of Constantinople, and around the shores of the
Black Sea from the Crimea to Trebizond. Genoese ships, built on the spot, even sailed
the Caspian Sea and Persian Gulf. The fall of the kingdom of Jerusalem and the fail-
ure of the Crusades scarcely affected the Italian positions in the East; instead, the Ital-
ians made treaties with Arabs and Turks and continued “business as usual.”
A special, exotic extension of the Eastern trade that flourished from the mid-
thirteenth to the mid-fourteenth century was that with China. During that period the
Mongol Empire, the most extensive land empire the world has ever seen, stretched
from Hungary and Poland to the Pacific. The Mongol rulers, in spite of their fierce
reputations, welcomed Christian missionaries and Western traders. Again, the Italians
dominated the trade, with colonies in Peking and other Chinese cities as well as In-
dia. Merchants’ handbooks described the itineraries—overland through Turkestan,
“the great silk route,” or Persia, or by sea through the Indian Ocean—in great detail
and gave useful hints as to what merchandise would be in demand. Marco Polo’s ac-
count of his adventures was one of the first “best-sellers” in Europe.
At the other end of the Mediterranean trade was more prosaic. It included spices
and other luxury products from the East, of course, but more important, at least to the
Italians, were their grain supplies from Sicily. That was a regular flow, except in times
of war and blockade, necessary for the survival of the grain-poor Italian cities. In ad-
dition, other ordinary commodities such as salt, dried fish, wine, oil, cheese, and dried
fruits moved from regions of specialized production or temporary surplus to those
with chronic or temporary deficits. In spite of the relatively slow communications,
alert merchants and active markets saw to it that effective demand did not go unsat-
isfied for long. Although the great Italian ports dominated this trade also, they shared
it, more or less willingly, with Catalan, Spanish, Provencal, Narbonaise, and even
Muslim traders (see Fig. 3-4).
The northern seas, though less busy than the Mediterranean, grew steadily in im-
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64 A CONCISE ECONOMIC HISTORY OF THE WORLD

portance in the Middle Ages. In the early Middle Ages the Frisians had been the prin-
cipal carriers of the slender volume of trade along the North Sea coasts and up the
great rivers. As the Baltic became more prominent they were succeeded by the Scan-
dinavians, but in the later Middle Ages the great German trading cities, organized in
the Hansa (usually incorrectly called the Hanseatic League), dominated the trade of
both the Baltic and North seas.
The Hansa, which eventually included almost 200 cities and towns, was not for-
mally organized until 1367, in response to the threat of the king of Denmark to re-
strict their activities; but it had been preceded by many years of informal cooperation
among German merchants in foreign cities. In Venice, for example, there was a “Ger-
man foundation,” which provided lodging and board for itinerant German merchants,
as well as advice and assistance in marketing their wares. In London the “Steelyard”
(Stalhof), a district inhabited by resident German merchants, won rights of extrater-
ritoriality and self-government as early as 1281. Similar German colonies existed in
Bruges, in Bergen, Norway, in Visby on the island of Gotland, and elsewhere in the
Baltic, as well as in the great trading city of Novgorod in Russia. Riga, Memel, and
Danzig, among others, were entirely German cities established as enclaves in foreign
lands. Their merchants carried the grain, timber, naval stores and other commodities
produced by German colonists in the Baltic hinterland to the thriving cities growing
up around the North Sea.
As early as the twelfth century regional specialization in production was becom-
ing a marked feature of the medieval economy. The most famous example was the
Gascon wine trade, with its headquarters in Bordeaux; but the Flemish woolen in-
dustry depended heavily on supplies of raw wool from England, and the Baltic lands
became increasingly important as sources of grain to feed the highly urbanized Low
Countries. Farther south, Portuguese, French, and English ships brought salt and wine
northward, returning with cargoes of dried and salted fish.
Mile for mile, land transport is generally more expensive than transport by water.
This was true to an even greater extent before the locomotive steam engine and the
internal combustion engine were invented. This accounts for the great importance of
seaborne trade prior to the industrial age. In the Middle Ages, however, there was one
great exception to this rule—the trade between northern and southern Europe, espe-
cially the trade of northern Italy with Germany and the Low Countries. Before the ad-
vances in ship design and navigational techniques of the late thirteenth and fourteenth
centuries, which were to have a revolutionary impact in the fifteenth century, the sea
route between the Mediterranean and the North Sea was hazardous and not especially
profitable. For this reason the great Alpine passes (Brenner, St. Gothard, Simplon, St.
Bernard, Mt. Cenis, and others) were more heavily trafficked than the Straits of
Gibraltar, in spite of their own obstacles and hazards. Feudal lords, through whose
lands the routes passed, put down bandits and improved the roads, for which they
charged tolls, although the competition of alternative routes kept them to a reason-
able level. Religious brotherhoods organized relay stations and rescue services, of
which St. Bernard dogs with their casks of brandy are the most memorable symbol.
Professional companies of carters and muleteers provided transport facilities in an at-
mosphere of lively competition. The most important emporia at the southern end of
the route were the cities of the Lombard plain, especially Milan and Verona. There
 Economic Development in Medieval Europe 65

were numerous destinations in the north, from Vienna and Cracow in the east to
Liibeck, Hamburg, and Bruges in the extreme north and west; but the majority of the
goods changed hands in the great fairs or markets of Leipzig, Frankfurt, and espe-
cially the four fair towns of Champagne.
The fairs of Champagne emerged in the twelfth century as the most important
meeting place in Europe for merchants from north and south. Under the protection of
the counts of Champagne, who provided merchandising facilities and special com-
mercial courts as well as protection on the road for traveling merchants, the fairs ro-
tated almost continuously throughout the year among the four towns of Provins,
Troyes, Lagny, and Bar-sur-Aube. Located roughly midway between Europe’s two
most highly developed economic regions, northern Italy and the Low Countries, they
served as meeting ground and place of business for merchants from each; but they
also played a role in the trade of northern Germany with southern France and the Iber-
ian peninsula. The commercial practices and techniques that developed in these
towns—for example, the “letters of fair” and other credit instruments, and the prece-
dents of their commercial courts—exercised an influence far broader and longer last-
ing than the fairs themselves. Even after their decline as commodity trading centers,
they continued for many years to serve as financial centers.
In the latter decades of the thirteenth century voyages from the Mediterranean to
the North Sea became increasingly frequent; in the second decade of the fourteenth
century both Venice and Genoa organized regular annual convoys, the famous Flan-
ders fleets. These seagoing caravans took merchandise from the Mediterranean ports
directly to the great permanent market in Bruges (and subsequently to Antwerp),
thereby undercutting some of the functions of the Champagne fairs. Although over-
land trade did not cease entirely (in the fifteenth century Geneva played a role very
similar to that of Champagne), a new phase in the economic relations between north-
ern and southern Europe had clearly opened. It involved not only new routes and new
means of transport, but also a shift in both the scale of commerce and the mechanisms
of business organization. Great trading and financial companies, with headquarters in
the major Italian cities and branches throughout Europe, replaced individual travel-
ing merchants as the principal agents of commerce. This development, sometimes
called a “commercial revolution,” was of primary importance in the next age of Eu-
ropean expansion that began in the fifteenth century.
In Carolingian times merchants were usually foreigners—‘‘Syrians” (almost any-
one from the Levant) and Jews. With the revival of commerce in the tenth century
European merchants became more prominent, but until well into the thirteenth cen-
tury merchants continued to be itinerant. It was a vigorous life, requiring physical sta-
mina and courage as well as a head for business. By land, merchants frequently trav-
eled in caravans, bearing their own arms or hiring armed guards to ward off bandits.
By sea, they were also armed against pirates and had to contend with the possibility
of shipwreck as well. It is scarcely surprising that such merchant voyages were called
“adventures.”
Under the simplest circumstances merchants worked for their own account, their
entire capital consisted of the stocks of goods they carried. Very early, however, a
form of partnership, the commenda, came into use: one merchant, perhaps too old for
the rigors of travel, provided the capital for another, who actually undertook the voy-
66 A CONCISE ECONOMIC HISTORY OF THE WORLD

age. Profits were divided, usually three-fourths for the sedentary capitalist and one-
fourth for the active partner. Such contracts were most common in the sea trade of the
Mediterranean, but they were also used in overland travel; usually they were limited
to a single (round-trip) venture, but a successful venture was often followed by an-
other contract between the same partners. Sometimes the sedentary merchant would
specify the destination and the return cargo, which he might undertake to dispose of
in the home port; but it was not uncommon, especially when the “capitalist” was a
widow, a foundation or religious establishment, or a trustee acting on behalf of mi-
nor children or orphans, for the active partner to make all the key decisions. In Genoa
and other Italian cities, as early as the twelfth century, many individuals who were
not actually active in trade invested in trade by this means.
As the volume of trade expanded and commercial practices became standardized,
a new form of business organization—the vera societd, or true company—arose to
rival, and sometimes supplant, the commenda. It had several, sometimes numerous
partners, and frequently operated in many cities throughout Europe. The Italians were
by far the most prominent in this type of organization; from headquarters in Florence,
Siena, Venice, or Milan, they could operate branches in Bruges, London, Paris,
Geneva, and several other cities. They frequently engaged in banking along with mer-
cantile operations (or vice versa). The Bardi and Peruzzi companies of Florence were
the largest business organizations in the world before the great chartered companies
of the seventeenth century; but both were bankrupted in the 1340s as a result of
overextensions of credit to Edward III of England and other impecunious sovereigns.
In addition to maintaining branches, these great companies had their own ships and
wagon and mule trains; some owned or leased metal mines and other mineral deposits.
Smaller merchants who could not afford their own ships devised other means of
spreading the risks of long-distance commerce. Shipowners might lease their ships to
several merchants in common who traded separately but joined forces to rent the ship.
Or a single entrepreneur might lease an entire ship, then retail space in it to other mer-
chants. Various types of sea loans were devised to give nontrading investors an in-
terest in the profits without either making them partners in the enterprise or violating
the usury laws. By the end of the thirteenth century maritime insurance was common.
Banking and credit were intimately related to medieval commerce. Primitive de-
posit banks were set up in Venice and Genoa as early as the twelfth century. Origi-
nally intended as mere safe deposits, they soon began to transfer sums from one ac-
count to another on oral order and, less frequently, on written order. Although legally
forbidden to make loans on fractional reserves, the banks granted overdraft facilities
to favored depositors, thereby creating new means of payment. Such banks were
found only in the major commercial centers; outside of Italy, these were chiefly
Barcelona, Geneva, Bruges, and London. (Lombard Street, the heart of the present fi-
nancial district of London, got its name from the large number of Italian bankers who
kept offices there.) Elsewhere, however, private bankers bought and sold bills of ex-
change to facilitate long-distance trade. Because of the high risk and expense of ship-
ping coin and bullion, merchants preferred to sell on credit, invest the proceeds ina
return cargo, and realize profits only after the latter had been disposed of. Virtually
all of the business of the Champagne fairs was conducted by means of credit: at the
end of one fair unsettled balances were carried over to the next by means of letters of
 Economic Development in Medieval Europe 67

fair, a kind of bill of exchange. Although bills of exchange developed in connection

with commodity trade, they were eventually used purely as financial instruments,
with no direct connection to actual commodities.
Another reason for the widespread dependence on credit was the multiplicity and
confusion of coinage. Most regions of western Europe used the Carolingian mone-
tary system of pounds, shillings, and pence (in Latin, libra, solidus, denarius), but
this apparent unity masked a bewildering disunity of actual monies. For one thing,
the Genoese lira did not have the same value as the English pound, the French livre,
or even the Milanese or Pisan lire. More fundamentally, both the pound and shilling
were mere monies of account; no actual coins of those values were struck until very
late in the Middle Ages. The most common coins in the eleventh and twelfth centuries
were pennies; not only were these inconvenient for large payments, but they were
minted by numerous authorities—kings, dukes, counts, even abbeys—with different
sizes, weights, and silver contents. Larger silver coins came into use about the be-
ginning of the thirteenth century, but these, too, lacked uniformity of both weight and
fineness. Hard-pressed sovereigns with inadequate tax revenues frequently resorted
to debasement of the coinage to extend their resources. Under such circumstances the
money changers, whose business it was to know the values of the scores of different
types of coin, performed an important function in the fairs and commercial cities.
From their ranks came many bankers (Fig. 3-5). Not until the second half of the thir-
teenth century did Europe at last obtain a really stable currency, the famous gold florin

Figure 3—5. Tuscan banker. A banker with his assistant, seated on his bancum (bench) be-
hind his “counter,” in which he kept his conti (accounts) and over which he counted out
money. Many bankers evolved from money changers. (SCALA/Art Resource, New York.)
68 A CONCISE ECONOMIC HISTORY OF THE WORLD

first issued in Florence in 1252. (Genoa had minted a similar coin a few months ear-
lier, but it was not as popular; in 1284 Venice began minting similar coins, called
ducats or sequins, which were widely used—and imitated—in the eastern Mediter-
ranean.) The florin was ideally suited for mercantile purposes—stable in value, rela-
tively large denomination—but by the time it came along, credit had already become
an indispensable part of commercial activity.

Industrial Technology and the Origins of Mechanical Power

Although greatly inferior to agriculture in terms of the numbers involved, manufac-

turing industry was by no means a negligible sector of the medieval economy. More-
over, it steadily grew in importance with the passing centuries. There may have been
some slight regression in technical competence in the early Middle Ages—in archi-
tecture and building, for example—but by the year 1000 the average level of tech-
nology was at least as high as in ancient times. Thereafter, innovations occurred in
steadily increasing numbers so that, from the viewpoint of the history of technology,
there is no hiatus between medieval and modern times.
The largest and most ubiquitous industry was no doubt the manufacture of cloth,
although the building trades, taken together, may have been a close second. Cloth was
made in every country, every province, almost in every household of Europe; but by
the eleventh century some areas had definitely begun to specialize in it. Of these the
most important was Flanders and the surrounding area in northern France and what
is now Belgium. Other centers of importance were northern Italy and Tuscany (Flor-
ence alone employed several thousand cloth workers in the fourteenth century),
southern and eastern England, and southern France. Wool was by far the most im-
portant raw material and woolen cloth the most important product. Differences in type
and quality of cloth produced in different regions account for the widespread trade
within Europe. Besides wool, linen was produced in many areas, especially France
and eastern Europe. Silk and cotton production were confined to Italy and Muslim
Spain.
Although the more skilled workers, such as dyers, fullers, shearers, and even
weavers, were organized in guilds, the industry was dominated by merchants (also
organized in guilds), who bought the raw materials and sold the final product. The
less skilled workers, including spinners (and spinsters), lacked organization and gen-
erally worked directly for the merchant. In Flanders and England these merchant-
manufacturers sent or “‘put out” the raw or semifinished materials to the weavers and
other artisans, who worked them up in their own homes or shops; but in Italy the work
was done in shops or sheds, under the eye of a supervisor. The productivity of labor,
compared with that in ancient times, increased severalfold as a result of a trio of in-
terrelated technical innovations: the pedal loom, replacing the simple weaving
frame; the spinning wheel, replacing the distaff; and the water-powered fulling mill.
Their inventors are unknown, but the devices spread surprisingly fast throughout Eu-
rope at the beginning of the twelfth century (Fig. 3-6). Lowered costs of production
is no doubt a sufficient reason for their diffusion, but they also reduced the tedium
of labor.
 Economic Development in Medieval Europe 69

FIGURE 3—6. Knitting. This picture of the Virgin Mary knitting a garment for her unborn
child, taken from a stained glass altarpiece of a church in western Germany, is the first
known representation of knitting, a medieval invention. Knitwear was unknown in the an-
cient Mediterranean world, but was very useful in the colder, damper climate of northern Eu-
rope. (Hamburger Kunsthalle.)

Smaller than the textile industries, but strategically more important for economic
development, the metallurgical industries and their auxiliaries experienced notable
progress in the later Middle Ages. According to a conventional classification, the Iron
Age began about 1200 B.c., but throughout classical antiquity objects and implements
of iron were rare and expensive, and iron was virtually monopolized for weapons and
decorations for the small ruling classes. Even copper and bronze, though somewhat
more plentiful, seldom entered the daily lives of common people. In the Middle Ages,
70 A CONCISE ECONOMIC HISTORY OF THE WORLD

on the other hand, the price ratios were reversed, with iron becoming the cheaper
metal, and in addition to its continued use for arms and armor it was used in an in-
creasingly wide variety of tools and for other utilitarian purposes. The greater abun-
dance and lower price of iron were partly a result of the greater accessibility of iron
ore, and especially fuel (charcoal), in Europe north of the Alps. Improvements in tech-
nology, notably the use of water power to actuate bellows and large trip hammers,
were also important, however. Toward the beginning of the fourteenth century the first
precursors of the modern blast furnace, replacing the so-called Catalan forge, made
their appearance. The organization of miners and primary metalworkers in free com-
munities of artisans, in contrast with the slave gangs of Roman times, no doubt fa-
cilitated technological change.
Consumer demand should also be taken into account when considering the in-
creased output and pressures for improved technology. When peasants, even serf
peasants, and artisans owned their own tools, and their own well-being was in direct
proportion to the efficacy of their efforts, it behooved them to buy the best tools and
implements they could afford. The use of horseshoes and iron fittings on harnesses,
carts, and plows is evidence that the peasants and artisans were aware of this. The
ubiquity of the names Smith and Schmidt (or Schmied) in English and German also
testifies to the numerous artisans who earned their living by filling their neighbors’
demand for metalwares.
Another industry of great practical use that expanded appreciably beyond its clas-
sical dimensions was tanning and leather working. It is difficult for a twentieth-cen-
tury urban dweller, surrounded by synthetic and plastic materials, to appreciate the
importance of leather to earlier generations. In addition to its uses in saddles, har-
nesses, and such, it was used for furniture, clothing, and industrial equipment such as
bellows and valves. Similarly, woodworking and pottery occupied a much larger
place, proportionately, in medieval industry than in earlier or more recent times; their
output found literally hundreds of uses, both ornamental and utilitarian.
Far from being tradition-bound and wedded to unchanging routine, as they were
formerly depicted in textbooks, medieval men—or some of them—deliberately
sought out novelty, both for its own sake and for immediate, practical purposes. It is
to medieval tinkers, not classical philosophers, that we owe such useful inventions as
eyeglasses and mechanical clocks. The astrolabe and compass came into general use
in Europe during the Middle Ages, in connection with the momentous improvements
in navigational technique and ship design that help delineate the medieval from the
modern age. Similarly, gunpowder and firearms were medieval inventions, although
their period of greatest effectiveness came later. Soapmaking, although not a com-
plete novelty, expanded considerably. Papermaking was a new industry whose cul-
tural significance was far greater than its economic weight. And printing from mov-
able type, one of the most important innovations since the dawn of civilization, was
also a late medieval invention. But possibly the most characteristic expression of me-
dieval man’s deliberate search for new and more efficient means of production can
be found in the history of mills and millwork.
Simple horizontal waterwheels, turned by the flow of a current, were used at least
as early as the first century B.c. Archaeological and documentary evidence for them
have been found as far apart as Denmark and China, as well as within the Roman Em-
 Economic Development in Medieval Europe 71

pire. No one knows where they originated; there are occasional instances of their use
for grinding grain during the imperial period, but the Emperor Vespasian (A.D. 69—
79) reputedly rejected a design for a water-driven hoist to raise heavy stones for fear
of causing unemployment. Labor, whether slave or free, was cheap in the Roman Em-
pire, and builders and entrepreneurs saw no need for labor-saving machinery. Exactly
when men changed their notions about the usefulness of such machines is difficult to
ascertain, but apparently it was sometime between the sixth and tenth centuries. When
William the Conqueror ordered his survey of the resources of England in 1086, his
agents counted 5,624 watermills in approximately 3,000 villages—and England was
by no means the most advanced area in Europe, economically or technically. More-
over, most of the mills, there and elsewhere, were far more sophisticated and power-
ful than the simple horizontal wheel. The majority were vertical, overshot wheels in
which the weight of the falling water provides far more force than a gentle current.
They had complicated gearing for transmission and modification of the power (Fig.
3-7). By the beginning of the fourteenth century, water power was used not only to
grind grain but to grind, crush, and mix other substances, to make paper, full cloth,
saw both timber and stone, move bellows and trip hammers for forge and furnace, and
wind silk.
Despite their great utility, waterwheels had many limitations. Most important,
they required a steady flow or fall of water. Thus, they could not be used in semiarid
areas or in low-lying, marshy land. In Venice as early as the middle of the eleventh
century a mill wheel actuated by the movement of the tides was in operation. Within
the next few centuries many others were erected around the sea coasts of Europe. A
still more satisfactory solution, effected in the twelfth century, was the windmill.
Given a steady breeze, the windmill could do all the tasks of a watermill, and on the

FIGURE 3—7. Waterwheel. This model of a waterwheel is arranged to actuate both a trip
hammer and bellows. (From Connections, by James Burke. Copyright 1978 by Macmillan
London Limited. Reproduced with permission of Little, Brown and Company.)
72 A CONCISE ECONOMIC HISTORY OF THE WORLD

plains of northern Europe, where the winds were more dependable, the streams more
sluggish and subject to freezing in winter than farther south, windmills sprouted in
profusion. They were especially important in the low-lying provinces of Holland,
Zealand, and Flanders where, in addition to other regular uses, they worked pumps
in reclaiming the polderlands.
Wind- and watermills required complicated gearing. The millers, millwrights, and
various kinds of smiths who built, operated, maintained, and repaired them eventu-
ally acquired an expert if empirical knowledge of practical mechanics, which they put
to use in a related field, the manufacture of clocks. As early as the twelfth century the
demand for water clocks was so strong that there was a specialized guild of clock-
makers in Cologne. In the following century the main problems in the design of me-
chanical (gravity-driven) clocks were solved, and in the fourteenth century every city
in Europe of any size and with any civic pride had at least one large clock that not
only signaled the hours with ringing bells or chimes, but also staged an entertainment
of dancing bears, marching soldiers, or bowing ladies. Between 1348 and 1364 a
noted Italian physician and astronomer, Giovanni de’ Dondi, built a clock that, in ad-
dition to telling the hours, kept track of the movements of the sun, the moon, and the
five known planets—two full centuries before the Copernican revolution (Fig. 3-8).
The medieval concern with millwork and clockwork has a significance beyond
their immediate economic impact. True, mills saved labor, increased production, and
made possible tasks that were previously considered impossible. Clocks made peo-
ple more aware of the passage of time and introduced greater regularity and punctu-
ality into human affairs; Genoese business contracts note not only the date but the ac-
tual time of signing—a harbinger of the maxim that “time is money.” Taken all
together, these changes signified a fundamental reorientation of the medieval men-
tality, a new attitude toward the material world. No longer was the universe seen as
inscrutable and man a helpless pawn of nature or of angels and demons. Nature could
be understood, and its forces harnessed for our uses. Shortly after Dondi completed
his marvelous clock, the French scholar Nicole Oresme (ca. 1325-82), anticipating
Kepler, Newton, and other luminaries of the century of genius, compared the universe
to a great mechanical clock created and regulated by the supreme clockmaker, God.
A century earlier the Oxford scholar-scientist Roger Bacon (ca. 1214-92), who an-
ticipated by four centuries the emphasis of his namesake Francis on experimental
method and the utility of science, had prophesied the possibilities of practical science:
“machines which will allow us to sail without oarsmen, carts without animals to pull
them . . . machines for flying . . machines which can move in the depths of the seas
and rivers... .”

The Crisis of the Medieval Economy

In 1348 an epidemic of bubonic plague, the infamous Black Death, reached Europe
from Asia. Spreading rapidly along the main commercial routes, taking its greatest
toll in cities and towns, for two years it ravaged the whole of Europe, from Sicily and
Portugal to Norway, from Muscovy to Iceland. In some cities more than half the pop-
ulation succumbed. For Europe as a whole the population was probably reduced by
 Economic Development in Medieval Europe 73

FIGURE 3—8. Mechanical clock. This is a modern reconstruction of Dondi’s famous clock,
originally built in the mid-fourteenth century. (National Museum of American History, The
Smithsonian Institution. Reprinted with permission.)

at least one-third. Moreover, the plague became endemic, with new outbursts every
ten or fifteen years for the remainder of the century. Adding to the misery engendered
by the plague, warfare, both civil and international, reached a new peak of intensity
and violence in the fourteenth and fifteenth centuries. In the Hundred Years War
(1338-1453) between England and France large areas of western France were dev-
astated by a deliberate policy of pillage and destruction, while in the East the vener-
able Byzantine Empire finally succumbed to the onslaught of the Ottoman Turks.
The Black Death was the most dramatic episode in the crisis of the medieval econ-
omy, but it was by no means the origin or cause of that crisis. By the end of the thir-
teenth century the demographic increase of the two or three previous centuries had
already begun to level off. In the first half of the fourteenth century crop failures and
famine became increasingly frequent and severe. Because of these the population may
have begun to decrease even before 1348, though this is not proven. The Great Famine
74 A CONCISE ECONOMIC HISTORY OF THE WORLD

in
of 1315—17 affected the whole of northern Europe, from the Pyrenees to Russia;
death rate jumped to ten times its nor-
Flanders, the most densely populated area, the
mal figure. The increasing precariousness of the food supply, together with conges-
pop-
tion and the inadequacy of sanitary facilities in the towns and cities, rendered the
ulation more susceptible to epidemics, of which the Black Death was the worst.
There is some evidence of climatic deterioration in the fourteenth century. In
northern Europe, at least, the winters became longer, colder, and wetter. Grape culti-
vation disappeared from England; grain would not ripen in Norway. On three occa-
sions the entire Baltic Sea froze over, and in Germany and the Low Countries flood-
ing increased in frequency and severity. As serious as these problems were, they are
unlikely to explain entirely the stagnation and decline of the whole economy. A more
general explanation is overpopulation for the resources and technology available.
Toward the end of the thirteenth century the extensive forest clearings of earlier
centuries came to a halt. In some areas, such as Italy and Spain, there is evidence that
deforestation contributed to soil erosion and declining fertility. Farther north, land-
lords opposed clearings because of their hunting privileges, and peasants needed the
remaining forest for firewood and grazing. Numerous disputes occurred, with occa-
sional outbreaks of violence, between lords and peasants over the use of the forests.
With no new land available from clearings, pastures, heaths, and meadows were con-
verted to arable. This meant a decrease in livestock, and thus fewer proteins in the
diet and less manure for fertilizer. Scarcity of fertilizer had been a persistent problem
in the manorial economy, and the diminution of livestock aggravated it; crop yields
declined even as more land was brought into cultivation. Efforts to increase produc-
tivity, such as the introduction of four-course and other, more complicated crop rota-
tions and the use of green manures, had limited effects in some regions, but the ef-
forts were not made fast enough and their effects were not substantial enough to offset
the diminishing returns of overcropped marginal lands.
In the expansive period of the medieval economy, as we have seen, there was a
tendency on the part of landlords to commute labor services into money rents and to
lease their demesnes to prosperous peasants. As population and urban growth con-
tinued, the prices of most agricultural commodities rose while wages fell. Many land-
lords, either to bolster their own declining revenues or to take advantage of the fa-
vorable price-wage ratio, again resorted to demesne farming, sometimes enlarged
their demesnes at the expense of pasture and even peasant strips, and attempted to
reimpose old labor services. Although the latter efforts met with strong resistance and
had only limited success in western Europe, landlords in eastern Europe proved to be
stronger. In any case, with the steady fall in wages it was economical for western lords
to cultivate their lands with hired labor. Even substantial peasants could do this, thus
becoming wealthier; but the great masses of the peasant population found themselves
in steadily worsened straits. Partly for this reason, and also because of the increased
burden of taxation levied by kings and other territorial rulers, social tensions in-
creased and occasionally burst out in violence and revolt, as in the rising of Flemish
peasants and workers against their lords and masters during the Great Famine of
1315=17.
The Black Death greatly intensified the social tensions and conflict. The price-
wage scissors abruptly reversed themselves; with the sharp drop in urban population
 Economic Development in Medieval Europe 75

and demand, the price of grain and other foodstuffs dropped precipitately, while
wages rose because of the shortage of laborers. The first reaction of the authorities
was to impose wage controls; these merely exacerbated the hostility of peasants and
workers, who avoided them when possible and revolted when serious efforts were
made to enforce them. In the second half of the fourteenth century revolts, revolu-
tions, and civil wars occurred in every part of Europe. Not all were inspired by wage
controls, but all were related in one way or another to the sudden change in economic
conditions brought on by famine, plague, and war. In 1358 peasants throughout
France rose spontaneously against their lords and the government. In England a se-
ries of local uprisings preceded a great peasant revolt in 1381 in which a mixture of
religious and economic issues almost allowed the revolutionists to triumph. In Italy
the violence was generally not greater than that which accompanied the struggles for
autonomy by the communes in the eleventh and twelfth centuries; but in 1378 the
workers in the woolen industry of Florence temporarily gained control of the city and
drove out “the fat people,” their masters. Similar revolts of peasants or workers, or
both, flared in Germany, Spain and Portugal, Poland, and Russia. Without exception,
whatever the extent of their initial success, they were put down with great brutality
by the feudal nobility, the governments of the cities, or those of the emerging national
monarchies.
Although the revolts seldom achieved their aims, in western Europe the changed
economic conditions brought peasants freedom from manorial bondage. Despite the
greater political and military strength of the ruling classes, they were unable for long
either to enforce claims to labor services or to control wages, since landlords com-
peted with one another to attract peasants to till their land either for wages or for rent.
In England, after the turmoil of the late fourteenth century, this resulted in the fif-
teenth century in what one authority called “the golden age of the English agricultural
laborer.” Real wages—that is, the ratio of money wages to the prices of consum-
ables—were higher than at any time previously or subsequently until the nineteenth
century. Elsewhere in western Europe as well, market forces resulted in the dissolu-
tion of the vestigial bonds of serfdom and the rise of wages and living standards for
peasants. Low grain prices, resulting from slack urban demand, and the relative abun-
dance of land encouraged stock raising and a shift from grain to root and forage crops.
The Great Plague and associated evils of the fourteenth century, dreadful though they
were, proved to be a strong cathartic that prepared the way for a period of renewed
growth and development beginning in the fifteenth century.
In eastern Europe a different evolutionary course prevailed. The population there
had always been less dense than in western Europe, the towns fewer and less popu-
lous, and the market forces weaker. After the Great Plague town life virtually with-
ered away, markets declined, and the economy reverted to a subsistence basis. Under
these conditions the peasants had no alternative to landlord rule except to flee to un-
occupied and uncharted lands, a course that was fraught with perils of its own. As a
result the landlords, unchecked by higher authority, forced the peasantry into a posi-
tion of servitude unknown in western Europe since at least the ninth century.
Towns in western Europe, although severely checked by the plague, survived and
eventually recovered. The total volume of production and trade was probably lower
at the beginning of the fifteenth century than at the beginning of the fourteenth; but,
76 A CONCISE ECONOMIC HISTORY OF THE WORLD

at various times in the fifteenth century, in different parts of Europe, recovery of pop-
ulation, production, and trade began, and by the beginning of the sixteenth century
the totals of all these aggregates were probably greater than at any previous time.
Meanwhile a significant realignment of forces had taken place. Guild organizations,
reacting to the sharp fall in demand, tightened their regulations so as to control the
supply more effectively in cartel terms; they restricted output, enforced working rules,
and restricted new members to the sons or relatives of deceased masters. Merchants,
seeking to rationalize their operations, invented or adopted double-entry bookkeep-
ing and other methods of control. Fifteenth-century business firms could not rival the
Bardi or Peruzzi companies in terms of size, but the largest of them, the Medici bank
of Florence, as well as numerous others, adopted a form of organization similar to the
modern holding company that reduced the risks of bankruptcy in the event of failure
of a branch. Industrialists faced with the rising costs of labor sought new labor-sav-
ing methods of production, or migrated to the countryside to escape the restrictive
rules of the guilds.
Regional shifts in production and trade also occurred as a result of the intensified
competition. Some cities, such as Florence and Venice, did not shrink from using mil-
itary force to subdue their rivals and extend their dominion over their neighbors. More
subtly, the fair of Geneva gradually replaced in importance those of Champagne in
the fourteenth century, then suffered from the competition of Lyons before the end of
the fifteenth century. Farther north, Antwerp gradually replaced Bruges as the prin-
cipal terminus of Italian trade. The German Hansa received a formal organization in
1367, partly as a response to shrinking demand and the attempts of rivals to deprive
its merchants of their privileges; for almost a century it dominated the trade of the
Baltic and North seas, but before the end of the fifteenth century it was strongly chal-
lenged by Dutch and English traders, shippers, and fishing fleets. The Italian cities
together maintained their preeminence in trade but lost ground to northern Europe, a
prefiguration of further drastic changes in the sixteenth and seventeenth centuries.
 4
Non-Western Economies on the Eve
of Western Expansion

Europe, especially western Europe, was the region of the world that, from the six-
teenth to the twentieth centuries, experienced the most dynamic growth and change.
It was, in large measure, responsible for creating the modern world economy, and its
interaction with other world regions determined the mode and timing of their partic-
ipation in that economy. Before the sixteenth century, however, it was only one of
several more or less isolated regions. This chapter surveys the other regions before
their contact with Europeans.

The World of Islam

Islam, the latest of the world’s great religions, originated in Arabia in the seventh cen-
tury A.D. Its founder, the prophet Mohammed, had been a merchant before he became
a religious and political leader. By the time of his death in 632 he had united under
his rule virtually all of the Arabian peninsula. Soon after his death his followers ex-
ploded with the fury of a desert whirlwind and within a hundred years conquered a
large empire stretching from Central Asia across the Middle East and North Africa to
Spain. After a few centuries of relative quiescence and the break-up into a number of
successor states of the Caliphate, as their empire was known, the Muslims (followers
of Islam) expanded again in the twelfth and following centuries (Fig. 4-1), spreading
their religion and their customs to Central Asia, India, Ceylon, Indonesia, Anatolia,
and sub-Saharan Africa. By this time the Arabs were a small minority among the mil-
lions of the faithful, but the Arabic language, in which their holy book, the Koran,
was written, was the common language for Islamic civilization, although other lan-
guages, notably Persian and Turkish, were also used.
The original Arabs were primarily nomadic, although some practiced oasis agri-
culture and they had a few urban centers, such as Mecca. The lands they conquered
were, on the whole, only slightly less arid than Arabia, but they did contain the two
great cradles of civilization, the Tigris-Euphrates and the Nile valleys. There and else-
where the Muslims practiced irrigation agriculture that, in some areas (e.g., southern
Spain and Mesopotamia), reached high levels of sophistication and productivity.
Their conquests also brought them great cities, including Alexandria, Cairo, and even-

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tually Constantinople, which they renamed Istanbul. In the end Islam developed as a
predominantly urban civilization, although many Muslims, Arabs and others, re-
mained nomadic, tending their herds of sheep, goats, horses, or camels—rarely cat-
tle, and no pigs at all, as Mohammed had forbidden the consumption of pork.
Although the agricultural potential of their territory was limited, its location con-
ferred great commercial possibilities. The heartland lay between the Persian Gulf and
the Mediterranean Sea and also opened onto the Indian Ocean. It also contained the
great caravan routes between the Mediterranean and China. Because Mohammed
himself had been a merchant, Islam did not regard mercantile pursuits as inferior ac-
tivities; on the contrary, it regarded merchants with honor and esteem. Although usury
was forbidden, Muslim merchants devised numerous intricate credit instruments, in-
cluding letters of credit and bills of exchange, to facilitate their trade. For hundreds
of years the Arabs and their fellow-religionists served as the principal intermediaries
in the trade between Europe and Asia. In the process they greatly facilitated the dif-
fusion of technology. Many elements of Chinese technology, including the magnetic
compass and the art of making paper, reached Europe by means of the Arabs.
They also introduced new crops, such as rice, sugar cane, cotton, citrus fruit, wa-
termelons, and other fruits and vegetables. In some cases they obtained these crops
from India or elsewhere in Asia or Africa, and subsequently diffused them to Europe.
One authority has referred to the Arabs’ agricultural achievement as a “medieval
green revolution.” It seems likely that between the eighth and tenth centuries the
world of Islam experienced a surge of population and economic growth similar to the
first logistic of medieval Europe.
The Arabs traveled and traded by both land and sea. The Arabian Sea, the north-
ern extension of the Indian Ocean between the Arabian peninsula and the Indian sub-
continent, is aptly named, for it was dominated by Arabian merchants and sailors like
the legendary Sindbad. Some went as far as China, whose ports contained colonies
of Muslim merchants. Muslims also used rivers for transport where possible, and sup-
plemented them, especially in Mesopotamia, with a dense network of canals. Over-
land the camel, that “ship of the desert,” was favored for long distance carriage, with
horses, mules, and donkeys used for shorter trips. Wheeled transport disappeared
from the Middle East, not to reappear until the nineteenth century. Huge caravans of
hundreds, even thousands of camels were not unusual.
One of the principles of Islam was the jihad, or holy war against pagans. It ac-
counted in part for the Muslims’ remarkable success in making converts, since de-
feated enemies were given the choice of converting or being killed. Toward Jews and
Christians, however, the Muslims had a different policy. Since they were also
monotheistic, the Muslims tolerated—and taxed—them (perhaps another reason for
success in making converts in those communities). The Jews, in particular, enjoyed
great freedom under Islam. Jewish merchants had family members or agents scattered
throughout the Islamic world from Spain to Indonesia. Much of our knowledge of
medieval Islam, in fact, comes from the Cairo Genizah, a great archive where any
piece of paper on which the name of God (Allah or Jahweh) was written was de-
posited—and letters, even business letters between Jewish merchants, usually in-
voked the blessings of God.
As a result of their conquests in the Greek-speaking Eastern Roman Empire, the
80 A CONCISE ECONOMIC HISTORY OF THE WORLD

Arabs took over much of the learning of classical Greece. During the European Mid-
dle Ages they became, along with the Chinese, the world’s leaders in scientific and
philosophic thought. Many ancient Greek authors are known to us today only through
Arabic translations. Modern mathematics is based on the Arabic system of notation,
and algebra was an Arab invention. During the intellectual revival of Western Europe
in the eleventh and twelfth centuries many Christian scholars went to Cordoba and
other Muslim intellectual centers to study classical philosophy and science. At the
same time, Christian merchants learned Muslim commercial practices and tech-
niques. Although the pope officially forbad trade with Muslims, Christian mer-
chants—the Venetians in particular—paid little attention.

The Ottoman Empire

Among the peoples who accepted Islam as their religion were a number of nomadic
Turkish tribes of Central Asia. Lured south and west by the wealth of the Arab
Caliphate, they came first as raiders and looters, but eventually settled down as con-
querors. One of them, Tamerlane, known for his ruthless ferocity, conquered Persia
(modern Iran) at the end of the fourteenth century. Tamerlane’s empire was short-
lived, but another conqueror, Ismael, at the beginning of the sixteenth century founded
the Safavid dynasty, which ruled Persia until the eighteenth century.
The most successful of the Turkish conquerors were the Ottomans, who traced
their origins to the Sultan Osman (1259-1326). Osman had wrested a small territory
in northwestern Anatolia (Asia Minor) from the decrepit Byzantine (Eastern Roman)
Empire, which had never really recovered from its conquest by Western crusaders and
the brief tenure of the so-called Latin Empire (1204-61). The Cttomans gradually
extended their hold over all of Anatolia, and in 1354 obtained a toehold in Europe
west of Constantinople, which they finally conquered in 1453 (Fig. 4-2). They con-
tinued to expand in the sixteenth century, taking over the lands in the Near and Mid-
dle East that the Arabs had taken earlier from the Byzantine Empire, as well as North
Africa; in Europe they conquered Greece and the Balkans, and in 1683 they reached
the gates of Vienna before they were driven back into Hungary.
The vast empire controlled by the Turks did not constitute a unified economy or
common market. Although its many provinces had varied climates and resources, the
high cost of transport prevented true economic integration. Each region within the
empire continued the economic activities it had practiced before conquest, with little
regional specialization. Agriculture was the principal occupation of the great major-
ity of the sultan’s subjects. The empire endured, unlike most of its predecessors, be-
cause the Turks established a regular, relatively equitable system of taxation that pro-
vided ample revenue to support the central government’s bureaucracy and army.
Control and order were maintained by Turkish officials stationed in the provinces and
given rents from specified parcels of land, similar in some respects to medieval Eu-
ropean feudalism.
In Europe the Turks suffered from a somewhat exaggerated reputation for rapac-
ity and violence. In fact, they behaved rather benignly toward their subjects as long
as the tax revenues rolled in and no threats of revolt or rebellion existed. They made
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few efforts to convert their Christian subjects in Europe to Islam, except in the spe-
cial case of the janissaries, elite soldiers who were recruited from Christian house-
holds as children and given intensive training under strict military discipline. Jews
were also tolerated; when Ferdinand and Isabella expelled the Jews from Spain in
1492 (see p. 136) many educated professionals and skilled artisans were happy to ac-
cept service with the sultan.

East Asia

The civilization of China, dating from near the beginning of the second millennium
B.C., exhibits one of the most self-contained developments of any civilization. Only
rarely did foreign—“barbarian’”—influences intrude, and when they did they were
usually quickly absorbed by and integrated with Chinese traditions. Dynasties rose
and fell, sometimes separated by periods of anarchy and “warring states,” but the dis-
tinctive Chinese civilization, while continuing to develop, did so along lines that seem
almost preordained. Confucianism (a philosophy, not a religion) had been fully elab-
orated as early as the fifth century B.c. Although other philosophies and religions,
such as Taoism and Buddhism, also flourished, they did not displace Confucianism
as the philosophical basis of Chinese civilization. The bureaucratic tradition of gov-
ernment, carried on by mandarins steeped in the Confucian philosophy, was also es-
tablished at an early date. In theory, the emperor was all-powerful, and some emper-
ors used their power to the fullest extent; but mostly their wishes were carried out,
and frequently shaped, by the mandarins.
The original cradle of Chinese civilization was the middle stretch of the Yellow
River valley, where the fertile loess soil deposited by the winds from Central Asia per-
mitted easy cultivation. Its first material basis was millet, a grain native to the region;
this was later supplemented by wheat and barley from the Middle East, and still later
by rice from Southeast Asia. Chinese agriculture has always been extremely labor in-
tensive, almost “garden-style,” making extensive use ofirrigation. Draft animals were
not introduced until very late. About 1000 a.p., however, a superior variety of rice
was introduced that permitted double-cropping (i.e., planting two crops a year on the
same land), which greatly increased productivity.
On the basis of this productive agriculture some urban growth occurred, and a va-
riety of skilled crafts emerged. For example, bronze working was developed to a very
high level. The manufacture of silk cloth originated in China at a very early date; the
ancient Romans obtained it over the caravan route through central Asia, the Great Silk
Road, and China was known to them as Sina or Serica (the land of silk). Porcelain
(“chinaware”) is also a Chinese invention, as are paper and printing. (The Chinese
were already using paper money when Charlemagne minted the first silver pennies.
The result, predictable for an economist, was overissue and inflation. The Chinese
had already experienced several cycles of inflation and monetary collapse before the
West discovered paper money.) The magnetic compass, discovered by the Chinese,
probably reached the West by way of the Arabs. In general, the Chinese reached a
fairly high level of scientific and technical development well in advance of the West.
In spite of its technological and scientific precocity, China did not experience a
 Non-Western Economies on the Eve of Western Expansion 83

technological breakthrough into an industrial era. Craft products were destined for
the use of the government, the imperial court, and the thin stratum of landowning aris-
tocrats. The peasant masses were much too poor to provide a market for such exotic
wares. Even iron, in whose production the Chinese also excelled, was used only for
weapons and decorative art, not for tools. Moreover, merchants and commerce had
very low status in the Confucian philosophy. Those few merchants who did accumu-
late some wealth used it to buy land and join the ranks of the aristocracy.
Meanwhile, because of China’s fertile population as well as its fertile land, the
population grew and spread. From an estimated 50 million around the year 600 A.p.,
the population roughly doubled in the next 600 years. It spread down the Yellow River
to the sea, and southward to the Yangtse valley and beyond. Whereas in the seventh
century about three-quarters of the population lived in northern China, by the begin-
ning of the thirteenth century more than 60 percent lived in central and southern
China. To connect these centers the government built an elaborate network of roads
and especially canals. The Grand Canal, connecting the Yellow and Yangtse rivers,
was a stupendous engineering feat. The main purpose of this transportation network
was to enable the government to maintain order and collect taxes and tribute, but it
also facilitated interregional trade and led to an elementary geographical specializa-
tion of labor.
In the thirteenth century a series of events occurred that profoundly affected not
only China but virtually the entire Eurasian land mass, including western Europe. This
was the eruption of the Mongols under Genghis Khan from their homeland of Mon-
golia, north of China (Fig. 4-3). In little more than half a century Genghis and his suc-
cessors created the largest continuous land empire the world has ever seen, stretch-
ing from the Pacific Ocean in the east to Poland and Hungary in the west. In the
process they established their countrymen as rulers in Central Asia, China, Russia,
and the Middle East. (They overturned the Arab Caliphate in 1258 and left Baghdad
in ruins.) Although their name is almost synonymous with rapine and violence, the
Mongols did what barbarian conquerors usually do: they settled down and adopted
the civilization of their conquered hosts. In Central Asia and the Middle East they
converted to Islam and melded with their Turkic allies and the local indigenous pop-
ulations. In Russia, however, they did not adopt Orthodox Christianity, but main-
tained their own distinctive lifestyle until 1480 when the Grand Duke of Moscow,
Ivan III, revolted and threw off the “Mongol yoke.” In China they followed a middle
course; they set themselves up as the Yuan dynasty (1260-1368) in the Chinese fash-
ion and adopted Chinese ways, but attempted to maintain their ethnic distinctiveness,
which led to their overthrow after little more than a century.
It was Kublai Khan, Genghis’s grandson and fifth successor, whom Marco Polo
encountered on his epic journey. By that time the Mongols had given up their warlike
ways and maintained peace and order throughout their domain. Trade between the
Mediterranean and China flourished even more than in the days of the Roman Em-
pire—more in fact until the nineteenth century. Another Italian trader, a contempo-
rary of Polo, described the Great Silk Road as “perfectly safe by day and night.”
The Ming dynasty (1368-1644) reestablished traditional Chinese customs, espe-
cially Confucianism and the mandarin system. The first half of the Ming era also wit-
nessed considerable economic and demographic growth. During the last years of
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 Non-Western Economies on the Eve of Western Expansion 85

Mongol rule, and during the revolt against them, roads and canals had fallen into dis-
repair, and the population had declined as a result of floods, drought, and warfare.
The government moved energetically to restore the transportation links, and with rel-
ative peace the population began to grow again, surpassing 100 million by about
1450. In 1421 the Mings moved their capital from Nanking to Peking (Beijing) in the
far north, thus stimulating north-south trade. The cultivation of cotton and manufac-
ture of cotton cloth were introduced. Regional specialization became more pro-
nounced. Most remarkable of all, the Chinese began to trade overseas. Previously the
Chinese had left foreign trade in the hands of foreign merchants, but in the early years
of the Ming era Chinese ships and merchants traded with Japan, the Philippines (as
they later became known), Southeast Asia, the Malay peninsula, and Indonesia. In the
first quarter of the fifteenth century a Chinese admiral, Cheng-ho, led large naval ex-
peditions into the Indian Ocean. The expeditions left colonies of Chinese settlers at
ports in Ceylon, India, the Persian Gulf, the Red Sea, and the east coast of Africa.
Then suddenly, in 1433, the emperor forbad further voyages, decreed the destruction
of ocean-going ships, and prohibited his subjects from traveling abroad. The colonies
were left to wither away. One wonders how the course of world history might have
differed had the Chinese still been in the Indian Ocean when the Portuguese arrived
at the end of the century.
Korea and Japan developed in the wake of Chinese civilization, and in large mea-
sure in imitation of it. Japan, in particular, was a great imitator of Chinese technol-
ogy, although, as in more recent times, the acquisition of a foreign technology within
the Japanese institutional framework produced novel results. Korea was in political
vassalage to China from time to time. Kublai Khan attempted an invasion of Japan
from Korea, but his fleet was destroyed by a typhoon, which the Japanese called
kamikaze (“divine winds’”’). In the fifteenth and sixteenth centuries Japanese pirates
ravaged the coast of China. Early in the seventeenth century, however, after the Toku-
gawa shogunate had consolidated its rule, the shogun, in imitation of the Ming em-
peror, prohibited Japanese from traveling abroad (on penalty of death if they returned)
and forbad the construction of ocean-going ships.

South Asia

The Indian subcontinent, including modern Pakistan, Bangladesh, and Sri Lanka, is
roughly the same size as Europe west of the former Soviet Union (Fig. 4-4). Its pop-
ulation is even more diverse than that of Europe in terms of ethnic origin and lan-
guage. The terrain and climate are equally varied, from tropical monsoon forest to
burning desert and glacial mountains. Throughout its history, from the first civiliza-
tion on the Indus River in the third millennium B.c. to the present, principalities, king-
doms, and empires have risen and fallen in bewildering array. For the most part this
succession of political states has mattered little to common men and women, the peas-
ants whose labor supported the rulers, except that some were more ruthless and effi-
cient in extracting a surplus of tribute and taxation.
The aboriginal population of the subcontinent may have been related to that of
Australia. Over the centuries and millennia, however, it was reinforced—or over-
86 A CONCISE ECONOMIC HISTORY OF THE WORLD

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whelmed—by waves of migrants and invaders. Most of the newcomers—Bactrian

Greeks, Scythians, Parthians, Mongols, and others—came from the northwest, by
way of Persia or Afghanistan, but some also came from the northeast from Tibet and
Burma. Eventually, with one major exception, the Muslims, they adopted native ways
and local culture, including religion.
Religion had a greater impact on the economy than government, but the com-
plexities of that subject defy succinct explanation. The primitive original religion was
Hinduism, which developed with many variants and heterodox sects, including the
Jains and Sikhs who are still active today. Buddhism, whose origin was roughly con-
temporary with that of Confucianism in China, was one such variant; but it had its
greatest successes in China, Korea, and Japan, and virtually disappeared from India
before modern times. Such was not the case with Islam, which first entered the sub-
continent early in the eighth century, then again with renewed dynamism in the thir-
 Non-Western Economies on the Eve of Western Expansion 87

teenth century and later. Early in the sixteenth century Babar, who claimed descent
from Genghis Khan, created the Mughal or Mogul Empire in northern India, which
his grandson, Akbar, greatly enlarged (Fig. 4-4).
Today the political borders between India and its neighbors do not reflect clearcut
religious divisions, and in former times the admixture of religions was even greater.
The enmity between the Muslim kingdoms of the Deccan, in southern India, and the
Hindu empire of Vijayanagar facilitated the establishment of bases by the Portuguese
at the beginning of the sixteenth century.
One way in which religion impinged on the economy was the caste system of the
Hindus. The castes were determined primarily by occupation, but originally there
seems to have been an ethnic element as well. In the beginning there were only four
varnas, or caste orders: the Brahmans, or priestly order; an order of warriors and
rulers; one of farmers, artisans, and merchants; and a lowly order of servants; but in
time the numbers of castes multiplied until there was one (or more) for every occu-
pational category. The hierarchical element in the caste system was very strong, with
rigid strictures on social and even physical mingling. Endogamy within a caste was
virtually universal. In general, the rule that governed status was the concept of pol-
lution, both literal and figurative: the most polluted occupations had the lowest sta-
tus, with some being “untouchable” and even “unseeable” (e.g., those who washed
the clothing of the untouchables had to work at night so they would not be seen). Al-
though the caste system was probably not as rigid as it is sometimes portrayed, it must
have been a barrier to both social mobility and the efficient allocation of resources.
Another element of the Hindu religion inimical to economic growth was the venera-
tion of cattle—the “‘sacred cows” that roamed the countryside at will and could not
be killed or consumed.
Throughout the ages, and still today, the great majority of the population of the
subcontinent lived in villages and engaged primarily in low-productivity, near-sub-
sistence agriculture. In heavily forested areas they used, even in relatively recent
times, a slash-and-burn technique, as practiced in northern Europe before the advent
of sedentary communities. Elsewhere the techniques, and the crops grown, depended
on the characteristics of soil and climate. In the monsoon area the staple crop has been
rice, initially obtained from Indochina. In drier lands the staple was wheat or barley,
which came from the Middle East, or millet from China or perhaps western Asia. In-
dia’s authentic native crop was cotton, which is mentioned in the Rig Veda, the Hindu
holy book.
Although the majority of the population devoted its time and energy to agricul-
ture, India did not lack skilled craftsmen. Intricate works of art, statuary, and monu-
mental architecture (the Taj Mahal [Fig. 4-5], for example), all of which bear com-
parison with the best of Greek and Roman art, are the evidence. These craftsmen,
however, worked for the rich and powerful; the masses had no purchasing power, and
there was no middle class worth mentioning. The little commerce that existed was in
the hands of foreigners, mainly Arabs.
Southeast Asia, from Burma in the northwest to Vietnam in the east and the Malay
peninsula in the south, is also known as Indochina because its culture is a blend of
Chinese and Indian cultural traditions. It obtained many of its elements of technology
and economy from China, but, with the possible exception of Vietnam, the Indian cul-
88 A CONCISE ECONOMIC HISTORY OF THE WORLD

FIGURE 4—5. The Taj Mahal. This elegant building, regarded by many as the most beautiful
in the world, was constructed on the orders of a seventeenth-century Mughal emperor as a
mausoleum for his wife. Thousands of artisans and laborers worked for more than ten years
to build it. (Berkson/Art Resource, New York.)

tural influence was probably greater. Indonesia, as its name implies, was also strongly
influenced by India, at first by Hindu and Buddhist culture, and later by Islam. Among
the agents of diffusion, Buddhist monks established monasteries in the wilderness that
performed functions not unlike those of the Cistercians in northern Europe, diffusing
advanced technology as well as religious culture.
Southeast Asia, including Indonesia, made two major contributions to world civ-
ilization. Rice, which in time became the staple food not only of China and India but
also of large areas of both the eastern and western hemispheres, originated in conti-
nental Indochina; it was domesticated as early as the second millennium B.c., and
pos-
sibly earlier. The other major contribution, spices—pepper, nutmeg, ginger, cloves,
and others—mostly came from the islands of the Indonesian archipelago, although
cinnamon originated in Ceylon.
 Non-Western Economies on the Eve of Western Expansion 89

The recorded history of Southeast Asia is relatively brief, scarcely more than a
thousand years old. For earlier eras historians must rely on archaeological evidence,
such as the magnificent temple of Angkor Wat in Cambodia, and on inferences from
Indian and Chinese records. There is evidence, nevertheless, of settlement by ne-
olithic hunter-gatherers in modern Thailand and Vietnam as early as 10,000 B.c. Pot-
tery was made there, perhaps as early as the fifth millennium B.c. Bronze tools,
weapons, and ornaments date from the second millennium B.c., and ironworking was
introduced about 500 B.c. During the European Middle Ages nascent nation-states
were established—for example, the Kingdom of Pagan in modern Burma, and that of
Ayudhya in modern Thailand, which in the seventeenth century accepted an ambas-
sador from Louis XIV of France.
The bulk of the population lived in the great alluvial valleys of rivers such as the
Irrawaddy, the Mekong, the Red, and others, where irrigated rice cultivation provided
subsistence; and on the rich volcanic soils of islands like Java and Bali. Fish from the
rivers and seas was another important item in the diet, and figured in local trade in
exchange for rice. Pepper and more exotic spices from the Moluccas, the fabled
“Spice Islands,” had long found markets in India, China, the Middle East, and even
Europe. Muslims—Arabs and others—were the principal intermediaries between In-
donesia and India; they were also the principal agents in the spread of Islam to In-
donesia (all but Bali, which remained true to its Hindu customs). From India the car-
goes were carried by Arabs to Alexandria and other emporia of the eastern
Mediterranean where they were sold to Italian merchants, chiefly Venetians, who dis-
tributed them in Europe. The desire to circumvent this “monopoly,” as other Euro-
peans saw it, was one of the main motives for Portuguese exploration, which led to
the discovery of the sea route around Africa.

Africa

The history of North Africa is intimately related to the history of Europe, especially
Mediterranean Europe, from the earliest times to the present. Sub-Saharan Africa
(black Africa), on the other hand, rarely impinged on European or other world events
before the sixteenth or even the nineteenth century. The almost total lack of written
records before the arrival of Europeans makes its history problematical. This does not
mean, however, that it had no history, or that its history is unimportant. Recent schol-
arship, using archaeological evidence and oral tradition, has discovered a great deal
of useful information about the “dark continent.”
The recorded history of Africa begins with ancient Egypt, mentioned briefly in
Chapter 2. The Phoenicians plied the North African coast, and their colony Carthage
vied with Rome for control of the Mediterranean. The sudden onslaught of Islam al-
most converted that sea into a Muslim lake for a short time in the early Middle Ages.
Although separated from Europe by religion as well as by water—the former an im-
pediment to communication and commerce as the latter was a facilitator—North
Africa nevertheless continued to play a role in European as well as Islamic and
African history. Indeed, it was as a result of Islamic conversions of the sub-Saharan
fringe of black Africa that the latter first made contact with the European economy.
 90 A CONCISE ECONOMIC HISTORY OF THE WORLD

(Christianity had penetrated Nubia and Abyssinia, or Ethiopia, before the rise of Is-
lam; but thereafter, with the Islamic conquest of Nubia, Abyssinia was effectively cut
off from the rest of Christendom.)
The economy of North Africa was similar to that of Mediterranean Europe. Grain
growing predominated where rainfall was adequate (sometimes supplemented by ir-
rigation), and nomadic pastoralism elsewhere. Commerce was lively, but industry
was of the household variety. One branch of commerce extended across the Sahara
to black Africa. Some trans-Saharan commerce had existed before the Christian era,
but it did not become common until camels were introduced (from the Middle East)
in the second or third century A.D. Even then the expense of travel restricted com-
merce to items of high value and low bulk, mainly gold and ivory—and slaves, who
were self-propelled. Dates from the date palm groves of desert oases were also car-
ried in both directions.
The economy of sub-Saharan Africa is as varied as its climate, topography, and
vegetation. Contrary to popular impression, only a portion of the area, mainly in the
Congo (or Zaire) basin and the southern coast of West Africa, is covered with tropi-
cal rain forests or jungle. Between that and the deserts to the north (Sahara) and south
(Kalihari) are vast stretches of savanna—grass and scrub. Inland from the east coast,
reaching from Ethiopia in the north to the southern tip, is a mountainous spine punc-
tuated with great lakes. The great rivers of Africa—the Nile, the Niger, the Zambezi,
and others—did not encourage the development of commerce as much as might be
expected because of the frequency of falls and rapids.
The population was even more varied than the landscape. Although all the origi-
nal inhabitants were dark-skinned, or black, there was enormous ethnic, racial, and
linguistic variety. Everywhere, however, the tribe was the basic social group above
the family. Occasionally larger polities—confederations, kingdoms, and even em-
pires—arose, some like the ancient empire of Ghana lasting for surprising periods of
time; but without written records, that necessity of a bureaucratic state, most were
quite ephemeral.
The economy was also varied, ranging from the most primitive hunting and gath-
ering to fairly sophisticated field agriculture and stock raising in the savanna and other
open spaces. Domesticated plants and animals may have been introduced from Egypt
or elsewhere in the Mediterranean as early as the second millennium B.c. Owing to
differences in climate and rainfall, wheat and barley, the staples of Mediterranean and
Middle Eastern agriculture, did not flourish in sub-Saharan Africa. Because
of the
prevalence throughout central Africa of the tsetse fly, which carries disease fatal
to
large domestic animals, the cultivators had no draft animals: thus they relied on
hoe
culture, using wooden or iron hoes. In the jungle areas they used a slash-and-b
urn
technique, moving their fields every few years; they cultivated root crops and
bananas
(introduced from Southeast Asia, and subsequently diffused to America)
and supple-
mented their diet with fish from the rivers. Although the level of technology
was gen-
erally low, that did not prevent the emergence of a specialized caste
of ironworkers,
for example, or of professional traders.
Trade and commerce were almost ubiquitous, even among hunters
and gatherers
insofar as they had contact with other social groups. The nomads of
the sahel, the arid
southern fringe of the Sahara, bartered the produce of their flocks—
meat, milk, and
 Non-Western Economies on the Eve of Western Expansion 91

wool—for the grain, cloth, and metals of the sedentary peoples of the savanna. Salt
and fish (dried and salted) were other objects of commerce. In East Africa cowry
shells were used as money to obviate the need for barter. Canoes were widely used
for porterage on rivers. Elsewhere head porterage sufficed.

The Americas

Scholars generally agree that the native Indian population of the Americas (Amerindi-
ans) descended from a Mongoloid (or pre-Mongoloid) people who, at some time in
the distant past, crossed a land bridge over what is now the Bering Strait. There is less
agreement on when this occurred; estimates range from a few thousand to more than
30,000 years ago. Recent archaeological discoveries in both North and South Amer-
ica favor the latter hypothesis. Moreover, it is unlikely that only a single wave of mi-
gration occurred; more likely, the migrations occurred in waves over a period of thou-
sands of years. Ingenious theories have been proposed and even tested to prove that
the aboriginal inhabitants might have come by sea across the Atlantic or Pacific; but
even if one or a few such voyages had been successful, it is most unlikely that the en-
tire pre-Columbian population of the Americas, widespread and speaking many dif-
ferent languages, could have descended from the survivors of those voyages.
Well before the beginning of the Christian era in the Old World, the New World
was populated from what are now Canada and Alaska in the north to Patagonia and
Tierra del Fuego in the south. The density of population and the level of culture var-
ied considerably, however, from the sparsely populated great plains of North Amer-
ica and the Amazonian jungle to the teeming cities of Middle America. Population
density varied directly with the productivity of the economy; it was greatest in those
areas that practiced settled agriculture and lightest where the inhabitants still lived by
hunting and gathering.
The Amerindians had discovered agriculture independently from that of the Old
World, but not all of them practiced it. It was most highly developed in Mexico, Cen-
tral America, and northwestern South America, but also existed in what is now the
southwestern United States and in the eastern woodlands of North America. The sta-
ple crop was maize (Indian corn), supplemented by tomatoes, squash, pumpkins,
beans, and, in the Andean highlands, the potato. The Amerindians had no domesti-
cated animals except the dog and, also in the Andes, the llama, which could be used
as a pack animal but not as a draft animal. The technology was thus hoe culture. The
Amerindians also had few metals—some alluvial gold used for ornaments, silver, and
copper, but no iron. Their tools were made of wood, bone, stone, and especially ob-
sidian, a natural volcanic glass used for cutting and carving. In spite of their appar-
ently primitive technology, they produced some intricate and elaborate works of art
as well as monumental architecture.
Markets and trade also existed from an early date. Archaeological evidence of
long-distance trade dates from the middle of the second millennium B.c. Between the
eighth and fourth centuries B.c. the Olmec culture, located along the coast of the Gulf
of Mexico, carried on commerce with the central highland area of Mexico. Objects
of this commerce included finely carved statuettes and other art objects made from
92 A CONCISE ECONOMIC HISTORY OF THE WORLD

jade, and the highly prized obsidian, as well as cacao beans, which were used as a
form of money as well as for consumption.
The Mayan civilization of modern Guatemala and Yucatan emerged at about this
time or a little later. Its most striking features were large pyramids, not unlike those
of Egypt, with temples built on top (Fig. 4-6). The Mayans also had a calendar and a
form of writing that has only recently been deciphered. Little is known about the or-
ganization of the society and the economy, but, as elsewhere, maize was the food sta-
ple, and markets were common. Society must have been organized hierarchically to
produce its monumental architecture, and the food surplus must have been substan-
tial to free a work force of builders and skilled artisans. Mayan civilization was at its
peak between the fourth and ninth centuries of the Christian era. Then the population
apparently revolted against their priestly rulers, possibly aided by invaders from the
north. The temples, deserted by the faithful, fell into ruins and were overrun by the
surrounding jungle.
Following the Mayas, various other cultures in the highlands of Mexico reached
fairly high levels of development. These included the Toltecs, the Chichimecs, and
the Mixtecs. About the middle of the fourteenth century the Aztecs, a fierce, warlike
tribe whose capital city was Tenochtitlan, the site of modern Mexico City, began to
conquer and exploit their neighbors. Since the Aztecs practiced human sacrifice, se-
lecting the victims from among the subject population, it is not surprising that the
Spaniards under Cortez found willing allies when they undertook the conquest of
Tenochtitlan in 1519.
When the Mayan civilization was at its peak natives along the coast of modern
Peru practiced irrigation agriculture using water from the Andes. Evidently it was rel-
atively highly productive, because it permitted the growth of dense urban populations

FIGURE 4—6. Mayan temple. This imposing edifice is evidence of the wealth and power of
the Mayan rulers, as well as the technical skill of their artisans; but the burden
of their yoke
was heavy, and their subjects eventually revolted and returned to subsistence agriculture.
(Ferdinand Anton. Reprinted with permission.)
 Non-Western Economies on the Eve of Western Expansion 93

who traded among themselves. Some time after about 1200 .p. the Incas, a highland
tribe with their capital in Cuzco, began a military conquest of the entire highland and
coastal region from Ecuador in the north to Chile in the south. Although the Incas had
no written language, they were able to keep records and even convey messages over
great distances by means of knotted strings. They imposed a highly centralized state
bureaucracy over their subjects, including state-owned warehouses for the storage
and distribution of grain; but private markets also coexisted with the government dis-
tribution system.
The Pueblo Indians of the southwestern United States also practiced irrigation
agriculture and built urban settlements that deserve the designation of towns if not
cities, with multi-room and multi-storied houses. They irrigated their fields by di-
verting streams over floodplains. The Hohokam culture of southeast Arizona made
extensive use of irrigation canals which required the cooperation of several villages.
In the upper Great Lakes region copper tools and weapons were made from native
ores. Farther east slate and flint were shaped into points and knives similar to the cop-
per implements. Almost all the Amerindians made pottery and baskets. The Missis-
sippi valley in the vicinity of modern St. Louis supported a dense population of agri-
culturists; one of its sites, called Cahokia by archaeologists, may have been as large
as a medieval European city. The eastern woodland Indians, who inhabited the area
east of the Mississippi from the St. Lawrence to the Gulf of Mexico, practiced agri-
culture along with hunting and fishing, but they lived in villages rather than towns.
According to legend, Indians taught the Puritans of New England to fertilize their corn
by burying fish with the seeds, which greatly increased the yield.
Elsewhere in the Americas, from the Eskimos of the Arctic Ocean shores to the
naked inhabitants of Tierra del Fuego, the vast but thinly populated continents pro-
vided a bare subsistence for primitive hunters and gatherers.
 S.
Europe’s Second Logistic

Sometime around the middle of the fifteenth century, after a century of decline and
stagnation, Europe’s population began to grow once more. Neither the revival nor
rates of growth were uniform throughout Europe (as always, there was regional di-
versity), but by the beginning of the sixteenth century the demographic increase was
generalized. It continued unabated throughout the sixteenth century, possibly even ac-
celerating in the latter decades. Early in the seventeenth century, however, this lusty
growth encountered the usual checks of famine, plague, and war, especially the Thirty
Years War, which decimated the population of central Europe. By the middle of the
seventeenth century, with a few exceptions, notably Holland, the population growth
had ceased and in some areas actually declined. These termini—roughly the middle
of the fifteenth and the middle of the seventeenth centuries—delimit Europe’s sec-
ond logistic. Within them, other important changes, some probably fortuitous and oth-
ers intimately related to the demographic phenomena, occurred. At the latter date the
European, and the world, economies were vastly different from what they had been
in the fifteenth century.
The most obvious difference was the greatly expanded geographical horizons.
The period of demographic increase corresponded almost exactly with the great age
of maritime exploration and discovery that resulted in the establishment of all-water
routes between Europe and Asia and, even more momentous for world history, the
conquest and settlement of the Western Hemisphere by Europeans. These events,
in
turn, provided Europe with a greatly expanded supply of resources, both actual
and
potential, and provoked (together with other causes) significant institutional changes
in the European economy, especially with respect to the role of government
in the
economy.
Another major difference was a pronounced shift in the location of the principal
centers of economic activity within Europe. In the fifteenth century the cities
of north-
ern Italy retained the leadership in economic affairs they had exercised
throughout
the Middle Ages. The Portuguese discoveries, however, deprived
them of their mo-
nopoly of the spice trade. A series of wars involving the invasion
and occupation of
Italy by foreign armies further disrupted commerce and finance. The
decline of Italy
was not immediate or drastic, for the Italians had reservoirs
of capital, entrepreneur-
ial talent, and highly refined economic institutions to carry them
for several genera-
tions. In any case, Italy’s decline was probably more relative than
absolute because
of the great increase in the volume of European commerce. Neverthel
ess, by the mid-

94
 Europe's Second Logistic 95

dle of the seventeenth century Italy had fallen into the backwaters of the European
economy, from which it did not fully emerge until the twentieth century.
Spain and Portugal enjoyed a fleeting glory as the leading economic powers of
Europe. Lisbon replaced Venice as the great entrepdt of the spice trade, and the Span-
ish Habsburgs, financed in part by the gold and silver of their American empire, be-
came the most powerful monarchs in Europe. The wealth of the Indies and the Amer-
icas was not widely shared within the countries, however; as a result of policies to be
described and analyzed in greater detail subsequently, the governments of those coun-
tries wasted their resources and stifled the development of vigorous and dynamic eco-
nomic institutions. Although both nations retained their extensive overseas empires
until the nineteenth and twentieth centuries, respectively, they were already in full de-
cline, economically, politically, and militarily, by the middle of the seventeenth cen-
tury.
Central, eastern, and northern Europe did not participate significantly in the com-
mercial prosperity of the sixteenth century. The German Hansa flourished in the fif-
teenth century but declined thereafter. Although the main causes of its decline were
independent of the great discoveries, the latter probably hastened the decline by
strengthening the commercial power of Dutch and English cities. Southern Germany
and Switzerland, which had also become commercially prominent in the fifteenth
century, retained their prosperity for a time; but since they were no longer on the most
important trade routes and had no ports to benefit from the increase in seaborne trade,
they slipped backward, relatively speaking, along with the rest of central and eastern
Europe. All of central Europe soon plunged into religious and dynastic wars that
sapped its energy for economic activity.
The area that gained most from the economic changes associated with the great
discoveries was the region bordering on the North Sea and the English Channel: the
Low Countries, England, and northern France. Opening on the Atlantic and lying mid-
way between northern and southern Europe, this region prospered greatly in the new
era of worldwide oceanic commerce. Throughout the sixteenth century, however,
France also engaged in dynastic and religious wars, civil and international, and for
the most part its government followed policies unfavorable to business and agricul-
ture. France therefore gained less than the Netherlands and England.
England at the time of the great discoveries was just emerging from the status of
a backward, raw materials—producing area into something of a manufacturing coun-
try. Its agriculture was also becoming more market-oriented. The Wars of the Roses
decimated the ranks of the great nobility but left the urban middle classes and peas-
ants almost untouched. The decline of the great nobility enhanced the importance of
the lesser aristocracy, the gentry. The new Tudor dynasty, which came to the throne
in 1485, depended heavily on gentry support and granted it favors in return. For ex-
ample, when Henry VIII revolted from the Roman church and decreed the dissolu-
tion of the monasteries, the gentry were the principal beneficiaries, after the crown it-
self. The action also had the incidental effect of improving the operation of the land
market and encouraging the market orientation of agriculture.
Flanders, already the most economically advanced area in northern Europe, re-
covered slowly from the great depression of the late Middle Ages. Bruges gradually
declined as the principal entrep6t for trade with southern Europe, and Antwerp rose
 96 A CONCISE ECONOMIC HISTORY OF THE WORLD

to become the most important port and market city in Europe in the first half of the
sixteenth century. As a result of dynastic alliances all seventeen provinces of the Low
Countries, from Luxembourg and Artois in the south to Friesland and Groningen in
the north, fell to the crown of Spain early in the sixteenth century. They were thus in
an excellent position to capitalize on the trading opportunities of the Spanish Empire.
In 1568, however, the Netherlands revolted against Spanish domination. Spain sup-
pressed the revolt in the southern provinces (modern Belgium), but the seven north-
ern provinces won their independence as the United Netherlands, or Dutch Republic.
Economically this episode resulted in a relative decline of the southern provinces,
partly because the Spanish government enacted many harsh punitive measures and
partly because the Dutch, who controlled the mouths of the Scheldt River, prevented
ships from going to Antwerp. Trade shifted to the north, and Amsterdam became the
great commercial and financial metropolis of the seventeenth century.
Technological changes in the arts of navigation and shipbuilding were vital to the
success of exploration and discovery. The introduction of gunpowder and its appli-
cation by Europeans to firearms were similarly vital to the success of European con-
quests overseas. There were concurrent improvements in the arts of metallurgy and
some other industrial processes. On the whole, however, the period is not notable for
its technological progress. In particular, no major breakthroughs occurred in agricul-
tural technology, such as the introduction of the three-field system and the heavy
wheeled plow, although a host of minor improvements were made in crop rotation,
new crops, and similar matters.

Population and Levels of Living

In the middle of the fifteenth century the population of Europe as a whole was on
the
order of 45 or 50 million, that is, about two-thirds of its preplague peak. By the mid-
dle of the seventeenth century, authorities agree, the population was in the vicinity
of
100 million. In 1600 it must have been at least as large if not larger, in view of
the
stagnation and possible decline that occurred in the first half of the seventeen
th cen-
tury. What caused this growth and the renewed stagnation and decline?
No single obvious cause for the renewal of population growth presents itself.
The
incidence of the plague and other epidemic illnesses apparently diminished gradually,
possibly as a result of increasing natural immunization or of ecological
changes af-
fecting the carriers. The climate may have ameliorated sli ghtly. Higher
real wages in
the fifteenth century, the consequence of the favorable shift in the populatio
n/land ra-
tio as a result of the earlier decline in population, may have encourag
ed earlier mar-
riages and thus a higher birth rate. In any event, through some combinat
ion of reduced
death rates and higher birth rates, Europe’s population began a sustained
increase that
continued throughout the sixteenth century, even after the initial
favorable conditions
had changed.
The growth in population in the sixteenth century, although
general, was by no
means uniform. Beginning with unequal densities and growing
at different rates, the
populations of the various regions of Europe varied considerably
in density at the end
of the sixteenth century. Italy, a “mature” economy, and the
Netherlands, a dynamic
 Europe’s Second Logistic oF

one, had the greatest densities, with 40 or more persons per square kilometer, although
some areas, such as Lombardy and the province of Holland, had 100 or more. (For
purposes of comparison, Italy in recent years had about 190 persons per square kilo-
meter, the Netherlands about 350; the density of western Europe as a whole is about
125 per square kilometer.) France, with approximately 18 million people, had a den-
sity of about 34; England and Wales, with 4 or 5 million, had slightly less. Elsewhere
the population was spread more thinly: 28 per square kilometer in Germany, 17 in
Spain and Portugal, 14 in eastern Europe exclusive of Russia, and only about 1.5 or
2 in Russia and the Scandinavian countries.
As indicated in Chapter 3, these figures clearly show that population density was
closely related to the productivity of agriculture. Similar differences are found within
countries. For example, Wiirttemberg, one of the most advanced agricultural regions
of Germany, had a density of 44 per square kilometer. Southern England was far more
densely populated than Wales or the north country, and northern France and the
Mediterranean coastal regions of Provence and Languedoc more than the mountain-
ous and infertile Massiv Central. The sparsely populated plateaus of Aragon and
Castile contrasted with the teeming valleys and lowlands of Andalusia and Valencia,
as did the Appenines and Alpine regions of Italy with the Po valley and the Roman
Campagna. Nevertheless, it is possible to speak of overpopulation of even the moun-
tainous and infertile regions by the latter part of the sixteenth century. Streams of mi-
grants from those regions to the already more densely populated but more prosper-
ous plains and lowlands constitute the evidence. But the plains and lowlands were
also overpopulated. In some areas tenures were divided as more and more people
sought to make a bare subsistence from the land. In others, the surplus population left
the countryside, voluntarily or otherwise. The literature of Elizabethan England car-
ries frequent references to “sturdy beggars” on the highways and in city streets, beg-
gars whose poverty often drove them to crime. For Spain and Portugal, their colonial
empires provided an outlet for the excess population—indeed, there were even com-
plaints of labor shortages—and in northern Europe the acquisition of colonies was
advocated as a means of dealing with the surplus population. For Europe as a whole,
however, Overseas migration in the sixteenth and seventeenth centuries was almost
negligible; most migrations were domestic, even local.
One consequence of those migrations was that the urban population grew more
rapidly than the total. The populations of both Seville and London tripled between
1500 and 1600 (to about 150,000 in both cases), that of Naples doubled (to perhaps
250,000). Paris, already the largest city in Europe with more than 200,000, also in-
creased to about a quarter of a million. Amsterdam grew from about 10,000 at the end
of the fifteenth century to more than 100,000 in the early decades of the seventeenth
century. (All of these figures are approximate.) Although the percentage rise in the
urban population was also general, it was more pronounced in northern Europe than
in the Mediterranean lands, which were already more urbanized at the beginning of
the period. By the end of the sixteenth century about one-third of the population of
Flanders and almost half that of Holland lived in towns and cities.
In some instances an increase in the urban population can be regarded as a favor-
able indicator of economic development, but this was not necessarily so in the six-
teenth century. At that time towns functioned primarily as commercial and adminis-
98 A CONCISE ECONOMIC HISTORY OF THE WORLD

trative rather than industrial centers. Many manufacturing activities, as in the textile
and metallurgical industries, took place in the countryside. The handicrafts practiced
in the towns were usually organized in guilds, with long apprenticeship requirements
and other restrictions on entry. The rural migrants rarely had the skills or aptitudes
necessary for urban occupations. In the towns they formed a /umpenproletariat, a pool
of casual, unskilled labor, frequently unemployed, who supplemented their meager
earnings by begging and petty thievery. Their crowded, dirty, and squalid living con-
ditions endangered the whole community by making it more susceptible to epidemic
disease.
The plight of both the urban and rural poor was aggravated by a prolonged fall in
real wages. Because the population grew more rapidly than agricultural output, the
price of foodstuffs, bread grains in particular, rose more rapidly than money wages,
a situation that was exacerbated by the phenomenon of the “price revolution” (see
The Price Revolution section, later in this chapter). By the end of the sixteenth cen-
tury the pressure of population on resources was extreme, and in the first half of the
seventeenth century a series of bad harvests, new outbreaks of the bubonic plague and
other epidemic diseases, and increased incidence and ferocity of warfare, especially
the Thirty Years War, brought the population expansion to a halt. In several areas of
Europe, notably Spain, Germany, and Poland, population actually declined during
part or all of the seventeenth century.

Exploration and Discovery

There is no reason to suppose that there was any intimate causal relationship between
the demographic phenomena in Europe and the maritime discoveries that led to the
establishment of direct commerce between Europe and Asia and the conquest and set-
tlement of the New World by Europeans. Population growth was already underway
before the significant discoveries occurred, extra-European commerce in the six-
teenth and seventeenth centuries was minor in comparison with intra-European com-
merce, and the importation of foodstuffs (other than spices) was negligible. Never-
theless, the discoveries profoundly affected the course of economic change in Europe.
Notable technological progress in ship design, shipbuilding, and navigational
instruments occurred in the later Middle Ages. Three-, four-, and five-masted ships,
with combinations of square and lateen sails capable of sailing across the wind,
replaced the oared galleys with auxiliary sails of medieval commerce. The hinged
sternpost rudder replaced the steering oar. In combination, these changes provided far
greater maneuverability and directional control and dispensed with oarsmen. Ships be-
came larger, more manageable, more seaworthy, and had greater cargo capacity, en-
abling them to make longer voyages. The magnetic compass, probably borrowed from
the Chinese by way of the Arabs, significantly reduced the guesswork involved in nav-
igation. Developments in cartography provided greatly improved maps and charts.
The Italians had been leaders in the art of navigation, a leadership that they did
not quickly relinquish, as exemplified by the names Columbus (Colombo), Cabot
(Caboto), Vespucci, Verrazano, and others. As early as 1291 a Genoese expedition
in
oared galleys started down the west coast of Africa in an attempt to reach India
by
 Europe's Second Logistic OF)

sea, never to be seen again. But the Italians were conservative in ship design, and the
lead was soon taken by those who sailed the open sea, especially the Flemish, Dutch,
and Portuguese. The Portuguese, in particular, seized the initiative in all aspects of
the sailor’s art: ship design, navigation, and exploration (Figs. 5-1 and 5-2). The vi-
sion and energy of one man, Prince Henry, called the Navigator, were chiefly re-
sponsible for the great progress in geographical knowledge and discovery made by
Europeans in the fifteenth century.
Henry (1393-1460), a younger son of the king of Portugal, devoted himself to
encouraging the exploration of the African coast with the ultimate object of reaching
the Indian Ocean. At his castle on the promontory of Sagres at the southern tip of Por-
tugal he established a sort of institute for advanced study to which he brought as-
tronomers, geographers, cartographers, and navigators of all nationalities. From 1418
until his death he sent out expeditions almost annually. Carefully and patiently his

FIGURE 5—1. Portuguese discoveries in the fifteenth century.

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 100 A CONCISE ECONOMIC HISTORY OF THE WORLD

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FIGURE 5—2. Portuguese carrack. These large, unwieldy ships, designed especially for the
long voyage to India, replaced the smaller, more maneuverable caravels that had done most
of the exploration of the African coast during the fifteenth century. (The National Maritime
Museum, London.)

sailors charted the coast and currents, discovered or rediscovered and colonized the
islands of the Atlantic, and established trade relations with the native chiefs of the
African coast. Henry did not live to realize his greatest ambition. In fact, at the time
of his death his sailors had gone little farther than Cape Verde, but the scientific and
exploration work carried out under his patronage laid the foundation for subsequent
discoveries.
After Henry’s death exploratory activity slackened somewhat for lack of royal pa-
tronage and because of the lucrative trade in ivory, gold, and slaves that Portuguese
merchants carried on with the native kingdom of Ghana. King John II, who came to
the throne in 1481, renewed the explorations at an accelerated pace. Within a few
years his navigators pushed almost to the tip of Africa. Realizing that he was on the
verge of success, John sent out two expeditions in 1487. Down the coast went
Bartholomew Diaz, who rounded the Cape of Good Hope (which he named the Cape
of Storms) in 1488; through the Mediterranean and overland to the Red Sea went Pe-
dro de Covilhao, who reconnoitered the western edges of the Indian Ocean from
Mozambique in Africa to the Malabar coast of India. The way was paved for the next
and greatest voyage, that of Vasco da Gama from 1497 to 1499 around Africa to Cali-
cut in India. As a result of disease, mutiny, storms, and difficulties with both his
Hindu
hosts and the numerous Arab merchants he encountered, da Gama lost two of his four
ships and almost two-thirds of his crew. Nevertheless, the cargo of spices with which
he returned sufficed to pay the cost of his voyage many times over.
Seeing such profits, the Portuguese lost no time in capitalizing on their advantage.
Within a dozen years they had swept the Arabs off the Indian Ocean and establishe
d
fortified trading posts from Mozambique and the Persian Gulf to the fabled Spice
Is-
lands or Moluccas. In 1513 one of their ships put in at Canton in South China,
and by
midcentury they had opened trading and diplomatic relations with J apan.
 Europe's Second Logistic 101

In 1483 or 1484, while the crews of John II were still working their way down the
African Coast, a Genoese who had sailed in Portuguese service and married a Por-
tuguese woman asked the Portuguese king to finance a voyage across the Atlantic to
reach the East by sailing west. Such a proposal was not entirely novel. General belief
held that the earth was a sphere. But was the plan feasible? Christoforo Colombo
(Columbus), the Genoese, thought it was, although the weight of opinion was against
him. John’s advisers had a more nearly correct impression of the size of the globe than
did Columbus, who thought that the distance from the Azores to the Spice Islands was
little more than the length of the Mediterranean. Although John had authorized pri-
vately financed expeditions west of the Azores, he concentrated his own resources on
the more likely project of rounding Africa, and rejected Columbus’ proposal.
Columbus persevered. He appealed to the Spanish monarchs, Ferdinand and Is-
abella, who were engaged at the time in a war against the Moorish kingdom of
Granada, and had no money to spare for such an unlikely scheme. Columbus tried to
interest the realistic and economical King Henry VII of England, as well as the king
of France, but in vain. At length, in 1492, Ferdinand and Isabella conquered the
Moors, and as a sort of victory celebration Isabella agreed to underwrite an expedi-
tion. Columbus set sail on August 3, 1492, and on October 12 sighted the islands later
known as the West Indies. Columbus truly thought he had reached the Indies. Though
dismayed by their obvious poverty, he dubbed the inhabitants Indians. After a few
weeks of reconnoitering among the islands he returned to Spain to spread the joyful
tidings. The following year he returned with seventeen ships, 1,500 men, and enough
equipment (including cattle and other livestock) to establish a permanent settlement.
Altogether Columbus made four voyages to the western seas, and persisted to the end
in the belief that he had discovered a direct route to Asia.
Immediately following the return of the first expedition, Ferdinand and Isabella
applied to the Pope for a “line of demarcation” to confirm Spanish title to the newly
discovered lands. This line, running from pole to pole at a longitude one hundred
leagues (about 330 nautical miles) west of the Azores and Cape Verde Islands, divided
the non-Christian world into halves for purposes of further exploration, with the west-
ern half reserved for the Spanish and the eastern half for the Portuguese. The next
year, 1494, in the Treaty of Tordesillas the Portuguese king persuaded the Spanish
rulers to set the line about 210 nautical miles farther west than the 1493 line. This sug-
gests that the Portuguese may have already known of the existence of the New World,
for the new line placed the hump of South America—the beachhead that later became
Brazil—in the Portuguese hemisphere. In 1500, on the first major Portuguese trad-
ing voyage after da Gama’s return, Pedro de Cabral sailed directly for the hump and
claimed it for Portugal before proceeding to India.
Meanwhile explorers of other nations followed up the news of Columbus’ dis-
covery (Fig. 5-3). In 1497 John Cabot, an Italian sailor who lived in England, secured
the backing of Bristol merchants for a voyage on which he discovered Newfoundland
and Nova Scotia. The following year he and his son Sebastian led a larger expedition
to explore the northern coast of North America, but since they brought back no spices,
precious metals, or other marketable commodities, their commercial backers lost in-
terest. Cabot also failed to persuade Henry VII to provide financial support, though
the king did give him a modest reward of ten pounds for planting the English flag in
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 Europe's Second Logistic 103

the New World. French merchants sent another Italian, Verrazano, to discover a west-
ern passage to India in the 1520s. A decade later the Frenchman Jacques Cartier made
the first of three voyages that resulted in the discovery and exploration of the St.
Lawrence River. Cartier also claimed for France the area later known as Canada; but,
failing to find the hoped-for passage to India, the French, like the English, evinced no
further immediate interest in the New World except for fishing on the Grand Banks
of Newfoundland.
In 1513 the Spaniard Balboa discovered the “South Sea,” as he called the Pacific
Ocean, beyond the Isthmus of Panama. By the 1520s Spanish and other navigators
had explored the entire eastern coast of the two Americas from Labrador to Rio de la
Plata. It became increasingly clear not only that Columbus had not discovered the In-
dies but that there was no easy passage through the center of the new continent. In
1519 Ferdinand Magellan, a Portuguese who had sailed in the Indian Ocean, per-
suaded the king of Spain to let him lead an expedition of five ships to the Spice Is-
lands by way of the South Sea. Magellan had no thought of circumnavigating the
globe, for he expected to find Asia a few days’ sailing beyond Panama, within the
Spanish orbit as determined by the Tordesillas Treaty. His main problem, as he saw
it, was to find a passage through or around South America. This he did, and the stormy,
treacherous strait he discovered still bears his name. The “peaceful sea” (Mare Paci-
ficum) into which he emerged, however, yielded not riches but long months of star-
vation, disease, and eventually death for him and most of his crew. The remnants of
his fleet wandered aimlessly in the East Indies for several months. At length one of
Magellan’s lieutenants, Sebastian del Cano, took the one surviving ship and its skele-
ton crew through the Indian Ocean and home to Spain after three years, becoming the
first men to sail entirely around the earth.

Overseas Expansion and the Feedback to Europe

The first century of European overseas expansion and colonial conquest—that is, the
sixteenth century—belonged almost exclusively to Spain and Portugal. The emi-
nence these two nations have achieved in history is a result mainly of their pioneer-
ing in the discovery, exploration, and exploitation of the non-European world. Before
the sixteenth century they had been outside the mainstream of European civilization;
afterward their power and prestige declined rapidly until, by the beginning of the nine-
teenth century, they had sunk into a state of somnolence approaching suspended an-
imation. In the sixteenth century, however, their dominions were the most extensive
and their wealth and power the greatest in the world.
By 1515 the Portuguese had made themselves masters of the Indian Ocean. Vasco
da Gama returned to India in 1501 with instructions to halt the Arab trade to the Red
Sea and Egypt, by which the Venetians had obtained spices for distribution in Europe.
In 1505 Francisco de Almeida went out as first Portuguese viceroy of India. He cap-
tured or established several cities and forts on the East African and Indian coasts, and
in 1509 completely destroyed a large Muslim fleet in the battle of Diu. In the same
year Alfonso de Albuquerque, greatest of the Portuguese viceroys, assumed his du-
ties and completed the subjugation of the Indian Ocean. He captured Ormuz at the
104 A CONCISE ECONOMIC HISTORY OF THE WORLD

entrance to the Persian Gulf and established a fort at Malacca on the narrow strait be-
tween the Malay peninsula and Sumatra, a post that controlled the passage to the
Celebes and Moluccas islands, from which the most valuable spices came. Finally, in
1515 he captured Ceylon, the key to the mastery of the Indian Ocean. His attempt to
capture Aden at the entrance to the Red Sea was repulsed, however, and the Por-
tuguese were unable to maintain an effective monopoly of the spice trade for long.
Albuquerque established his capital at Goa on the Malabar coast; Goa and Diu re-
mained Portuguese possessions until 1961. The Portuguese also established trade re-
lations with Siam and Japan. In 1557 they established themselves at Macao on the
south coast of China and held it until 1999. Because of their small population they did
not attempt to conquer or colonize the interior of India, Africa, or the islands, but con-
tented themselves with controlling the sea lanes from strategic forts and trading posts.
Although at first it looked less promising, the Spanish Empire eventually proved
to be even more profitable than that of Portugal. Disappointed in their quest for spices
and stimulated by a few trinkets plundered from the savages in the islands of the
Caribbean, the Spanish quickly turned to a search for gold and silver. Their continued
efforts to find a passage to India soon revealed the existence of wealthy civilizations
on the mainland of Mexico and northern South America. Between 1519 and 1521 Her-
nando Cortez effected the conquest of the Aztec Empire in Mexico. Francisco Pizarro
conquered the Inca Empire in Peru in the 1530s. By the end of the sixteenth century
the Spanish wielded effective power over the entire hemisphere, from Florida and
southern California in the north to Chile and the Rio de la Plata in the south (with the
exception of Brazil). At first they merely plundered the original inhabitants of their ex-
isting movable wealth; when this source was quickly exhausted they introduced Eu-
ropean mining methods to the rich silver mines of Mexico and the Andes.
The Spanish, unlike the Portuguese, undertook from the beginning to colonize and
settle the areas they conquered. They brought European techniques, equipment, and
institutions (including their religion), which they imposed by force on the Indian pop-
ulation. Besides European culture and manufactures, the Spanish introduced natural
products previously unknown to the Western Hemisphere, including wheat and other
cereal grains (except corn, which traveled in the opposite direction), sugar cane, cof-
fee, most common vegetables and fruits (including citrus fruits), and many other
forms of plant life. The pre-Columbian Indians of America had no domesticated an-
imals except dogs and llamas. The Spanish introduced horses, cattle, sheep, donkeys,
goats, pigs, and most domesticated fowls.
Some other features of European civilization that were introduced into America,
such as firearms, alcohol, and the European diseases of smallpox, measles, and ty-
phus, spread quickly and with lethal effect. The native population may have num-
bered as many as 25 million at the time of Columbus (some scholarly estimates range
much higher), but by the end of the sixteenth century these killers had reduced it to
but a few million. To remedy the shortage of labor the Spanish introduced African
slaves to the Western Hemisphere as early as 1501. By 1600 a majority of the popu-
lation of the West Indies were Africans and people of mixed races; slaves were not as
important on the mainland, except in Brazil and northern South America.
The transplantation of European culture, together with the modification and oc-
casional extinction of non-Western cultures, were the most dramatic and important
 Europe’s Second Logistic 105

aspects of the expansion of Europe. Expansion also produced feedback. European

culture itself underwent substantial modifications as a result.
On the economic side expansion resulted in a great increase in the volume and va-
riety of goods traded. In the sixteenth century spices from the East and bullion from
the West accounted for an overwhelming proportion of imports from the colonial
world. As late as 1594, for example, 95 percent of the value of legal exports from the
Spanish colonies in the New World consisted of gold and silver bullion. Neverthe-
less, other commodities entered the stream of trade, gradually expanded in volume,
and by the seventeenth and eighteenth centuries overshadowed the original overseas
exports to Europe. Exotic dyestuffs such as indigo and cochineal added color to Eu-
ropean fabrics and made them gayer and more salable both in Europe and overseas.
Coffee from Africa, cocoa from America, and tea from Asia became staple European
beverages. Cotton and sugar, although they were known earlier in Europe, had never
been produced or traded on a large scale. When sugar cane was transplanted to Amer-
ica, the production of sugar increased enormously and brought that delicacy within
the budget of ordinary Europeans. The introduction of cotton goods from India, at
first a luxury reserved for the wealthy, led eventually to the establishment of one of
Europe’s largest industries, dependent on a raw material imported from America and
catering especially to the masses. Chinese porcelain had a similar history. Tobacco,
one of America’s most celebrated and controversial contributions to civilization, grew
rapidly in popularity in Europe in spite of determined efforts by both church and state
to stamp it out. In later years tropical fruits and nuts supplemented European diets,
and furs, hides, exotic woods, and new fibers constituted important additions to Eu-
ropean supplies.
Many foodstuffs previously unknown in Europe, although not imported in large
quantities, were introduced and naturalized, eventually becoming important staples
of diet. From America came potatoes, tomatoes, string beans, squash, red peppers,
pumpkins, and corn (called maize by Europeans), as well as the domesticated turkey,
which in spite of its name reached Europe from Mexico. Rice, originally from Asia,
became naturalized in both Europe and America.

The Price Revolution

The flow of gold and especially silver from the Spanish colonies greatly increased
Europe’s supplies of the monetary metals, at least tripling them in the course of the
sixteenth century. The Spanish government attempted to forbid the export of bullion,
but this proved impossible. In any case, the government was its own worst offender,
sending vast quantities to Italy, Germany, and the Netherlands to repay its debts and
finance its interminable wars. From those countries, as well as from Spain itself in
contraband movements, the precious metals spread throughout Europe. The most im-
mediate and obvious result was a spectacular and prolonged (but irregular) rise in
prices. By the end of the sixteenth century prices were, in general, about three or four
times higher than they had been at the beginning. Of course, the rise in price varied
greatly from region to region and by commodity groups. Prices rose sooner and higher
in Andalusia, whose ports were the only legal entrepdts for American gold and silver,
106 A CONCISE ECONOMIC HISTORY OF THE WORLD

than in distant and backward Russia. The price of foodstuffs, especially grain, flour,
and bread, rose higher than those of most other commodities. In general, the rise in
money wages lagged far behind the rise in commodity prices, resulting in a severe
decline in real wages.
The phenomenon of the price revolution has given rise to innumerable, seemingly
endless, and mostly unnecessary scholarly discussions concerning its mechanisms,
consequences, and even its causes. It has been pointed out that a rise in silver pro-
duction in central Europe beginning in the latter part of the fifteenth century, and im-
ports of gold from Africa by the Portuguese, added to the money stock and contributed
to the price rise. Monetary debasements by impecunious and unscrupulous sovereigns
stimulated increases in nominal prices. It has been alleged that the increase in popu-
lation was a more important factor than increases in the stock of specie in raising
prices, an argument that overlooks the distinction between the general (average) price
level and relative prices. Consequences attributed to the price revolution range from
the impoverishment of the peasantry and nobility to the “rise of capitalism.”
In perspective, it appears that many of the consequences attributed to the price
revolution are either greatly exaggerated or wrongly attributed. Although the per-
centage increases in prices over the course of the century are impressive, they pale in
comparison with price increases in the second half of the twentieth century on an an-
nual basis. Severe short-term fluctuations—downward as well as upward—probably
caused greater havoc than the overall long-run inflation. What is indubitable is that
the price revolution, like any inflation, redistributed income and wealth, of both in-
dividuals and social groups. Those whose incomes were price-elastic—merchants,
manufacturers, landowners who farmed their own land, peasants with secure tenures
and producing for the market—benefited at the expense of wage earners and those
whose income was either fixed or changed only slowly—pensioners, many rent re-
ceivers, and rackrented peasants. Although the growth of population did not cause the
(absolute) increase in prices, it probably did play a major role in the wage lag, as agri-
culture and industry proved incapable of absorbing the surplus labor. But the root
cause of the decline in real wages was not a monetary problem; rather it was a result
of the interrelations between demographic behavior and agricultural productivity.

Agricultural Technology and Productivity

The simple explanation for the cessation of population growth in the seventeenth cen-
tury is that the population had outgrown its ability to feed itself adequately. Underly-
ing this is a rather more complex explanation: the failure of agricultural technology
to advance significantly, with a consequent stagnation or probably even a decline in
average agricultural productivity. Few generalizations about European agriculture are
wholly valid, however, because of regional diversity; even that in the preceding sen-
tence is subject to qualifications, for the Dutch Netherlands in particular. A few gen-
eralizations can nevertheless be advanced with only minor reservations. In the first
place, for Europe as a whole and for every major geographical subdivision, agricul-
ture was still the principal economic activity by far, occupying two-thirds or more of
the active population in the Dutch Netherlands and up to 90 or 95 percent in eastern
 Europe's Second Logistic 107

and northern Europe. Second, from a human and social point of view, manual labor
was by far the most important factor of production. Soil, seeds, and moisture were es-
sential, of course; draft animals and other livestock were almost ubiquitous, if not
strictly essential; and fertilizer was highly desirable. But human labor was the most
essential input. Plows (in several varieties, according to the type of soil and cultiva-
tion), sickles, and flails were the principal instruments of capital equipment, and all
required a large complement of manual labor to make them effective.
A final generalization is less certain, and clearly subject to more regional excep-
tions. For Europe as a whole the average agricultural productivity in the sixteenth cen-
tury was probably not higher than in the thirteenth century, and it apparently declined
somewhat in the seventeenth century. The evidence of the ratios of harvest yield to
seed at least suggests this. Unfortunately, we have no good evidence of productivity
per unit of land or labor (except for parts of Italy, where production per unit of land
may have increased slightly, but probably at the expense of labor productivity). Yield
ratios for the principal cereals were no more than 4 or 5 to 1 for Europe as a whole,
ranging from 2 or 3 to | in parts of eastern Europe to as much as 10 or more to | in
the most favored areas of the Netherlands and possibly elsewhere. Even these low ra-
tios probably declined somewhat in the seventeenth century in most areas. (Compa-
rable ratios today, using the best practices, are 40 or 50 to 1.) Livestock in general
was probably no more than one-third or one-half the weight of modern animals, al-
though they were somewhat larger in the more advanced areas. Milk productivity was
comparable.
Yield/seed ratios are not infallible measures of agricultural productivity. The yield
per acre of land sown might be increased by a more liberal use of seed, for example,
or the productivity per unit of labor might be increased by using less labor with the
same amount of seed. It seems unlikely, however, that either increased significantly,
and both may have decreased slightly toward the end of the sixteenth or in the first
half of the seventeenth century.
Although the direct empirical evidence for a decline in the productivity of both
land and labor is tenuous, at best, there are good theoretical reasons for supposing that
it occurred. First, instead of using less labor per bushel of seed or per acre of land,
more labor was probably applied to the land, because of the increase in population.
Although this might result in modest increases in total output, it probably meant a
lower average output per man-year (i.e., in the productivity of labor). Second, there
is positive evidence that more land was brought under the plow, both by cultivating
former wastelands (heaths and marshes, etc.) and by converting pastures to arable
farmland. In the case of the wastelands, normally less fertile than those already un-
der the plow, a lower average yield would naturally be expected—that is, a decrease
in the productivity of land. In some cases, the yield on converted pastures might be
higher temporarily because the animal droppings would increase the fertility of the
soil. But the reduction of pastureland brought with it other, less favorable conse-
quences, namely, a reduction in livestock, especially cattle. There is both direct and
indirect evidence of a decline in meat consumption in the sixteenth century, with ad-
verse consequences for nutrition and the health of the population. Moreover, the de-
cline in livestock implies a decline in the amount of manure for fertilizer for an al-
ready overcropped land. It was a seemingly vicious downward spiral.
108 A CONCISE ECONOMIC HISTORY OF THE WORLD

To appreciate the full dimensions of the problem, however, it is necessary to con-

sider the several regional variations, not merely for themselves but for their implica-
tions for the future.
In the northern and western periphery of Europe—Finland, most of Sweden ex-
cept the extreme southern tip (Scania), Norway, Scotland, Wales, Cornwall, and much
of Ireland—subsistence agriculture predominated. The lands were thinly populated,
especially the northernmost parts, which had huge tracts of virgin forests. Primitive
slash-and-burn techniques were still applied, although in the more settled regions a
slightly less wasteful method, the infield—outfield system, was practiced. Stock rais-
ing of a primitive sort was important, especially in the mountainous areas. The prin-
cipal field crops were rye, barley, and oats (wheat did not thrive in the cold, damp cli-
mates with short summers); flax and hemp were grown for their fibers, to be made
into rough homespun clothing. Because of the relative abundance of land, tenures
were fluid, with most land being held in the name of clans of tribal chiefs or lords.
The social organization was hierarchical, but without bondage or ties of servility.
In Europe east of the Elbe and north of the Danube (including European Russia),
by contrast, personal bondage or serfdom was the characteristic feature of social re-
lationships at the beginning of the period and increased more or less continuously dur-
ing it, as powerful lords steadily encroached on the lands and freedom of the few re-
maining independent peasants, by both legal and illegal means. This was the region
of Gutsherrschaft, that is, the system of direct exploitation of large estates for the ben-
efit of the territorial lords. The peasants’ status, already parlous in the fifteenth cen-
tury, was steadily reduced in Russia and parts of Poland to one not very different from
slavery. They were obliged to give as many as five or six days a week to the lord’s
service, and in some instances were bought and sold separately from the lands they
toiled. Agricultural technology was relatively primitive, employing either the two- or
three-field system. The ratio of harvest yield to seed was low even by contemporary
standards, averaging no more than 3 to 1. In the lands adjacent to the Baltic Sea, or
on navigable rivers leading to it, production for export to the markets of western Eu-
rope was a potent stimulus for specialization in grain (mainly rye) and other mar-
ketable crops; elsewhere (1.e., in most of eastern Europe) production was directed pri-
marily at local self-sufficiency.
The Mediterranean area, in spite of a relatively uniform climate and similarities
of soil types, was so diverse it defies generalization. In Italy alone land tenures ranged
from the small progressive farms of peasant proprietors and independent tenant farm-
ers in Piedmont and the extreme north to the large estates cultivated by poverty-
stricken sharecroppers and hired laborers in Sicily and the south. In between were a
great variety of tenures, with mezzadria (sharecropping) being prominent. Italy like-
wise had the most diversified agriculture of Europe. Cereals, although important,
were relatively less so than elsewhere. Rice, which yielded more than conventional
cereals, grew in the lower Po valley and along the Adriatic coast. Grapes and olives,
grown throughout the Mediterranean basin, were especially important in Italy, which
also grew fruits (including citrus fruit in the south), vegetables, forage crops, and such
industrial crops as dye-plants needed in the textile industry. In spite of its diversifi-
cation, however, Italian agricultural output failed to keep pace with the population
 Europe’s Second Logistic 109

growth; overcropping and overgrazing took their toll, with deforestation and soil ero-
sion among the consequences.
Spain presented almost as much variety as Italy, with fertile coastal regions on the
east and south, mountain ranges in the north and elsewhere, and the most character-
istic feature of Spanish geography, the high plateau or meseta that spreads over the
central part of the Iberian peninsula. Spanish agriculture received a rich inheritance
from its Muslim predecessors. The Arab and Moorish peoples who had inhabited Va-
lencia and Andalusia before the Christian reconquest were excellent horticulturists,
and brought the art of irrigation to a high level. Unfortunately, the Spanish monarchs,
fired by religious fanaticism, squandered this inheritance. In the same year that they
conquered the kingdom of Granada and that Columbus discovered America, they de-
creed the expulsion of all Jews (who were also skilled agriculturists as well as arti-
sans) from the realm. With the fall of Granada many Moorish subjects also left, even
before they were given the choice of conversion or flight ten years later. Those who
converted, called Moriscos, remained the backbone and sinews of the agricultural
economy in southern Spain for another century, before they too were expelled in 1609.
The Christians who replaced them were unable to maintain the intricate irrigation sys-
tems and other features of the highly productive Moorish agriculture. In part it in-
volved incentives as well as knowledge and ability. Throughout Spain in the sixteenth
century the land was gathered into huge estates owned by the aristocracy and the
church, the largest landholder of all. But these were absentee landlords, who, by
means of stewards or other intermediaries, let the land in small parcels to sharecrop-
pers or tenants on short leases, who lacked both the capital and the incentive to main-
tain the Moorish system. Many peasants fell into debt peonage, a status not far from
serfdom. Moreover, with the rise of prices resulting from the inflow of American gold
and silver, much land in both the fertile valleys and the arid meseta was diverted to
cereal growing. Even so, grain production did not suffice to feed the population, and
Spain depended increasingly on imports of wheat and other grains.
Another major impediment to Spanish agriculture was the rivalry between peas-
ants and sheepowners. Spanish merino wool was in great demand in the Low Coun-
tries and other centers of the textile industry. The sheepmen followed the practice of
transhumance, that is, the movement of flocks between mountainous summer pas-
tures and lowland winter pastures (Fig. 5-4). Transhumance was not peculiar to Spain.
It was practiced in every part of Europe that had mountainous areas unsuited for
arable culture, from southern Italy to Norway; it is still used today by the dairy farm-
ers of Switzerland. But the Spanish system was unusual both for the length of its
sheepwalks and for its organization. Sheepwalks, protected by royal legislation, cov-
ered the whole length of Spain from the Cantabrian Mountains in the north to the val-
leys of Andalusia and Extremadura in the south. The sheepmasters, organized into a
guild or trade association called the Mesta, constituted a powerful lobby at court.
Transhumant sheep were easily taxed at strategic toll stations, the wool was valuable,
brought in cash revenues (unlike many peasant crops), and was also easily taxed at
export. The monarchs, always greedy for tax revenues, granted the Mesta special priv-
ileges, such as unlimited grazing on common lands, which were detrimental to agri-
culture, in return for increased taxes. The privileges of the Mesta, together with other
110 A CONCISE ECONOMIC HISTORY OF THE WORLD

BAY OF BISCAY 0 Miles 150

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unwise governmental policies, such as the attempt to set maximum prices for wheat
during the great inflation known as the price revolution, did nothing to encourage bet-
ter technical practices in a land tenure system that already discouraged them. The pro-
ductivity of Spanish agriculture was probably the lowest of western Europe. In the sev-
enteenth century, with population declining, many farms were abandoned altogether.
Elsewhere in western Europe (i.e., France north of the Massiv Central, Germany
west of the Elbe, Denmark and Scania, most of England) the system of open fields,
an inheritance from the manorial system of the Middle Ages, prevailed. Exceptions
must be made for hilly and mountainous areas (e.g., for much of Switzerland) and for
large areas of western France in which small enclosed fields (bocage) were inter-
 Europe's Second Logistic 111

mixed with open fields. A special exception must also be made for parts of the Low
Countries, which will be described in greater detail. The German term Grund-
herrschaft is sometimes used to describe the system of land tenure. Territorial lords
had been transformed into mere landlords; they collected rents in money or in kind,
but labor services, already on the wane in the late Middle Ages, were extinguished,
although the lords retained special rights and privileges in some areas. Transferabil-
ity of land ownership became more common, and small peasant proprietors as well
as independent tenant farmers increased. It has been estimated that about two-thirds
of English peasants had secure tenures—freeholds, copyholds, or life leases. Al-
though some consolidation of properties by large landowners occurred—about 10
percent of the land of England was enclosed in the sixteenth century, mainly for sheep
pastures—on balance the peasants gained.
Small holdings and independent tenant farmers were most numerous in the vicin-
ity of cities, where their produce was vital to the supply of the urban population. Else-
where there were two principal types of tenure, with many variations and gradations.
Long-term leases were common in England (some customary leaseholds were even
heritable), parts of Germany, and northern France. The peasants paid fixed rents ei-
ther in kind or, more often, in cash; furnished their own livestock, equipment, and
seeds; and were independent decision makers, except when constrained by commu-
nal custom and decision making in areas of open field agriculture with many strips.
The other main type of tenure was sharecropping, called metayage in France, where
it was especially common south of the Loire River. In that system the landlord fur-
nished all or part of the stock and equipment, shared the risks and decision making
(or made the decisions himself), and took a portion of the crop, normally half. (He
might also undertake to market the peasant’s portion, a situation that lent itself to ex-
ploitation and abuse.) A variation of the latter system, called fermage, was practiced
in north central France and some other parts of Europe. (In fact, the modern English
word for farming is derived from fermage.) In this system, a substantial fermier
(farmer) would lease an entire estate, or even several estates, for a fixed cash rental,
then sublet the land in smaller parcels to peasants on short-term leases or as share-
croppers. The landlords thus lost all functional connections with agriculture, becom-
ing more rentiers (rent receivers). In the hands of capable fermiers this system could
produce excellent results in terms of improved techniques and output; but it was also
susceptible to rackrenting and exploitation of the peasants.
The most progressive agricultural area in Europe were the Low Countries, espe-
cially the northern Netherlands, with its core the province of Holland. At the end of
the fifteenth century Dutch and Flemish agriculture was already more productive than
the European average, thanks to the opportunity of supplying neighboring cities and
workers in the cloth industry. Because of its method of settlement in the Middle Ages
the Dutch rural population also possessed greater freedom than that of formerly
manorialized regions. In the course of the sixteenth and seventeenth centuries Dutch
agriculture underwent a striking transformation that merits its description as the first
“modern” agricultural economy. The modernization of agriculture was intimately as-
sociated with the equally striking rise of Dutch commercial superiority; without one,
the other could not have occurred. The key to the success of the transformation of
Dutch agriculture was specialization, a specialization that was made possible in the
112 A CONCISE ECONOMIC HISTORY OF THE WORLD

first instance by the buoyant demand of the prosperous and rapidly growing Dutch
cities, but in time enabled Dutch cheeses, for example, to be sold in the markets of
Spain and Italy. Instead of trying to produce as much as possible of the goods (non-
agricultural as well as agricultural) necessary for their own consumption, as most peas-
ants elsewhere in Europe did, Dutch farmers tried to produce as much as possible for
the market, also buying through the market many consumption goods as well as cap-
ital and intermediate goods. In some instances farmers marketed their entire output
of wheat, purchasing cheaper rye for their own consumption. For the most part, how-
ever, Dutch farmers specialized in relatively high-value products, livestock and dairy
produce in particular. Raising livestock required growth (or purchase) or large quan-
tities of fodder crops (hay, clover, pulses, turnips, etc.). Specialization in livestock
also meant larger quantities of manure for fertilizer; the intensive nature of Dutch
agriculture required even more fertilizer, however. So great was the demand for fer-
tilizer that some entrepreneurs found it profitable to specialize in collecting urban
night soil and pigeon dung, for example, which they sold by the canal-boatload or
cartload—an activity that incidentally kept Dutch cities cleaner and more sanitary
than others.
Dutch farmers did not specialize exclusively in dairying and livestock. Horticul-
ture occupied many of them, especially in the immediate vicinity of cities. Some grew
barley and hops for the brewing industry, others industrial crops such as flax, hemp,
woad, madder, and pastel. Even flowers became subject to specialized commercial
exploitation; Dutch bulbs were so highly regarded that speculation in them produced
a “tulip mania” in 1637. Nor did Dutch farmers give up cereal cultivation entirely;
the urban patriciate was willing to pay a relatively high price for wheaten bread. Nev-
ertheless, thanks to the efficiency of Dutch shipping and the aggressiveness of Dutch
merchants, the lower classes (including many specialized farmers) were able to pur-
chase the lesser grains, mainly rye, more cheaply from the Baltic. In the midseven-
teenth century a large proportion, possible one-fourth or even more, of Dutch cereal
consumption was supplied by imports.
The profitability of Dutch agriculture is attested by the continuing and continu-
ous efforts to create new land by reclaiming it from the sea, by draining lakes and
marshes, and by planting peat bogs after the peat had been removed for fuel. This ac-
tivity had begun in the Middle Ages, but it increased substantially in the sixteenth and
seventeenth centuries, and was especially intensive in periods of rising prices for farm
products. Nor were only farmers involved. Diking and draining required large capi-
tal expenditures; urban merchants and other investors formed companies to reclaim
land they then sold or rented to active farmers.
A puzzling question arises. Why were Dutch agricultural techniques not more
widely diffused in the sixteenth and seventeenth centuries? Some diffusion did occur.
The turnip was introduced into England as early as 1565, as were some fodder crops
such as clover; the reclamation of the fenlands of eastern England, begun in the sev-
enteenth century, owed much to the Dutch example, Dutch engineers and technology,
and even Dutch capital. Some diffusion also occurred in northern France, adjacent to
the southern Netherlands. In more general terms, however, the productivity of non-
agricultural occupations was not sufficiently high, and the development of markets
 Europe's Second Logistic 113

not sufficiently extensive, to justify the specialization and intensity of labor and cap-
ital that characterized Dutch agriculture.

Industrial Technology and Productivity

In industry as in agriculture, no sharp break occurred between the Middle Ages and
the early modern period. Unlike the case of agriculture, however, innovation took
place more or less continuously, although at a very slow pace. But a problem arises
here: how do we measure innovation and its effects? One obvious way is simply to
count the number of inventions or innovations. This is not very satisfactory, however,
not only because different innovations have very different effects, but also because
of the difficulty of definition. Most of the innovations in the sixteenth and seventeenth
centuries (indeed, in any period of history) involved relatively minor improvements
in already established techniques. For this reason they frequently go unnoticed by his-
torians. Another possibility is to measure changes in productivity. In 1589 a parson
of the Church of England, William Lee, invented a simple machine, the stocking
frame for hosiery and other knitwear. Whereas a skilled hand-knitter could achieve a
rate of 100 stitches per minute, the stocking frame could average 1,000 stitches per
minute, and was subsequently improved. Unfortunately, however, few other innova-
tions of the period have left such detailed information, especially the host of minor
innovations.
There is another problem. Even when we have clearly defined and described in-
novation and can measure its productivity, at least approximately, how do we assess
its total economic impact? The greatest invention of the fifteenth century—indeed,
one of the greatest of all time—printing with movable type, increased productivity in
the book trade enormously, yet its immediate economic impact in terms of value of
output or number employed was miniscule. Are we, therefore, to say that its economic
significance was negligible? Other innovations of the period, in navigational instru-
ments, firearms and artillery, and clock- and watchmaking, were of minor economic
significance yet of enormous importance in political and cultural terms—and thus,
indirectly, economically as well. The introduction of artillery, for example, required
the rebuilding of every city’s defensive structure.
The market orientation of the European economy, greater in industry than in agri-
culture, encouraged entrepreneurs who could reduce production costs and respond
quickly to changes in consumer demand. But there were formidable obstacles to in-
novation as well. One of the most ubiquitous was the opposition of authorities who
feared unemployment as a result of labor-saving innovations and of monopolistic
guilds and companies who feared competition. In 1551 the English Parliament passed
a law forbidding gig-mills, a device used in the cloth-finishing trade; in this case the
market prevailed over the law, as new gig-mills continued to be built. Lee was refused
a patent for his stocking frame, and the first ones that he attempted to introduce in Not-
tinghamshire were destroyed by mobs of hand knitters. Lee himself took refuge in
France and established a factory, with the patronage of Henry IV; that failed after the
death of his benefactor, but the stocking frame continued to spread. In 1651 the frame-
114 A CONCISE ECONOMIC HISTORY OF THE WORLD

work knitters of Nottingham applied to Cromwell for a guild charter to exclude un-
wanted competition! The swivel-loom, a Dutch invention for weaving a dozen or more
ribbons simultaneously, was prohibited in England in 1638; but it spread anyway, es-
pecially in Manchester and vicinity, where its use created a large number of skilled op-
eratives in advance of the great innovations that revolutionized the cotton industry.
None of the innovations mentioned here involved the use of mechanical power.
The deficiencies of power sources and of building materials (mainly wood and stone)
were natural obstacles to greater industrial productivity. The sketchbooks of
Leonardo da Vinci are concrete evidence of numerous potential innovations that could
not be made at the time because of inadequate materials and sources of power.
Leonardo was a genius, of course; but there were undoubtedly many other less gifted
persons who were frustrated in their attempts to increase the efficiency of human la-
bor by faulty materials and insufficient power. Wind- and watermills had, it is true,
already reached a high level of sophistication, as indicated in a previous chapter, but
they have obvious limitations. In the seventeenth century, however, water-powered
mills for spinning silk (which may have had medieval origins) proliferated in the Po
valley and Venezia, and by the end of the century had spread to the Rhone valley in
France. The large size and complexity of the machinery required them to be installed
in factory-type buildings, making them some of the most important precursors of the
modern industrial system.
Not all innovations involved mechanical contrivances. The typical products of the
woolen industry in the late Middle Ages were heavy, coarse cloths. In the late fifteenth
century Flemish clothmakers introduced a lighter, cheaper fabric called “new
draperies” (in French nouvelle draperie). Although slow to catch the public fancy at
first, their lower prices made them highly competitive in international markets, espe-
cially those of southern Europe. After the repression of the revolt in the Spanish
Netherlands, and the consequent flight of many Flemish artisans, industries produc-
ing the new draperies sprang up in many lands, notably in England, where as early as
1571 there were as many as 4,000 Flemish refugees in the city of Norwich alone—
most of them weavers. For similar reasons the manufacture of cotton cloth, already
produced in Italy in the Middle Ages with raw material from the eastern Mediter-
ranean, gradually spread to Switzerland, south Germany, and Flanders in the sixteenth
century. By about 1620 it reached Lancashire, England.
The textile trades remained, collectively, the largest industrial employer, closely
followed by the building trades. This is understandable when one remembers that in
a poor, near-subsistence economy such as preindustrial Europe, the basic necessities
are food, shelter, and clothing. The cloth industry continued to be widely dispersed,
with much production carried on within and for the household and for local markets;
but some regions also specialized in production for export. The once great Italian in-
dustries suffered from the competition of new and more vigorous rivals, and gradu-
ally fell backwards, losing their markets for woolen goods to Dutch, English, and
French producers and sharing the market for fine and fancy silks with the French. The
Spanish woolen industry expanded briskly in the first half of the sixteenth century
but, hampered by excessive taxation and government interference, stagnated and de-
clined thereafter. For the first two-thirds of the century the largest cloth industries, for
both woolens and linens, existed in the southern Low Countries, in the provinces of
 Europe’s Second Logistic 115

Flanders and Brabant in particular. The Dutch revolt and the brutal repression of the
remaining Spanish Netherlands severely damaged both industries, although they re-
covered somewhat in the seventeenth century because of their privileged position as
principal suppliers to the Spanish Empire.
The organization of the textile industries did not change appreciably from the later
Middle Ages. The characteristic entrepreneur was the merchant-manufacturer who
purchased the raw materials; put them out to spinners, weavers, and other artisans
working in their homes; and marketed the final product. Guild organizations, whether
of artisans or merchants, apparently did not affect the industry appreciably, at least in
England. There the guilds gradually withered away as the woolen industry, in partic-
ular, moved to rural areas. In France the royal rulers fostered the guilds as a source
of revenue. Whether this adversely affected the fortunes of the industry is a subject
that merits further study. In any event, the English industry expanded prodigiously.
In the Middle Ages raw wool had been England’s principal export. In the sixteenth
century exports of unfinished cloth predominated. By 1600 woolen and worsted cloth
accounted for two-thirds of the value of all English exports. Moreover, whereas at the
beginning of the seventeenth century about three-fourths of English cloth exports
were undyed and undressed, by the end of the century virtually all cloth was exported
in a finished condition. Well before the rise of modern industry England had already
become the largest exporter in Europe’s largest industry.
Although the construction industry in general experienced no significant techni-
cal changes apart form stylistic changes in monumental architecture, one specialized
sector of the industry in one country did undergo a profound transformation, namely,
shipbuilding in the Dutch Netherlands. Thanks to the rapid expansion of Dutch com-
merce, the Dutch merchant fleet experienced a tenfold increase in numbers and an
even larger increase in tonnage between the beginning of the sixteenth century and
the middle of the seventeenth. At that time it was the largest by far in Europe, three
times larger than the English merchant fleet, which was second, and probably larger
than all others combined. Considering the relatively short life of wooden sailing ships,
this translates into a large demand on the shipbuilding industry, a demand to which
Dutch shipbuilders responded by rationalizing their shipyards and introducing ele-
mentary mass production techniques. They used mechanical saws and hoists actuated
by windmills, and kept stores of interchangeable parts. Because of their efficiency,
they supplied not only their own country’s fleet but those of its rivals as well. Since
the Netherlands possessed few forests, virtually all of the timber for the shipyards had
to be imported, principally from the Baltic area. On the other hand, the large demand
for sailcloth and cordage stimulated prosperous subsidiary industries in Holland it-
self. There were few radical innovations in ship design from the late fifteenth to the
nineteenth century, but many small improvements. The size of ships in the Atlantic
trades increased from 200 to 600 tons in the course of the sixteenth century. Some
warships even reached the unprecedented size of 1,500 tons, but the most significant
innovation—by the Dutch, of course—was the fluyt ship, or flyboat as the English
called it, a specialized commercial carrier introduced at the end of the sixteenth cen-
tury (Fig. 5-5). The equivalent in some respects of the tanker of our times, it was spe-
cially designed for bulky, low-value cargoes such as grain and timber, and operated
with smaller crews than conventional ships.
116 A CONCISE ECONOMIC HISTORY OF THE WORLD

FiGuRE 5—5. The Dutch fluyt ship. This relatively large, ungainly ship was highly success-
ful as a cargo carrier, replacing the older dual-purpose carrack. Its contemporary, the galleon,
replaced the carrack as a warship and dual-purpose vessel. (Netherlands Historical Maritime
Museum, Amsterdam. Reprinted with permission.)

The metallurgical industries, although of relatively minor significance in terms of

employment and output, acquired major strategic significance because of the grow-
ing importance of firearms and artillery in warfare. In 1450 light firearms played a
negligible role, and awkward artillery pieces were confined to siege warfare. By 1600
arquebuses and muskets were the standard weapons of infantry, and large-bore can-
nons were essential to naval warfare. The metallurgical industries were important also
as harbingers of the new age of industrialism. Iron was the most important.
In the Middle Ages wrought iron was obtained from a variety of types.of
“bloomeries,” in which iron ore was heated with charcoal until it became a pasty mass
or “bloom,” which was then alternately hammered and heated until its impurities were
driven out. The process was slow, costly in fuel and ore, and produced its output in
small batches. In the fourteenth and fifteenth centuries the height of the furnaces in-
creased progressively, a blast of air provided by water-powered bellows increased the
temperature of the charge, and thus evolved the high, or blast, furnace. By the begin-
ning of the sixteenth century the blast furnace was continuously charged at the top
with charcoal, ore, and a flux to remove impurities, while from the bottom molten
 Europe’s Second Logistic 117

iron was periodically tapped to be cast directly into useful implements (pots, brack-
ets, etc.) or into “pigs” (bars) for further refining. (Cast or pig iron contains a high
carbon content—3 percent or more—which makes it very hard but brittle; the pigs,
like the blooms, were alternately heated and hammered to remove the carbon, pro-
ducing wrought iron.) The new method, although indirect, was nevertheless both
faster and cheaper, as it made better use of fuel and ore, and could use lower-grade
ores. It also required larger amounts of capital, although by far the greater part was
tied up in inventories of charcoal and ore rather than in fixed capital as such.
As the blast furnace evolved a number of innovations occurred in ancillary oper-
ations. Water-powered bellows, tilt hammers, and stamping mills (for crushing ore)
had all been introduced by the middle of the fifteenth century. Later in that century
and early in the next, wire-drawing machines and rolling and slitting mills were in-
vented. At the beginning of the sixteenth century the area around Liege and Namur
(Wallonia) in the southeastern Low Countries, already an important metallurgical
center in the Middle Ages, was the most advanced iron-producing region in Europe
and the site of many innovations. Other principal centers were located in Germany,
northern Italy, and northern Spain. Total European output was approximately 60,000
tons a year, of which various regions of Germany may have accounted for half. In the
next hundred years the blast furnace and its attendant activities spread throughout Eu-
rope wherever iron ore, wood for fuel, and water power existed in sufficient quanti-
ties and adequate proximity. England was especially precocious. By 1625 its hundred-
odd furnaces were producing upwards of 25,000 tons a year. The iron industry was
voracious of fuel, however, and in the seventeenth century the high price of charcoal
braked the expansion in the established areas of production. As it did so, new and
more distant sources of supply came into production in the Swiss and Austrian Alps,
in eastern Europe, and especially in Sweden.
Sweden, favored by high-grade iron ore and abundant timber and water power,
had a modest iron industry even in the Middle Ages. At the beginning of the sixteenth
century exports amounted to about 1,000 tons a year. In the seventeenth century Wal-
loon and Dutch entrepreneurs introduced more advanced techniques, and output ex-
panded enormously: exports rose from about 6,000 tons in 1620 to more than 30,000
tons at the end of the century, by which time Sweden’s iron industry was probably the
largest in Europe.
In other metallurgical industries progress was less remarkable, involving pri-
marily an increase in output with conventional techniques and the application of
those techniques to new sources of supply. Silver mining in central Europe, well es-
tablished in the Middle Ages, experienced a boom in the early sixteenth century as
a result of the discovery of the mercury amalgamation process for concentrating sil-
ver ores; but when that process was transferred (by German mining experts) to the
silver mines in the Spanish colonies of Mexico and Peru in the 1560s, the resulting
increase in the supply of silver so depressed prices that many European mines were
forced to shut down.
Europe was not naturally rich in the precious metals, but the more utilitarian metal
ores were relatively abundant. Copper, lead, and zinc were found in many parts of Eu-
rope, and had been mined since prehistoric times. Tin was more localized, virtually
confined to Cornwall; but it, too, had been an item of commerce long before the Ro-
 118 A CONCISE ECONOMIC HISTORY OF THE WORLD

man conquest of Britain. In the sixteenth and seventeenth centuries, under the pres-
sure of increasing demand, mining techniques were improved, involving deeper
shafts, better ventilation, and pumping machinery. German, especially Saxon, miners
were the principal innovators, and they carried their skills abroad, to England and
Hungary as well as to the New World. In the 1560s the English government granted
monopolies in the brass and copper industries to companies that brought in German
engineers. Sweden was almost as rich in copper as in iron, and in the seventeenth cen-
tury, with Dutch capital and technical assistance, was Europe’s largest supplier in in-
ternational markets.
Timber was in great demand, for construction, shipbuilding, metallurgy, and, most
important, domestic heating. The shortage of timber throughout the more developed
areas of Europe was primarily responsible for integrating Norway and Sweden into
the West European economy, both directly and indirectly (i.e., through the demand
for metals). The timber shortage was so severe that it involved not only the Baltic area
but, in the seventeenth and eighteenth centuries, North America as well. It also led to
the search for substitute materials and fuels: brick and stone for building, peat and
coal for fuel. Iron and other metals were also substituted for wood, but the increase
in demand for them merely intensified the timber shortage. England was among the
countries most affected. Certain forests were reserved for the royal navy, but of even
greater importance was the growing demand for fuel.
Coal had been mined in Germany and the Low Countries as well as England dur-
ing the Middle Ages. In spite of its noxious characteristics and frequent laws pro-
hibiting its use, “seacoale” from the banks of the Tyne estuary had become a common
household fuel in sixteenth-century London. Gradually it penetrated high fuel-con-
sumption industries such as salt-refining, glass, brick and tile, copper smelting, malt-
ing and brewing, and various chemical industries. Attempts were made in the seven-
teenth century to substitute it for charcoal in iron smelting, but various impurities
(principally sulfur) in raw coal imparted undesirable characteristics to the iron.
Even
so, the demand for coal from other industries increased steadily. Output
of the En-
glish industry grew from about 200,000 tons annually in the midsixteenth century
to
3 million tons at the end of the seventeenth. As the industry grew, coal from
out-
croppings along river banks no longer sufficed to satisfy the demand.
Mines had to
be sunk; Saxon miners, long-experienced in the arts of boring, pumping,
and mine
ventilation, were brought to England to spread their knowledge.
The overseas discoveries, by providing new raw materials, directly
stimulated
new industries; sugar refining and tobacco processing were most importan
t, but other
manufactures ranging from porcelain (in imitation of Chinese
ware) to snuff boxes
developed to satisfy newly created tastes. Sugar cane also provided
the raw material
for rum distilleries, and in the seventeenth century the
affluent Dutch invented gin,
originally intended for medicinal purposes. In addition to such
wholly new industries
a number of older industries in which production had been highly
localized spread to
various parts of Europe. In the Middle Ages Italy had been the principal
if not the only
producer of such luxury goods as fancy glassware, high-grade
paper, optical instru-
ments, and clocks. The growth of similar industries
in other countries, whose prod-
ucts were frequently of lesser quality but cost less, accounts
in part for the relative
decline of Italy. The invention of the printing press greatly
increased the demand for
 Europe's Second Logistic 119

paper. Before the end of the fifteenth century more than 200 printing presses had been
established and had produced approximately 35,000 separate editions, or about 15
million books. The numbers have been growing exponentially ever since; in the lat-
ter half of the seventeenth century the catalogs of the Frankfurt book fair, the largest
in Europe, listed as many as 40,000 current titles. The Low Countries, especially
Antwerp and Amsterdam, were the most active centers of the industry, but France,
Italy, the German Rhineland, and England did not lag far behind.
In spite ofthis picture of varied, vigorous, and sophisticated industries, one should
bear in mind the still very imperfect degree of specialization in the European econ-
omy, and its extreme dependence on low-productivity agriculture. Many industrial
workers, especially in the textile industries, engaged part-time in agriculture, and
most agricultural workers also had secondary occupations as woodworkers, leather
workers, and the like.

Trade, Trade Routes, and Commercial Organization

Of all sectors of the European economy, commerce was undoubtedly the most dy-
namic between the fifteenth and the eighteenth centuries. Older textbooks described
the sixteenth century as an era of “commercial revolution.” As we have seen, there
are earlier candidates for that title, but there is no doubt that a substantial increase oc-
curred in the volume of long-distance or international trade. Exactly how much is im-
possible to state, but the increase in trade probably exceeded by several times that in
population. Extra-European trade contributed to the increase, and also stimulated
some of the increase within Europe; but as was previously noted, trade with Asia and
America was but a small fraction of the total. Commerce would certainly have in-
creased even with no discoveries.
It should be remembered that by far the greatest part of commercial exchange,
both by volume and by value, was local. Towns and cities received the bulk of their
food supplies from their immediate hinterlands and in exchange supplied them with
manufactured goods and services. It was mainly small-scale commerce, and varied
little either over time or from place to place. More interesting, and more significant
for the history of economic development, were the changes that occurred in distant
trade.
The principal trade routes and the commodities involved in them, as they existed
in the fifteenth century, were sketched in Chapter 3. The most important changes that
occurred in the next 200 years, in addition to the opening of the overseas routes, were
the shift in the center of gravity of European commerce from the Mediterranean to
the northern seas, a slight but perceptible change in the character of the commodities
involved in distant trade, and changes in the forms of commercial organization.
The Portuguese invasion of the Indian Ocean was a rude shock to the Venetians
and, to a lesser extent, other Italian cities. It is not true, as used to be thought, that the
Mediterranean spice trade through Egypt and Arabia ceased abruptly, but the compe-
tition of Portuguese spices greatly reduced its profitability. In 1521, in an attempt to
regain their monopoly, the Venetians offered to purchase the entire Portuguese im-
port, but were refused. Gradually the initiative in commercial affairs shifted to north-
 120 A CONCISE ECONOMIC HISTORY OF THE WORLD

ern Europe. The Venetians’ famed Flanders fleet made its last voyage in 1532, and in
the latter part of the century Venetian ambassadors complained of competition from
cheaper French and English woolens in the markets of the Near East, which the Ital-
ians had regarded as their exclusive domain. The benefits of the Portuguese success
did not accrue exclusively to them, however. The first cargo of Portuguese spices ap-
peared on the Antwerp market in 1501, carried from Lisbon not by Portuguese but by
Dutch or Flemish merchants. The Spanish and Portuguese, concentrating on the ex-
ploitation of their overseas empires, left the business of distributing their imports in
Europe, and also of providing most of their exports to the colonies, to other Euro-
peans. Of these the Netherlanders, mainly Dutch and Flemish, were most aggressive.
“The prodigious increase of the Netherlands” (in the words of an envious En-
glishman) began modestly enough in the fifteenth century, as Dutch fishing fleets in
the North Sea began to undercut Hanseatic dominance of the herring trade. (It used
to be thought that the herring shoals “migrated” from the Baltic to the North Sea, but
more likely the decline of the Hansa, in this as in other trades, occurred because the
Dutch were simply more efficient.) The dried and salted fish were first distributed
around the shores of the North Sea and up the German rivers, then, in the sixteenth
century, to southern Europe and even in the Baltic. Meanwhile the Dutch developed
other trades. From Portugal and the Bay of Biscay, they procured salt for the fish
and
for distribution in northern Europe, occasionally picking up cargoes of wine as well.
But the mainstay of Dutch commerce was the Baltic trade, mainly grain and timber,
but also naval stores, flax, and hemp. Of the 40,000 ships recorded in the
Danish
Sound Toll registers as entering or leaving the Baltic between 1497 and 1660,
almost
60 percent were Dutch, and the remainder English, Scottish, German,
and Scandina-
vian. Virtually all of the trade between northern Europe and France, Portugal,
Spain,
and the Mediterranean, and much of the trade between England and the
Continent,
was in the hands of the Dutch.
The Dutch were equally aggressive in overseas trade. Their war for
independence
interrupted their trade with Spain, but they continued to trade with
the Portuguese
Empire through Lisbon. Portugal fell to the crown of Spain in 1580,
however, and in
1592 the Spanish authorities closed the port of Lisbon to Dutch
shipping. Heavily de-
pendent on maritime commerce, the Dutch immediately began
building ships capa-
ble of the months-long voyage around Africa to the Indian
Ocean. In less than ten
years more than fifty ships made the round trip between the
Netherlands and the In-
dies. So successful were these early voyages that, in 1602,
the government of the
United Provinces, the city of Amsterdam, and several
private trading companies
formed the Dutch East India Company, which legally monopol
ized trade between the
Indies and the Netherlands.
The Dutch were not the only nation to take advantage of Portuga
l’s weakness. En-
glish interlopers had made a voyage as early as 1591,
and in 1600 the English East
India Company was organized with a monopoly similar to
that of the Dutch company.
Although the two companies were rivals to some extent,
they both regarded the Por-
tuguese as the greater enemy. The Dutch concentrated
their attention on the fabulous
Spice Islands of Indonesia, and by the middle of the sevente
enth century had estab-
lished their mastery of both the islands and the spice trade
more effectively than the
Portuguese had ever done. They also took control of the
ports of Ceylon. The English,
 Europe's Second Logistic 121

after unsuccessful attempts to obtain a foothold in Indonesia, established fortified

trading posts on the mainland of India, which eventually became the “brightest jewel
in the British crown.” Portugal retained its possessions of Goa, Diu, and Macao, as
well as a few ports on the African coasts, but ceased to be a major commercial or naval
power in the eastern seas.
The other seapowers also took advantage of Portuguese weakness and Spanish
rigidity to invade and create markets in the Western Hemisphere. Early French and
English attempts to find a direct route to the East had been disappointing, but in the
second half of the sixteenth century new efforts were made to discover a northeast or
northwest passage to Asia. The ill-fated voyage in 1553 of Willoughby and Chancel-
lor through Arctic waters into the White Sea failed to find a northeast passage, but it
did establish trade relations with the growing Russian Empire and, through it, with
the Middle East. At about the same time French, English, and Dutch privateers began
carrying on a clandestine trade with Brazil and the Spanish colonies in the New World
or, as the occasion presented, raiding Spanish ships and colonial ports. Three brief at-
tempts by the English to found colonies in North America during the reign of Eliza-
beth I ended in failure, but in the first half of the seventeenth century successful
colonies were established in Virginia (1607), New England (1620), and Maryland
(1632), as well as on islands seized from the Spanish in the West Indies. In time all
of these became important markets for English industries as well as sources of sup-
ply for raw materials and consumer goods. In 1608 the French established a perma-
nent settlement at Quebec and claimed the entire Great Lakes area as New France,
but the colony did not prosper. In 1660, when the English-speaking colonists in the
New World numbered almost 100,000, all Canada contained only 2,500 French
colonists, fewer than the number of Frenchmen in the few French sugar islands in the
West Indies.
In 1624 the Dutch attempted to conquer the Portuguese colonies in Brazil, but af-
ter two decades of intermittent strife they were ultimately driven out by the Por-
tuguese colonists themselves, with little help from the mother country. The Dutch re-
tained only Surinam and a few islands in the Caribbean. In the same year the Dutch
began their Brazilian conquest, another group of Dutch colonists founded the city of
New Amsterdam on the southern tip of Manhattan Island. They laid claim to the en-
tire Hudson valley and surrounding area, founded Fort Orange (Albany), and gave
out land under the patroon system of ownership to such families as the Rensselaers
and Roosevelts.
Seaborne commerce was by far the most important for international trade, but in-
land trade, especially river traffic, was not negligible. Local commerce used it ex-
tensively, and most commodities even in international trade began their voyages to
market overland by cart or on pack animal and downriver by barge. Copper from Hun-
gary, for example, reached the market of Antwerp (later Amsterdam) by land carriage
to the Polish rivers, thence by barge to Danzig, where it was transshipped through the
Baltic and North seas. Silver from central Europe and the Tyrol followed similar itin-
eraries, whether going to the Baltic, the Mediterranean, or the west. The Rhine, Main,
and Neckar rivers were important arteries for the export of the metals and hardware
(knives, tools, toys) of South Germany and the Rhineland. The French rivers were
equally important.
 122 A CONCISE ECONOMIC HISTORY OF THE WORLD

Metals and some luxury cloths could stand the expense (and wear and tear) of
long land journeys. Few other commodities could, unless they were self-propelled, as
was the case with cattle. While most of Europe’s arable land was increasingly devoted
to field crops to feed its growing population, Denmark, Hungary, and Scotland had
large open grasslands on which to pasture herds of cattle. Annual cattle drives, fore-
shadowing those of the American West of the nineteenth century, sent the livestock
to fattening pens and markets in the cities of northern Germany and the Low Coun-
tries, to South Germany and northern Italy, and to England.
The character of the commodities involved in distant trade changed somewhat in
the sixteenth and seventeenth centuries. In the early Middle Ages these had been
mainly luxury goods for the well-to-do. Later, with the growth of towns, more mun-
dane articles entered the lists. By the sixteenth century a large proportion of the
vol-
ume of goods moving in international trade consisted of such staples as grain, timber,
fish, wine, salt, metals, textile raw materials, and cloth. At the end of the
seventeenth
century half of English imports, by volume, consisted of timber: more than half
of the
exports, also by volume, were coal, although cloth exports were far more
valuable.
The trade in bulky staples was made possible principally by the improvements
in ship
design and construction, which lowered costs of transport. A reduction in the
risks of
maritime travel, both natural and manmade, by better navigational techniques,
and by
the action of navies in putting down pirates also contributed in the same
direction.
In the intercontinental trade the situation corresponded more closely
to the older
model, although even here shifts occurred in the seventeenth and especial
ly the eigh-
teenth centuries. The commerce in pepper, a luxury at the beginnin
g of the sixteenth
century, gradually took on the character of a staple trade. As the
importance of the
precious metals declined in the seventeenth century, and
other countries acquired
colonies in the Western Hemisphere, sugar, tobacco, hides, and
even timber became
increasingly prominent among Europe’s imports. Europe’s exports
to the colonies
consisted of manufactured goods, for the most part; these were
not bulky, but the re-
maining space available was filled partly by emigrants. The
situation in the eastern
trade was quite different. From the beginnings of direct Europea
n contact, Europeans
had difficulty in finding merchandise to exchange for the
spices and other desirable
wares. For this reason much of Europe’s “trade” was, in effect,
plunder. Where plun-
der was not possible or feasible, Asians accepted firearms
and munitions, but mostly
they demanded gold and silver, which they hoarded or converte
d into jewelry. On bal-
ance, Asia was a sink for European monetary metals. Not
until the conquest of India
by England in the eighteenth century was the balance
reversed.
One very special branch of commerce dealt in human
beings: the slave trade. Al-
though the Spanish colonies were among the largest
purchasers of slaves, the Span-
ish themselves did not engage in the trade to any great
extent but granted it by con-
tract, or asiento, to the traders of other nations. The
trade was dominated at first by
the Portuguese, then in turn by the Dutch, the French
, and the English. Usually the
trade was triangular in nature. A European ship carryi
ng firearms, knives, other met-
alwares, beads and similar cheap trinkets, gaily colore
d cloth, and liquor would sail
for the West African coast, where it exchanged its
cargo with local African chieftains
for slaves, either war captives or the chief’s own
people. When the slave trader had
loaded as many chained and manacled Africans
as his ship would carry, he sailed for
 Europe’s Second Logistic 123

the West Indies or the mainland of North or South America. There he exchanged his
human cargo for one of sugar, tobacco, or other products of the Western Hemisphere,
with which he returned to Europe. Although the death rate from disease and other
causes for slaves in transit was dreadfully high, the profits of the slave trade were
extraordinary. European governments took no effective steps to prohibit it until the
nineteenth century.
The organization of trade varied from country to country and according to the na-
ture of the commerce. Intra-European trade inherited the sophisticated and complex
organization developed by the Italian merchants in the later Middle Ages. In the fif-
teenth century colonies of Italian merchants could be found in every important com-
mercial center: Geneva, Lyons, Barcelona, Seville, London, Bruges, and especially
Antwerp, which in the first half of the sixteenth century became the world’s greatest
entrepot. Native merchants, and those from other countries as well, learned Italian
business techniques such as double-entry bookkeeping and the uses of credit—so
well, indeed, that by the first half of the sixteenth century the Italians could no longer
assert their predominance. The greatest business dynasty of the sixteenth century was
the Fugger family, with headquarters in Augsburg in South Germany.
The first Fugger known to history was a weaver. Some of his descendants became
putters-out (merchant-manufacturers) in the woolen industry, eventually getting into
wholesale trade in silk and spices with a warehouse in Venice. By the end of the fif-
teenth century they were actively engaged in financing the Holy Roman emperors, as
a result of which they obtained control over the output of the Tyrolean silver and cop-
per mines and the copper mines of Hungary. Under Jacob Fugger II (1459-1525) the
family firm operated branches in several German cities and in Hungary, Poland, Italy,
Spain, Lisbon, London, and Antwerp (Fig. 5-6). From Lisbon and Antwerp they
largely controlled the distribution of spices in central Europe, for which they ex-
changed the silver needed to purchase the spices in India. They also accepted deposits,
dealt extensively in bills of exchange, and were heavily involved in financing the
monarchs of Spain and Portugal—a business that eventually led to their downfall.
The Fuggers were preeminent in the sixteenth century—Jacob II was called “a
prince among merchants”—but many others were only slightly less prominent, in
Italy and the Low Countries as well as Germany. Even Spain had a few notable mer-
chant dynasties. The form of organization they favored was the partnership, usually
formalized by written contracts specifying the rights and obligations of each partner.
By means of correspondence among widely separated partners or agents they kept
abreast of developments, political as well as economic, in all parts of Europe and be-
yond. It was said that Queen Elizabeth’s government was the best informed in Europe
because of her financial agent in Antwerp, the merchant Sir Thomas Gresham. Mer-
chant newsletters were the forerunners of the great news-gathering agencies, or “wire
services,” of today.
Commercial organization in England, a peripheral country in the fifteenth cen-
tury, reflected an earlier form than the more highly developed economies on the Con-
tinent; but it made rapid progress and by the late seventeenth century was one of the
most advanced. In the Middle Ages the trade in raw wool, by far the most important
export, was handled by the Merchants of the Staple, a regulated company that func-
tioned something like a guild. There was no joint stock; each merchant traded for his
 124 A CONCISE ECONOMIC HISTORY OF THE WORLD

FIGURE 5—6. Jacob Fugger II, “The Rich.” Fugger is shown here in his office with
his
chief clerk, Mathias Schwartz. The large volumes behind him are
labeled with the names of
the cities with which he did business: Venice, Cracow, Milan,
Innsbruck, Nuremburg,
Lisbon, etc. (Braunschweigisches Landesmuseum fiir Geschicht
e und Volkstum. Reprinted
with permission.)

own account (and for his partners, if any), but they had a common
headquarters and
warehouse (the staple) and obeyed a common set of rules. The wool trade was still
important, though declining, in the sixteenth century; the
staple, where the wool was
taxed and sold to foreign merchants, was located in Calais,
an English possession un-
til 1558. Replacing the Staplers in importance, the Merchan
t Adventurers, another
regulated company, handled the trade in woolen cloth.
(Some merchants were mem-
bers of both companies.) They established their staple
in Antwerp, contributing more
than a little to the growth of that market, and received
certain privileges in return. In
1564 the company received a royal charter conferring
on it a legal monopoly of cloth
exports to the Low Countries and Germany, the most
important markets.
In the latter half of the sixteenth century the English
set up a number of other com-
panies with monopolistic trading charters: the Musco
vy Company (1555), an out-
growth of the Willoughby-Chancellor expedition; the
Spanish Company (1577); the
Eastland (Baltic) Company (1579); the Levant
(Turkey) Company (1583); the first of
several African companies in 1585; the East India Compa
ny (1600); and a French com-
pany (1611). The establishment of special compan
ies for trade with France, Spain, and
the Baltic, in particular, indicates one (or both) of
two things: the small amount of di-
rect trade between England and those countries
before the existence of the companies
 Europe's Second Logistic 125

(and possibly afterwards as well), and the extent to which such trade as did exist was
in the hands of Dutch or other merchants. It is significant that the Dutch did not see
the need for such monopolistic concerns, except for extra-European trade.
Some of these companies adopted the regulated form, but others became joint-
stock companies; that is, they pooled the capital contributions of the members and
placed them under a common management. This was done in the distant trades, in
which the risks and capital required to outfit a single voyage exceeded the amounts
that one or a few individuals were willing to assume or furnish. The Muscovy and
Levant companies were first formed on a joint-stock basis, but as trade relations de-
veloped and became more stable they became regulated companies. The Muscovy
Company, trading through the port of Archangel, handled most of western Europe’s
commerce with northern Russia until the tsar withdrew its privileges in favor of the
Dutch in 1649. The East India Company also adopted the joint-stock form. At first
each annual voyage was a separate venture, which might have different groups of
stockholders from year to year. In time, as it became necessary to establish perma-
nent installations in India and to provide continuous supervision of its affairs, the
company adopted a permanent form of organization in which a stockholder could
withdraw only by selling his shares to another investor. The Dutch East India Com-
pany adopted the permanent form as early as 1612.
The existence of a single great entrep6t in northwestern Europe—first Bruges,
then Antwerp, then Amsterdam, each larger and more imposing than the former—is
doubly significant. First, their mere existence, in contrast to the periodic fairs of the
Middle Ages, is evidence of the growth in the size of markets and of market-oriented
production. But the fact that there was only one at a time, and that as one rose another
declined, indicates the limits to that development. True, there were other emporia of
some significance—London, Hamburg and other Hanseatic cities, Copenhagen,
Rouen, and others—but none had the full range of commercial and financial services
of the one great metropolis. The reasons are related to the limited extent of markets
and the “public good” nature of information in commercial and especially financial
~ transactions. When the total volume of commercial or financial turnover is relatively
small, it is cheaper to concentrate them in a single location.
The organization of the entrepot was already highly sophisticated at the begin-
ning of the fifteenth century in Bruges, and became more so as it migrated to Antwerp
and Amsterdam. The first requirement is a burse, or marketplace (Fig. 5-7). (The mod-
ern word burse and its equivalents in various languages—bourse, borse, borsa,
bolsa—meaning an organized or regulated market for trade in either commodities or
financial instruments, derives from the merchants’ meeting hall in Bruges, which was
identifiable by a sign showing three money bags, or purses.) As a rule the goods dis-
played were not actually exchanged on the spot; they were merely samples that could
be inspected for quality. After orders were placed the goods would be shipped from
warehouses. The use of credit was widespread, with most payments being made with
financial instruments such as the bill of exchange, or by assignment in banks, instead
of with hard cash. The banks were mostly private affairs, including many merchant
firms such as the Fuggers, who carried on a banking business on the side, until the fa-
mous Amsterdamsche Wisselbank, or Bank of Amsterdam, was founded in 1609. This
was a public bank in that it was founded under the auspices of the city itself. It was
 126 A CONCISE ECONOMIC HISTORY OF THE WORLD

FIGURE 5—7. The Amsterdam Exchange. This painting by Emmanuel de Witte shows the
interior court of the Amsterdam Exchange, or burse. (By De Witte-loan: Willem
van der
Vorn Foundation, Museum Boymans-van Beuningen, Rotterdam.)

also an exchange bank, rather than a bank of issue and discount. Funds
could be de-
posited here and transferred from one account to another on
the books; but the bank
did not issue banknotes or make loans to merchants by discounting commerc
ial paper.
Its principal function, which it performed well, was to provide the city
and all the Dutch
and foreign merchants who flocked there with a stable, reliable
means of payment.
The regime of the colonial trades differed markedly from intra-Eu
ropean trade.
The spice trade of the Portuguese Empire was a crown monopol
y; the Portuguese
navy doubled as a merchant fleet, and all spices had to be sold
through the Casa da
India (India House) in Lisbon. Portuguese seamen were allowed
to bring other com-
modities as personal possessions, which they could subsequently
sell—a practice that
led to some dangerously overloaded ships on the return voyage—
but, strictly speak-
 Europe's Second Logistic 127

ing, no commerce existed between Portugal and the East except that organized and
controlled by the state.
The situation was different beyond the Cape of Good Hope, however. There Por-
tuguese merchants took part in the “country trade” (between ports on the Indian
Ocean, in Indonesia, and even in China and Japan) in competition with Muslim,
Hindu, and Chinese merchants. For a time, as a result of a ban on direct trade with Ja-
pan imposed by the Chinese emperor, they had a virtual monopoly on trade between
China and Japan. In the spice trade Goa was the eastern terminus as Lisbon was the
western. The spices, of which pepper was quantitatively most important, were pur-
chased in markets throughout the Indian Ocean and in the Spice Islands and brought
to Goa to be loaded on homebound ships under the eyes of royal officials. Since Por-
tugal produced few goods of interest to eastern markets, the outward cargoes con-
sisted mainly of gold and silver bullion, along with some firearms and munitions.
Overall, although the spice trade was lucrative for the government, it did little to de-
velop or strengthen Portugal’s own economy.
The trade between Spain and its colonies was similar. Technically, trade with the
colonies was a monopoly of the Crown of Castile. For practical purposes the gov-
ernment turned it over to the Casa de Contratacién (House of Trade), a guildlike or-
ganization in Seville that operated under the watchful eyes of government inspectors.
All shipping between Spain and the colonies went out in convoys that, as eventually
organized, departed from Seville in two contingents in the spring and late summer,
wintered in the colonies, and returned as one fleet the following spring. The official
reason for the convoy system was to protect the bullion supply from privateers and,
in time of war, enemies; but it was also a convenient but ineffective means of at-
tempting to prevent contraband trade. How much contraband there actually was is im-
possible to say, but it must have been substantial in view of the pitifully small amount
of legal exports. Although there were fluctuations, the average number of ships in the
convoys each year in the latter part of the sixteenth century was only about eighty, a
small fraction of the number engaged in the Baltic trade, for example. At that time the
European population in the New World amounted to well over 100,000. Even though
they were, to a large extent, self-sufficient in terms of food supply, they still demanded
European wines and olive oil, not to mention manufactured goods such as cloth,
firearms, tools, and other hardware. It has been estimated that approximately half of
all official bullion imports into Seville was required to purchase return cargoes, with
an additional 10 percent or so absorbed by shipping and other commercial services.
The crown, for its part, demanded the quinto real (royal fifth) of all bullion imports
but, with other taxes, actually claimed about 40 percent of the total. As in the case of
Portugal, Spain’s fabulous empire did little to further the development of Spain’s own
economy and, as a result of short-sighted government policies, actually retarded it.
We now turn to a consideration of those policies.
 6
Economic Nationalism
and Imperialism

The economic policies of nation-states in the period of Europe’s second logistic had
a dual purpose: to build up economic power to strengthen the state and to use the
power of the state to promote economic growth and enrich the nation. In the words
of Sir Josiah Child, British merchant and politician of the late seventeenth century,
“profit and power ought jointly to be considered.” Above all, however, the states
sought to obtain revenue to maintain their greatly expanded military forces; fre-
quently their need for revenue led them to enact policies that were detrimental to truly
productive activities.
In pursuit of their objectives policymakers had to deal with the conflicting desires
of both their own subjects and rival nation-states. In medieval times municipalities
and other local government units had possessed extensive powers of economic con-
trol and regulation. They levied tolls or tariffs on goods entering and leaving their
ju-
risdictions. Local guilds of merchants and artisans fixed wages and prices, and
other-
wise regulated working conditions. The policies of economic nationalism represente
d
a transfer of these functions from the local to the national level, where the central
gov-
ernment attempted to unify the state economically as well as politically.
At the same time they were seeking to impose economic and political
unity on
their subjects, the rulers of Europe were aggressively competing with one
another for
extension ofterritory and control of overseas possessions and trade.
They did so partly
to make their countries more nearly self-sufficient in time of war, but
the very attempt
to gain more territory or trade at the expense of others often led to
war. Thus, eco-
nomic nationalism aggravated the antagonisms engendered by religious
differences
and dynastic rivalry among the rulers of Europe.

Mercantilism: A Misnomer

Adam Smith, a Scottish philosopher of the Enli ghtenment and

the founder of the mod-
ern science of economics, characterized the economic
policies of his day (and of ear-
lier centuries) under a single rubric, the mercantile
system. In his view they were per-
verse because they interfered with the “natural liberty” of
individuals and resulted in
what modern economists call a misallocation of resource
s. Although he condemned

128
 Economic Nationalism and Imperialism 129

the policies as unwise and unjust, he attempted to systematize them—hence the term
mercantile system—partly, at least, to highlight their absurdities. Drawing chiefly on
British examples, he declared that the policies were devised by merchants and foisted
on rulers and statesmen who were ignorant of economic affairs. Just as merchants are
enriched to the degree their income exceeds their expenditures, nations, they argued
(in Smith’s construction), would enrich themselves to the extent that they sold more
to foreigners than they purchased abroad, taking the difference, or the “balance of
trade,” in gold and silver. Hence, they favored policies that would stimulate exports
and penalize imports (both of which were favorable to their own private interests), to
create a “favorable balance of trade” for the nation as a whole.
For more than a century after Smith published his epochal Inquiry into the Na-
ture and Causes of the Wealth of Nations in 1776, the term mercantile system had a
pejorative connotation. In the latter part of the nineteenth century, however, a num-
ber of German historians and economists, notably Gustav von Schmoller, radically
reversed that notion. For them, nationalists and patriots living in the wake of the uni-
fication of Germany under Prussian hegemony, merkantilismus (mercantilism) was
above all a policy of state-making (Staatsbildung) carried out by wise and benevo-
lent rulers, of whom Frederick the Great was the principal exemplar. In Schmoller’s
words, mercantilism “in its innermost kernel is nothing but state-making—not state-
making in a narrow sense but state-making and national-economy-making at the
same time.”!
Subsequent scholars attempted to harmonize and rationalize these two basically
divergent, even antagonistic, ideas. Thus, one can find in textbooks such definitions
of mercantilism as the “theory” or the “system” of economic policy characteristic of
early modern Europe or, more cautiously, as a “loosely knit body of ideas and prac-
tices which prevailed in western European countries and their overseas dependencies
from around 1500 to perhaps 1800.”? In view of these popular misconceptions and
oversimplifications, it can scarcely be overemphasized that precious little “system”
underlay economic policy, other than the need for revenue by financially hard-pressed
governments, or that the theoretical underpinnings of economic policy were notori-
ously weak if not altogether absent; certainly there was no general consensus on ei-
ther theory or policy. ’
There were, to be sure, some common themes or elements of economic policy, re-
sulting from the similarity of needs and circumstances of the policy-making authori-
ties, that is, the effective rulers or ruling classes. These are sketched out later. But at
least as significant were the differences occasioned by different circumstances, and
especially by the differing natures and compositions of the ruling classes. These are
briefly touched on here, and elaborated more fully in the sections that follow.
Despite similarities, each nation had distinctive economic policies derived from
peculiarities of local and national traditions, geographic circumstances, and, most im-
portant, the character of the state itself. Advocates of economic nationalism all
claimed that their policies were designed to benefit the state. But what was the state?
It varied in character from the absolute monarchies of Louis XIV and most other con-
' Gustav von Schmoller, The Mercantile System and Its Historical Significance (New York and Lon-
don, 1896), p. 69.
2 Edmund Whittaker, Schools and Streams of Economic Thought (Chicago, 1960), p. 31.
 130 A CONCISE ECONOMIC HISTORY OF THE WORLD

tinental powers to the burgher republics of the Dutch, the Swiss, and the Hanseatic
cities. In no case did all or even a majority of the inhabitants participate in the process
of government. Since the nationalism of the early nation-states rested on a class, not
a mass, basis, the key to national differences in economic policy should be sought in
the differing composition and interests of the ruling classes.
In France and other absolute monarchies the wishes of the sovereign were para-
mount. Although few absolute monarchs had understanding or appreciation of eco-
nomic matters, they were accustomed to having their orders obeyed. The day-to-day
administration of affairs was carried out by ministers and lesser officials who were
hardly more familiar with problems of industrial technology and commercial enter-
prise, and reflected the values and attitudes of their master. Elaborate regulations for
the conduct of industry and trade added to the cost and frustration of doing business,
and encouraged evasion. On large issues absolute monarchs often sacrificed both the
economic welfare of their subjects and the economic foundations of their own power
through ignorance or indifference. Thus, in spite of its great empire, the government
of Spain continually overspent its income, hamstrung its merchants, and steadily de-
clined in power. Even France under Louis XIV, the most populous and powerful na-
tion in Europe, could not easily support the continued drain of its wealth for the pros-
ecution of Louis’ territorial ambitions and the maintenance of his court. When he died
France hovered on the brink of national bankruptcy.
The United Netherlands, governed by and for the wealthy merchants who con-
trolled the principal cities, followed a more informed economic policy. Living prin-
cipally by trade, they could not afford the restrictive, protectionist policies of their
larger neighbors. They established free trade at home, welcoming to their ports and
markets the merchants of all nations. On the other hand, in the Dutch Empire the mo-
nopoly of Dutch traders was absolute.
England lay somewhere near the center of the spectrum. The landed aristocracy
intermarried with wealthy merchant families and mercantile-connected lawyers and
officials, and great merchants had long taken a prominent part in government and
politics. After the revolution of 1688-89 their representatives in parliament held ul-
timate power in the state. The laws and regulations they made concerning the econ-
omy reflected a balance of interests, benefiting the landed and agricultural interests
of the nation while encouraging domestic manufactures and assisting shipping and
trading interests.

The Common Elements

In the Middle Ages most feudal lords, especially sovereigns, owned “war chests”
that
were literally that: huge armored chests in which they accumulated coins and
bullion
to finance both anticipated and unexpected hostilities. By the sixteenth century
the
methods of government finance were somewhat more sophisticated, but the
preoc-
cupation with plentiful stocks of gold and silver persisted. This gave rise
to a crude
form of economic policy known as “bullionism”—the attempt to accumula
te as much
gold and silver within a country as possible and to prohibit their export
by fiat, with
the death penalty for violators. Spain’s futile attempts to husband its
New World trea-
 Economic Nationalism and Imperialism 131

sure was the most conspicuous example of this policy, but most nation-states had sim-
ilar legislation.
Since few European countries had mines producing gold and silver (and those that
did, mainly in central Europe, were forced to shut down by the inundation of Span-
ish treasure in the midsixteenth century), the acquisition of colonies that possessed
them was a major goal of exploration and colonization. Once again, the Spanish bo-
nanza was the model to be emulated. The colonies of France, England, and Holland
produced little gold or silver, however, so the only way for these countries to obtain
supplies of the precious metals (apart from conquest and piracy, to which they also
resorted) was through trade.
It was in this connection, as Adam Smith pointed out, that merchants were able
to influence the councils of state, and it was they who devised the argument for a fa-
vorable balance of trade. Ideally, according to this theory, a country should only sell
and should purchase nothing abroad. Practically, however, this was manifestly im-
possible, and the question arose: What should be exported and what imported? Be-
cause of the high incidence of poor harvests and periodic famines, governments
sought plentiful domestic supplies of grain and other foodstuffs, and generally pro-
hibited their export. At the same time they encouraged manufactures not only to have
something to sell abroad but also to further self-sufficiency by broadening the range
of their own production.
To encourage domestic production, foreign manufactures were excluded or forced
to pay high protective tariffs, although the tariffs were also a source of revenue. Do-
mestic manufactures were also encouraged by grants of monopoly and by subsidies
(bounties in English terminology) for exports. If raw materials were not available do-
mestically, they might be imported without import taxes, in contradiction of the gen-
eral policy of discouraging imports. Sumptuary laws (laws governing consumption)
attempted to restrict the consumption of foreign merchandise and to promote that of
domestic products.
Large merchant navies were valued because they earned money from foreigners
by providing them with shipping services and encouraged domestic exports by pro-
viding cheap transport—at least in theory (Fig. 6-1). Moreover, when the chief dif-
ference between a merchant ship and a warship was the number of guns it carried, a
large merchant fleet could be converted to a navy in case of war. Most nations had
“navigation laws,” which attempted to restrict the carriage of imports and exports to
native ships, and in other ways promoted the merchant marine. Governments also en-
couraged fisheries as a means of training seamen and stimulating the shipbuilding in-
dustry, as well as of making the nation more self-sufficient in food supply and fur-
nishing a commodity for export. The extensive herring fisheries of the Dutch were a
prime example. Underlying the emphasis on merchant marines was the notion that a
fixed and definite volume of international trade existed. According to Colbert, the
principal minister of Louis XIV, all the trade of Europe was carried by 20,000 ships,
more than three-fourths of which belonged to the Dutch. Colbert reasoned that France
could increase its share only by decreasing that of the Dutch, an objective he was pre-
pared to make war to achieve.
Theorists of all nations stressed the importance of colonial possessions as an ele-
ment of national wealth and power. Even if colonies did not have gold and silver
 132 A CONCISE ECONOMIC HISTORY OF THE WORLD

FIGURE 6-1. The quay at Amsterdam. In the seventeenth century the Dutch merchant fleet
was the envy of Europe, and Amsterdam was its principal port. This contemporary painting
by Jacob van Ruisdael shows the busy port in action. (The small ships in the foreground are
lighters, which ferried merchandise to and from larger ships anchored in the outer harbor.)
(Copyright, The Frick Collection, New York.)

mines, they might produce goods not available in the mother country that could be
used at home or sold abroad. The spices of the Indies, the sugar and rum of Brazil and
the West Indies, and the tobacco of Virginia served such purposes.
These were some of the notions concerning economic policy current in the six-
teenth and seventeenth centuries. Usually they were not this clearly and simply
spelled out, and they never commanded universal adherence, much less constituted a
“theory” or “system” to guide the actions of rulers. In actual practice the legislation
and other interventions of governments in the economic sphere consisted of a series
of expedients, usually lacking an economic rationale and frequently producing unin-
tended, deleterious results, as the following survey shows.

Spain and Spanish America

In the sixteenth century Spain was the envy and the scourge of the crowned
heads of
Europe. As a result of dynastic marriage alliances, its King Charles
I (1516—56) in-
 Economic Nationalism and Imperialism 138

herited not only the kingdom of Spain (actually, the separate kingdoms of Aragon and
Castile), but also the Habsburg dominions in central Europe, the Low Countries, and
Franche-Comté. In addition, the kingdom of Aragon brought with it Sardinia, Sicily,
and all of Italy south of Rome, and that of Castile contributed the newly discovered,
still-to-be-conquered empire in America. In 1519 Charles became Holy Roman Em-
peror as Charles V.
This formidable political empire appeared to rest on substantial economic bases
as well. Although Spain’s agricultural resources were not the best, it inherited the
elaborate Moorish system of horticulture in Valencia and Andalusia, and the wool of
its Merino sheep was prized throughout Europe. It also had some flourishing indus-
tries, notably cloth and iron. Charles’ possessions in the Netherlands boasted both the
most advanced agriculture and some of the most prosperous industries in Europe. The
Habsburg domains in central Europe contained, in addition to agricultural resources,
important mineral deposits including iron, lead, copper, tin, and silver. Most spec-
tacularly, gold and silver from its New World empire began to flow to Spain in large
quantities in the 1530s and steadily increased to their peak levels in the last decade
of the century, before they gradually subsided in the seventeenth century.
In spite of these favorable circumstances, the Spanish economy failed to
progress—indeed, from about midcentury it regressed—and the Spanish people paid
the price in the form of lowered standards of living, increased incidence of famine
and plague, and ultimately, in the seventeenth century, depopulation. Although many
factors have been adduced to account for the “decline of Spain,” the exorbitant am-
bitions of its sovereigns and the short-sightedness and perversity of their economic
policies must bear a large share of the responsibility.
Charles V deemed it his mission to reunify Christian Europe (Fig. 6-2). To this
end he fought the Turks in the Mediterranean and Hungary, struggled against the re-
bellious Protestant princes of Germany, and feuded with the Valois kings of France,
who had territorial ambitions in Italy and the Netherlands and felt threatened by the
surrounding Habsburg dominions. Unable to gain permanent success on any of these
fronts, he abdicated the throne of Spain in 1556, a tired and broken man. He had hoped
to pass on his possessions intact to his son Philip, but his brother Ferdinand succeeded
in wresting the Habsburg lands in central Europe and the title of Holy Roman Em-
peror after Charles’s death in 1558. Philip II (1556—98) continued most of his father’s
crusades and even added England to Spain’s list of enemies, with disastrous conse-
quences when the “invincible” armada of 1588 was decisively routed. Scarcely a year
passed that Spanish troops were not involved in warfare in some part of Europe, in
addition to their role in conquering and governing America. Moreover, in addition to
their bellicose tendencies, the Spanish monarchs demonstrated a penchant for monu-
mental architecture and lavish court ceremonies.
To finance their wars and conspicuous consumption, Charles and Philip relied, in
the first instance, on taxation. In spite of their relative poverty, the Spanish people in
the sixteenth century were the most heavily taxed of any in Europe. Moreover, the in-
cidence of taxation was extremely uneven. Already at the end of the fifteenth century
97 percent of the land of Spain was owned by about 2 or 3 percent of the families (in-
cluding the church), and this disparity increased during the sixteenth century. The
great landowners, almost all of “noble” blood (grandés, titulos, hidalgos, and ca-
 134 A CONCISE ECONOMIC HISTORY OF THE WORLD

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balleros) in addition to the royal family itself, were exempt from direct taxation; thus,
the burden fell principally on those least able to pay—artisans, tradesmen, and espe-
cially the peasants.
The crown obtained an unexpected source of revenue with the discovery of gold
and silver in its American empire. Imports before 1530 were scarcely significant, but
thereafter they rose steadily from about a million ducats per year in the 1540s to more
than 8 million in the 1590s. (The figures refer to legal imports only, subject to taxa-
tion; illegal imports may have been almost as much.) As noted, the government ac-
quired about 40 percent of the legal imports. Even so, in the last years of Philip’s reign
his share of the precious metals accounted for no more than about 20 to 25 percent of
his total revenue.
To make matters worse, total revenue rarely equaled the vast government expen-
ditures. This forced the monarchs to resort to yet a third source of finance, borrow-
ing. (They also had recourse to other expedients, such as selling patents of nobility to
 Economic Nationalism and Imperialism 135

wealthy merchants, but this sacrificed long-run tax revenue for one-time gains.) Bor-
rowing was not a novelty for Spanish, or other, monarchs. Ferdinand and Isabella had
borrowed to finance their successful war against Grenada, for example; and, accord-
ing to popular legend, Isabella pawned her jewels to help finance Columbus’s voy-
age. But under Charles and Philip deficit finance became a regular practice, like an
addiction to a habit-forming drug. In fact, Charles, early in his reign, had borrowed
huge sums from the Fuggers and other German and Italian bankers to bribe the elec-
tors who named him Holy Roman Emperor. The interest on those debts, and others
that he incurred, mounted continuously. The lenders, who came to include Flemish
and Spanish as well as German and Italian bankers, and even some well-to-do mer-
chants and nobles, obtained contracts that specified particular tax revenues or por-
tions of the next shipment of American silver as security for their loans. As early as
1544 two-thirds of the regular annual revenue was pledged for debt payment, and in
1552 the government suspended all interest payments. In 1557 the burden had be-
come so heavy that the government repudiated a substantial portion of its debts, an
event frequently referred to as “national bankruptcy.” But governments, unlike busi-
ness firms, are not liquidated when bankrupt. Instead, short-term debts were reorga-
nized as long-term obligations, both the principal and the rate of interest were re-
duced, and the cycle began anew, but always under more onerous conditions for the
borrower. On eight occasions (in 1557, 1575, 1596, 1607, 1627, 1647, 1653, and
1680) the Spanish Habsburgs declared royal bankruptcy. Each time resulted in a fi-
nancial panic, the actual bankruptcy and liquidation of many bankers and other in-
vestors, and disruption of ordinary commercial and financial transactions.
Financial mismanagement was not the only way the government hobbled the
economy, although many of its interventions were occasioned by its fiscal needs.
Royal favoritism in behalf of the Mesta, the sheepowners guild, has already been
mentioned (see p. 109). This favoritism culminated in a decree of 1501 that reserved
in perpetuity for sheep pasturage all land on which sheep had ever grazed, regardless
of the wishes of the owners. By such measures, the government sacrificed the inter-
ests of the cultivators, and ultimately those of the consumers, for the sake of increased
taxes from the privileged sheepowners.
In a similar measure, Ferdinand and Isabella in 1494 created the Consulado of
Burgos, a merchant guild, and conferred on it a monopoly of the export trade in raw
wool. Burgos, although a flourishing market town, was more than one hundred miles
from the nearest port. All wool destined for export, from whatever part of Spain, had
first to be transported to Burgos and thence, by mule trains, to Bilbao on the Viscayan
coast for shipment to northern Europe. The merchants of Burgos thus obtained a col-
lective monopoly on Spain’s most valuable export commodity, at the expense of do-
mestic producers as well as northern consumers. The Consulado of Burgos also
served as a model for the Casa de Contratacion, set up in Seville less than a decade
later to control the trade with America. Throughout their reign Ferdinand and Isabella
favored the extension of guild control, and thus of monopoly, to increase tax revenues.
Their successors, no less financially straitened, did nothing to lessen that control.
The absence of any systematic long-range economic policy is vividly illustrated
in the histories of two of Spain’s most important economic activities, cereal produc-
tion and cloth manufacturing. Cereal production, although hindered by the privileges
136 A CONCISE ECONOMIC HISTORY OF THE WORLD

accorded to the Mesta, prospered during the first third of the sixteenth century as a
result of both the increase in population and the mild rise in prices occasioned by the
initial influx of American treasure. As the price increase accelerated, the government
responded to consumer complaints by imposing maximum prices on bread grains in
1539. Since costs continued to increase, the result was that arable land was devoted
to other purposes than growing grain, and the grain shortage became worse. To coun-
teract the shortage the government admitted foreign grain, previously prohibited or
subject to high tariffs, duty free; but this discouraged cereal growers even more. Much
land went out of production altogether, and Spain became a regular importer of bread
grains.
The situation in the cloth industry was much the same. At the beginning of the
sixteenth century Spain exported fine cloth as well as raw wool. The expansion of do-
mestic demand and, especially, that of the colonies in America raised costs as well as
prices. The supply could not keep up with increasing demand. In 1548 foreign cloth
was admitted duty free, and in 1552 the export (except to the colonies) of domestic
cloth was prohibited. The immediate result was a severe depression in the cloth in-
dustry. The export prohibition was rescinded in 1555, but by that time the loss of for-
eign markets and the inflationary cost increases had deprived Spain of its competi-
tive advantage. Spain remained a net importer of cloth until the nineteenth century.
Conceivably, with a truly enlightened economic policy, Charles V could have cre-
ated lasting prosperity for his vast empire by converting it into a free trade area or a
customs union. There is no evidence, however, that such a thought ever crossed his
mind. In the first place, each region, principality, and kingdom within the empire was
conscious of its own traditions and privileges, and probably would have resisted such
a move. More important, from the point of view of the policymaker, the monarch was
too dependent on customs revenues to abolish the internal tariffs and tolls on com-
merce among the various components of the empire. Even after the union of the crowns
of Castile and Aragon the citizens of one were treated as foreigners in the other; each
maintained its own tariff barriers against the other, and even their separate coinage sys-
tems. Other Habsburg possessions were in no better position. The merchants and in-
dustrialists of the Low Countries owed their substantial penetration of Spanish mar-
kets to their superior competitiveness rather than to any special privileges.
Even in their religious policies the Spanish monarchs contrived to damage the
well-being of their subjects and weaken the economic bases of their own power. Early
in their reign Ferdinand and Isabella obtained permission from the papacy to estab-
lish a Holy Office, a branch of the infamous Inquisition, over which they exercised
direct royal authority. The initial targets of the Spanish Inquisition were backsliders
among the conversos, Jews who had converted to Catholicism, in fact or only nomi-
nally, even though practicing Jews were still officially tolerated. Many Jews and con-
versos were among the wealthiest and most cultivated of Spanish commoners; their
numbers contained many merchants, financiers, physicians, skilled artisans, and other
economically successful persons. Some wealthy conversos intermarried with the no-
bility; even Ferdinand had some Jewish blood. The climate of fear created by the In-
quisition led many conversos and Jews alike to emigrate, taking with them their
wealth as well as their talents (Fig. 6-3). Then, in 1492, shortly after the successful
conquest of Granada, the Catholic kings decreed that all Jews must either convert to
 Economic Nationalism and Imperialism 137

FIGURE 6—3. Expulsion of the Jews. The illustration shows the King of Castile’s advisers
urging him to expel the Jews from his kingdom, around 1300. Ferdinand and Isabella actu-
ally did so in 1492, with deleterious consequences for their country. (Weidenfeld & Nicolson
Archives.)

Catholicism or leave the country. Estimates of the numbers that left range from
120,000 to 150,000, but the damage to the economy was far greater, proportionally,
than the ratio of the refugees to the total population.
The monarchs followed a similar policy with respect to their other religious mi-
nority, the Muslim Moors. At the capitulation of the Moorish kingdom of Granada the
Catholic kings had decreed a policy of religious toleration toward the Moors (con-
trary to their almost simultaneous persecution of the Jews); but within less than a
decade they began to persecute the Moors as well. In 1502 they decreed the conver-
sion or expulsion of all Moors. Since the majority of Moors were humble agricultural
138 A CONCISE ECONOMIC HISTORY OF THE WORLD

laborers, they had no resources with which to emigrate and became nominal Chris-
tians, the Moriscos. For more than a century they remained, barely tolerated, many
still faithful to their original religion; they did much useful labor, especially in the rich
agricultural provinces of Valencia and Andalusia. In 1609 another Spanish govern-
ment, seeking to camouflage the news of another military defeat abroad, ordered the
expulsion of all Moriscos. Not all were actually deported, but many were, and the
government thereby deprived itself of another badly needed economic resource.
Spain’s policies toward its American empire were as short-sighted and self-de-
feating as its domestic policies. As soon as something of the nature and extent of the
New World discoveries began to be realized, the government imposed a policy of mo-
nopoly and strict control. In 1501 foreigners (including Catalans and Aragonese) were
prohibited from settling in or trading with the new colonies. In 1503 the Casa de Con-
trataci6n was created in Seville with a monopoly of trade. All merchant ships had to
sail with the armed convoys, as previously described. These convoys were very ex-
pensive and inefficient, although they did succeed in one of their principal objec-
tives—protection of the bullion shipments. Not until 1628 was a bullion fleet inter-
cepted, by the Dutch; the English did it again, in 1656 and 1657, each time provoking
a major financial crisis.
The monopolistic and restrictive policies proved so unworkable that the govern-
ment soon had to back down. In 1524 it allowed foreign merchants to trade with, but
not settle in, America. This provided such a bonanza for Italian and German mer-
chants that, in 1538, the government rescinded the policy and restored the monopoly
to Castilians. But many of the Castilian firms that participated in the trade through
the Casa de Contrataci6n were actually mere fronts for foreign, especially Genoese,
financiers. From 1529 to 1573 ships from ten other Castilian ports were allowed to
trade with America, but they were obliged to register their cargoes in Seville, and to
land their homeward-bound shipments there; because of the increased costs, this per-
mission accomplished little. Instead, the policies of monopoly and restriction en-
couraged evasion and smuggling, by both Spanish and other shippers. In 1680, as a
result of the silting of the Guadalquivir River, which prevented large sailing ships
from reaching Seville, the monopoly of American trade was moved to Cadiz; but by
that time the bullion shipments were a mere trickle, and the glory days were over.
Policy within the empire was no more enlightened. Intracolonial trade was dis-
couraged, although some did take place, especially between Mexico and Peru. Vine-
yards and olive orchards were officially prohibited for the benefit of domestic pro-
ducers and exporters. Although a few industries were permitted, such as the silk
industry of New Spain (Mexico), the general policy was to reserve the market for
manufactured goods in the colonies for the producers in the metropolis; but since
Spain’s own industries were in more or less continual decline, the net effect was to
stimulate demand for the products of Spain’s European rivals.
The essential absurdity of Spain’s colonial economic policies is highlighted by its
treatment of its sole Pacific possession, the Philippine Islands. Although within the
Portuguese orbit, as determined by the papal line of demarcation, the Philippines be-
came a Spanish possession by virtue of Magellan’s discovery. Filipinos and other
Asians carried on trade among themselves and with neighboring Asian areas, includ-
ing China; but the only trade permitted by the Spanish authorities with Europe was
 Economic Nationalism and Imperialism 139

indirect, through Mexico and Spain itself. Each year a single ship (in principle, al-
though there were interlopers), the Manila galleon, set forth from Acapulco laden
mainly with silver from Peru and Mexico, destined eventually for China and other
Asian recipients. The round trip required two years; the ship wintered in Manila,
where it loaded spices, Chinese silks and porcelains, and other luxury products of the
East. Goods not sold in the Mexican and Peruvian markets were shipped overland to
Vera Cruz, where they were picked up by the flota for the trip to Spain. Unsurpris-
ingly, few commodities could bear the high cost of such an itinerary.

Portugal

One of the most remarkable feats of Europe’s age of expansion was the achievement
by Portugal, a small, relatively poor country, of dominion over a vast seaborne em-
pire in Asia, Africa, and America. At the beginning of the sixteenth century Portu-
gal’s population amounted to scarcely more than a million inhabitants. Outside of
the few, small cities, the economy was predominantly of the subsistence variety. Along
the sea coast fishing and salt-panning were the most important nonagricultural occu-
pations. Foreign trade was of minor but growing significance. Exports were almost
entirely primary products: salt, fish, wine, olive oil, fruit, cork, and hides. Imports
consisted of wheat (in spite of its small population and agrarian orientation, the coun-
try was not self-sufficient in bread grains) and such manufactured products as cloth
and metalwares.
How did such a small, backward country acquire mastery of its huge empire so
quickly? The question cannot be answered simply or briefly. Many factors were in-
volved, not all of them subject to precise measurement. One was good fortune: at the
time Portugal made its breakthrough into the Indian Ocean the polities in that area
were unusually weak and divided, for reasons independent of developments in Eu-
rope. Another, less accidental but nevertheless fortuitous, factor was the accumulated
knowledge and experience of the Portuguese in ship design, navigational techniques,
and all related arts—a continuing legacy of the work and dedication of Prince Henry.
Yet another factor is more speculative, but important nonetheless: the zeal, courage,
and rapacity of the men who ventured across the seas in the service of their God and
king, and in search of riches.
In the first flush of their Asian discoveries and success, the Portuguese paid little
attention to their African and American possessions. The spice trade and its auxiliaries
promised quick and lavish returns to king and commoner alike, whereas the devel-
opment of the sultry, savage tropics of Brazil and Africa would clearly be expensive
and uncertain long-term ventures. For the sixteenth century as a whole an estimated
annual average of about 2,400 persons, most of them young able-bodied males,
sought their fortunes overseas, mainly in the East. In the 1530s, however, the Por-
tuguese crown became alarmed by the activities of French free-booters along the
Brazilian coast, and undertook to secure Portuguese settlers for the mainland. The
king made land grants to private individuals, not unlike the grants of the English
crown to Lord Baltimore and William Penn in the seventeenth century, and hoped in
this way to secure settlers at little expense to himself. The early colonies did not flour-
140 A CONCISE ECONOMIC HISTORY OF THE WORLD

ish, however; the local Indian population, sparse, primitive, and frequently hostile,
provided neither markets for Portuguese produce nor reliable labor for the Brazilian
economy. Not until the 1570s, with the transplantation of sugar cane from the Madeiras
and Sao Tomé Island, and the techniques for its cultivation with African slave labor,
did Brazil become an integral part of the imperial economy. Soon afterward, in 1580,
Portugal fell to the crown of Spain, and although Philip II promised to preserve and
protect the Portuguese imperial system, it suffered from the depredations of the Dutch
and others in both East and West. Portuguese plans for developing and exploiting an
African empire were repeatedly postponed until the twentieth century.
The Portuguese crown’s legal monopoly of the spice trade provoked mocking ref-
erences to the “Grocer King” and the “Pepper Potentate,” but the reality behind those
terms was quite different from what one might suspect. In the first place, Portugal
never secured effective control of the sources of supply of spices. True, in the first
years of its explosive entrance into the Indian Ocean it did severely disrupt the tradi-
tional overland carriage of spices to the eastern Mediterranean, thereby temporarily
depriving the Venetians of their lucrative distribution trade; but the traditional routes
were eventually reestablished, and by the end of the sixteenth century they supported
a larger volume of commerce than ever before—larger even than that of the Por-
tuguese fleets. For this there were two principal reasons. First, the Portuguese were
simply spread too thin. Even at the peak of their maritime strength in the 1530s they
possessed only about 300 ocean-going vessels, and some of those were employed on
the Brazilian and African routes. It proved impossible to police the greater part of two
oceans with so few men and ships. Second, the crown was obliged to rely either on
royal officials for enforcement of its monopoly or on contractors who leased, or
“farmed,” a portion of the monopoly. In both cases it suffered from inefficiency and
fraud. The royal officials, although endowed with extensive powers, were not well
paid, and frequently supplemented their meager salaries by taking bribes from smug-
glers or engaging in illicit trading themselves. The crown contractors, of course, had
ample incentive to violate their contracts when possible.
The spice trade was the most famous, but it was only one of many branches of
commerce that the Portuguese kings tried to monopolize for fiscal reasons. Even be-
fore the opening of the Cape route the Portuguese crown monopolized trade with
Africa, whose most valuable exports were gold, slaves, and ivory. With the discov-
ery of the Americas the demand for slaves increased enormously, and the Portuguese
kings were the first to benefit; the actual slave traders were private contractors who
operated under license from the crown, paying it a share of the profits. In the eigh-
teenth century the discovery of gold and diamonds in Brazil presented the crown with
a new Eldorado. As before, it tried to monopolize the commerce and prohibit the ex-
port of gold from Portugal, but without success. English warships, which had special
status in Portuguese waters because of treaty arrangements, were common vehicles
of the contraband trade.
The crown’s attempts at monopoly did not stop with the exotic products of India
and Africa, but extended to such domestically produced staples as salt and soap and,
among the most profitable, the tobacco of Brazil. And what the crown could not mo-
nopolize it tried to tax. This effort was notable with Brazil’s principal export, sugar; but
all commodities involved in both international and intraimperial trade were heavily
 Economic Nationalism and Imperialism 141

taxed. At the beginning of the eighteenth century almost 40 percent of the value of goods
legally shipped from Lisbon to Brazil represented customs duties and other taxes.
The motive of both monopoly and taxation was, of course, to gain revenue for the
crown. But, given the inefficiency and venality of the royal agents, evasion was rela-
tively easy and widespread. Moreover, the higher the rate of taxation, the greater was
the incentive to evade. It was a vicious circle as far as the crown was concerned. As a
result the Portuguese kings were forced to borrow, as their Spanish counterparts had.
For the most part they borrowed for short terms at high interest rates against future de-
liveries of pepper or other highly salable commodities. The lenders were most often
foreigners—lItalians and Flemings—or the king’s own subjects, the “new Christians.”
“New Christians” was the term euphemistically applied to Portuguese citizens of
Jewish ancestry. Some of them actually converted to Christianity, but many secretly
maintained their old belief and customs or at least they were widely suspected of so
doing. King Manuel had ordered the forcible conversion of Jews in 1497 in imitation
and at the instance of the Spanish monarchs, but for several decades no repressive
measures were taken to enforce the edict. Indeed, “new” and “old” Christians, Jews
and gentiles, continued to live together in harmony and even to intermarry to such an
extent that by the end of the sixteenth century it was estimated that as much as one-
third of the Portuguese population had some Jewish blood. Eventually, however, Por-
tugal obtained its own branch of the Inquisition, and its zeal in preserving and pro-
moting the one true faith rivaled that of its Spanish counterpart. Citizens were
encouraged to inform on one another; the informer’s identity was not revealed, and
the burden of proof was on the accused. Even such innocent acts as changing into a
clean shirt or blouse on a Saturday could be used as “evidence” of proscribed beliefs.
As a result of the practices of the Inquisition an atmosphere or mutual suspicion and
distrust plagued Portuguese life for centuries, and Portugal lost much wealth and
many skilled workers and professional people to more tolerant countries, the Dutch
Netherlands in particular.

Central, Eastern, and Northern Europe

The whole of central Europe, from northern Italy to the Baltic, was nominally united
in the Holy Roman Empire. In fact, the territory was organized into hundreds of in-
dependent of quasi-independent principalities, both lay and ecclesiastical, ranging in
size from the estate of a single imperial knight to the Habsburg crownlands of Aus-
tria, Bohemia, and Hungary. After the Protestant Reformation, in particular, during
which many secular and even some ecclesiastical lords adopted the new religion to
gain control of church property, the authority of the emperor was sharply curtailed.
Even within their own territories the Habsburgs, who were also hereditary emperors,
had difficulty enforcing their authority over regional aristocracies and municipal bod-
ies. The struggle between local particularism and the centralizing tendencies of the
more powerful monarchs and princes occupies a large part of the history of early mod-
ern Europe, especially in central and eastern Europe; and in that struggle economic
factors sometimes played a crucial role.
In Germany the advocates of economic nationalism propounded a series of prin-
142 A CONCISE ECONOMIC HISTORY OF THE WORLD

ciples or maxims that almost deserve to be called a system, or at least a quasi-system.

Writers in this tradition are usually referred to as cameralists, from the Latin word
camera, which in the German usage of that time meant the treasure chest or treasury
of the territorial state. Most of those writers were active or former civil servants—
that is, servants of the territorial princes who were striving for both political and eco-
nomic autonomy. Some notion of the tenor of the policies they advocated can be
gained from the title of one of the most influential of their books, Oesterreich tiber
Alles wann es nur will (“Austria over all if it only will”), by Philipp W. van Hornigk
(1684). In their concern for strengthening the territorial state they advocated measures
that would, in addition to filling the state’s coffers, reduce its dependence on other
states and make it more self-sufficient in time of war: restrictions on foreign trade,
promotion of domestic manufactures, reclamation of wastelands, provision of em-
ployment for the “idle poor” (which in some instances amounted to forced labor), and
so on. In the eighteenth century special professorial chairs in Staatswissenschaft (sci-
ence of the state) were established in several German universities to train future civil
servants. For the most part the German states were too small and lacked the neces-
sary resources to become truly self-sufficient; there were, however, a few examples
of policies that succeeded in enhancing the power and authority of the territorial
rulers, although at the expense of the welfare of their subjects.
The most spectacular instance of a successful policy of centralization is to be
found in the rise of Hohenzollern Prussia. It was this success that led some historians
and economists to reverse the prevailing condemnation of the policies of economic
nationalism (see preceding, p. 129). The Hohenzollern dynasty became rulers of the
Electorate of Brandenburg, centered on the city of Berlin, in the fifteenth century. The
Hohenzollerns gradually expanded their possessions by means of inheritance, notably
by the acquisition of East Prussia in 1618. The Thirty Years War caused great devas-
tation but, beginning with the accession of Frederick William, the “Great Elector,” in
1640, a succession of able rulers built Brandenburg-Prussia into one of the largest and
most powerful nations in Europe, the precursor of modern Germany. The means they
used included some of the standard instruments of so-called mercantilist policy, such
as protective tariffs, grants of monopoly and subsidies to industry, and inducements
to foreign entrepreneurs and skilled workers to settle in their underpopulated territo-
ries (notably French Huguenots after the revocation of the Edict of Nantes in 1685);
but more important for the success of their endeavor was their careful management
of the state’s own resources. Through centralization of their administration, require-
ments of strict accountability on the part of the corps of professional civil servants
that they built up, punctilious collection of taxes, and frugality in expenditure, they
created an efficient state mechanism that was quite exceptional in the Europe of its
day. Their one notable extravagance was their army, which at times accounted for
more than half the state budget. A later Prussian general remarked that Prussia was
“not a country with an army, but an army with a country that served as its headquar-
ters and food supplier.” But, frugal and cautious as they were, the Hohenzollern kings
rarely committed their army to battle, and then only for limited engagements. In 1740,
for example, young Frederick II (“the Great’) launched an unprovoked surprise in-
vasion of Habsburg Silesia, thereby igniting the War of the Austrian Succession; but
 Economic Nationalism and Imperialism 143

as soon as the Austrians acquiesced to his occupation of the mineral-rich province, he

withdrew from the war, leaving his allies to fight on.
The Prussian kings used their army to their advantage not only militarily and po-
litically, but also economically. Because of its awesome reputation, they were able to
obtain subsidies from their allies, thereby avoiding the necessity for borrowing, a
process that cursed the reigns of most other absolute monarchs. They also made good
use of their crown domains, which included, besides agricultural estates, coal mines,
iron foundries, and other productive enterprises; through good management and care-
ful accounting, these domains were made to produce up to 50 percent of total state
revenues. As efficient and powerful as the state was, however, the country’s economy
was only moderately prosperous by the standards of the day. The overwhelming ma-
jority of the productive population was still engaged in low-productivity agriculture,
and Prussia was far from the great industrial power that Germany became at the end
of the nineteenth century.
At the opposite extreme from the rise of Prussia was the disappearance of the
kingdom of Poland. Prior to 1772 Poland was the third largest state in Europe in area
and fourth largest in population; but in that year its more powerful neighbors, Russia,
Prussia, and Austria, began the process of partition that by 1795 eliminated Poland
from the political map. As with the rise of Prussia, the decline and fall of Poland was
caused more by military and political factors, such as the weak elective kingship and
the liberum veto, by which any single member of the sejm (parliament) could nullify
the actions of the entire session, than by purely economic ones; but the poverty and
backwardness of the economy was a contributing factor. About three-quarters of the
population were legal serfs, bound to the land and with no rights other than those ac-
corded them by their masters. The Polish nobility was fairly numerous, amounting to
about 8 percent of the total population; but the great majority was also poor and vir-
tually landless. Most of the land, the prime source of wealth in the country, was con-
trolled by fewer than two dozen families. In the sixteenth and seventeenth centuries
Poland exported large quantities of grain to the West, principally through Danzig to
the Amsterdam market; but as agricultural production in the West increased in the
eighteenth century, demand for Polish grain declined, and the country reverted to sub-
sistence agriculture.
Although the absence of an effective central authority made a coherent economic
policy impossible for Poland, some of its constituent parts did have one. The Duchy
of Courland is an example (Fig. 6-4). Under the energetic Duke James (or Jacob) in
the midseventeenth century (1638-82), Courland, which occupied a part of the area
of present-day Latvia, became the very model of a mercantilist state. James attempted
to promote industry by means of protective tariffs and subsidies, built a merchant fleet
and a navy, and even purchased the island of Tobago in the West Indies and a small
colony at the mouth of the Gambia River in West Africa. This fledgling development
was cut short, unfortunately, by the Swedish—Polish war of 1655-60, during which
James was captured and his capital pillaged. Like Sisyphus, he returned to his task
after the war, but Courland failed to develop a dynamic economy, and disappeared
from the map along with Poland in 1795. Courland’s experience illustrates the lim-
ited effectiveness of deliberate state policy in the early modern era.
144 A CONCISE ECONOMIC HISTORY OF THE WORLD

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The limitations on the ability of the state to shape the economy were highlighted
even more by the history of Russia, the largest and one of the most powerful states in
Europe. In the sixteenth and seventeenth centuries Russia developed, politically and
economically, largely in isolation from the West. Virtually landlocked, it had very lit-
tle long-distance trade, although after 1553 a trickle went in and out via the far north-
ern port of Archangel, open for only three months each year. The vast majority of the
population engaged in subsistence agriculture, in which the institution of serfdom
loomed large and actually increased in severity over the centuries. Meanwhile, in spite
of numerous revolts, civil wars, and palace coups, the authority of the tsar grew
stronger. In 1696, when Peter I (“the Great’?) became sole ruler, his power within the
Russian state was unchallenged.
Peter set out deliberately to modernize—that is, to westernize—his country, in-
cluding its economy. In addition to such petty measures as obliging his courtiers to
wear Western-style clothing and to shave their beards, he traveled extensively in the
West, observing industrial processes as well as military fortifications and procedures.
He gave subsidies and privileges to Western artisans and entrepreneurs to settle in
Russia and practice their crafts and commerce. He built the city of St. Petersburg, his
“window on the West,” on land recently conquered from Sweden at the head of the
 Economic Nationalism and Imperialism 145

Gulf of Finland, an arm of the Baltic Sea. This gave him a more convenient port than
Archangel, and he set out to build a navy. Underlying all of Peter’s policies and re-
forms was his desire to expand his influence and territory and to make Russia a great
military power. (The country was at war, usually offensive, for all but two years of
Peter’s long reign.) To this end he instituted a new and, he hoped, more efficient sys-
tem of taxation and reformed his central administration whose function was, as he
said, “to collect money, as much as possible, for money is the artery of war.” When
domestic industries could not meet his demand for military goods he set up state-
owned arsenals, shipyards, foundries, mines, and cloth factories, staffed in part by
Western technicians who were supposed to train a native labor force; but since the na-
tive labor supply consisted mainly of illiterate serfs, who were bound to their occu-
pations whether they liked it or not, the effort met with little success. Only in the cop-
per and iron industries of the Ural Mountains, where ore, timber, and water power
were plentiful and cheap, did viable enterprises emerge from their hothouse atmo-
sphere. After Peter’s death most of the enterprises he had established withered away,
his navy fell into ruin, and even his system of taxation, extremely regressive in that
the burden fell mainly on the peasants, yielded inadequate revenue to support the
army and the ponderous bureaucracy. One of his successors, Catherine (also “the
Great”), was responsible for two innovations in state finance that had deleterious ef-
fects on the economy: foreign borrowing and enormous issues of fiduciary (paper)
currency. Meanwhile the truly productive forces in the economy, the peasants, toiled
away with their traditional techniques, gaining a bare subsistence for themselves af-
ter the exactions of their masters and the state.
In the sixteenth and seventeenth centuries Sweden played a role as a great politi-
cal and military power that is surprising in view of its small population. Its success
resulted partly from its abundance of natural resources, especially copper and iron,
both essential for military power, and partly from the administrative efficiency of its
government. The Swedish monarchs early achieved a degree of absolute power within
their kingdom that was unrivaled elsewhere in Europe, even in such absolutist states
as France and Spain. Moreover, they used their power wisely on the whole—with the
exception of their rash military ventures, which ultimately led to their defeat and re-
trenchment—at least in the economic sphere. They abolished the internal tolls and
tariffs that hindered commerce in other countries, standardized weights and measures,
instituted a uniform system of taxation, and undertook other measures that favored
the growthof commerce and industry. Not all policies were equally favorable—for
example, the restriction of foreign trade to Stockholm and a few other port cities—
but on the whole they gave free reign to both native and immigrant entrepreneurs (es-
pecially Dutch and Walloon, who brought special skills and knowledge as well as cap-
ital) to develop Sweden’s resources. In the eighteenth century, after the decline of its
political power, Sweden became the leading supplier of iron on the European market.
Italy has been excluded from this survey of the policies of economic nationalism
because, for most of the early modern period, it was the victim of great power rival-
ries. Repeatedly invaded, occupied, and dominated by the military forces of France,
Spain, and Austria, its city-states and small principalities had little opportunity to ini-
tiate or execute independent policies. One exception, however, the Venetian Repub-
lic, managed to retain both political independence and a modicum of economic pros-
146 A CONCISE ECONOMIC HISTORY OF THE WORLD

perity until it was overrun by the French in 1797. At the end of the fifteenth century
Venice was at the height of its commercial supremacy, with extensive possessions in
the Aegean and Adriatic as well as on the mainland of Italy (Fig. 6-5). The advance
of the Ottoman Turks, the discovery of the sea route to the Indian Ocean, and the grad-
ual shift of Europe’s economic center of gravity from the Mediterranean to the North
Sea all combined to force Venice to the defensive. The Venetians reacted to changed
circumstances by reallocating their capital and other resources. In the sixteenth cen-
tury they developed an important woolen industry to supplement their already famous
luxury products, such as glassware, paper, and printing. When the woolen industry
encountered stiff competition from the Dutch, the French, and the English in the sev-
enteenth century, many Venetian families invested in agricultural improvement on the
mainland. The government, an oligarchy composed of representatives of the most im-
portant families, attempted to stave off commercial and industrial decay, but with lit-
tle success. The average value of Venetian commerce and industry steadily declined.
At the end of the seventeenth century production of woolen cloth was less than 12
percent of what it had been at the beginning of the century. Venice stagnated while
Europe expanded.

Colbertism in France

The archetypical example of economic nationalism was the France of Louis XIV.
Louis provided the symbol—and the power—but responsibility for policymaking
and implementation devolved on his principal minister for more than twenty years
(1661-83), Jean-Baptiste Colbert. Colbert’s influence was such that the French
coined the term colbertisme, more or less synonomous with mercantilism as that word
is used in other languages. Colbert attempted to systematize and rationalize the ap-
paratus of state controls over the economy that he inherited from his predecessors,
but he never fully succeeded, even to his own satisfaction. The main reason for this
failure was his inability to extract enough revenue from the economy to finance
Louis’ wars and extravagant court. That, in turn, resulted partly from France’s hap-
hazard system of taxation—if it could be called a system at all—which Colbert was
never able to reform.
In principle, under the medieval theory of kingship, the king was supposed to be
supported by the produce of his own domains, although his subjects, acting through
representative assemblies, could grant him “extraordinary” tax revenues in time of
emergency, such as war. In fact, by the end of the Hundred Years War several such
“extraordinary” taxes had become permanent parts of the royal revenues. Moreover,
by the end of the fifteenth century the king had won the power to raise tax rates and
to impose new taxes by decree, without the consent of any representative assembly.
By the end of the sixteenth century, as a result of increased taxes, the price inflation,
and the real growth of the economy, royal tax revenue had increased sevenfold in the
course of the century and tenfold since the end of the Hundred Years War in 1453.
Even this fiscal bonanza did not suffice to cover the expenses of the Italian campaigns,
the long series of wars between the Valois kings of France and the Habsburgs that
spanned the first three-fifths of the sixteenth century, and the civil and religious wars
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148 A CONCISE ECONOMIC HISTORY OF THE WORLD

that followed. Thus, the kings were obliged to resort to other expedients to raise funds,
such as borrowing and the sale of offices.
French kings had borrowed in the Middle Ages, especially during the Hundred
Years War, but not until the reign of Francis I (1515—47) did a royal debt become a
permanent feature of the fiscal system. Thereafter the debt rose steadily except on
those occasions when the crown arbitrarily suspended interest payments and wrote
down the value of the principal. The effect of such partial bankruptcies was to make
it even more difficult for the monarchy to borrow; but borrow it did, at ever more
onerous interest rates. In addition to borrowing, the crown raised revenue through the
sale of offices (judicial, fiscal, and administrative). The sale of offices was not un-
known in other lands, but in France it became standard practice. Some authorities aver
that it produced as much as one-third of royal revenues; that is probably an exagger-
ation, but it is safe to say that in many years it produced as much as 10 or 15 percent
of those revenues. The practice succeeded in its immediate purpose, but in the long
run its effect was wholly deleterious. It created a host of new offices that were with-
out function or whose functions were inimical to the masses (in some instances two
or more individuals were appointed to the same office) with increased charges to the
government and, ultimately, the taxpayers; it placed in those offices men without
competence or even interest in discharging their duties, thus encouraging inefficiency
and corruption; it allowed wealthy commoners access to the noblesse de la robe, di-
verting their wealth from productive enterprise to the uses of the state and exempting
them from further taxation.
In spite of the multiplication of offices and officials, the crown was obliged to rely
on private enterprise to collect the bulk of its taxes through the institution of tax farm-
ers. These individuals, usually wealthy financiers, contracted with the state to pay a
lump sum of money in return for the privilege of collecting certain specified taxes,
such as aides (excise taxes applied to a wide variety of commodities), the hated
gabelle (originally an excise tax on salt, which became a fixed impost regardless of
the amount of salt purchased or consumed), and especially the numerous tariffs and
tolls that were collected on merchandise in transit, within the country as well as on
the frontiers. Colbert wished to reform the system, especially by abolishing the in-
ternal tariffs and tolls, but the crown’s need for revenue was too great, and he could
not. In the latter part of the eighteenth century, under the influence of the Enlighten-
ment and the Physiocrats, some of Colbert’s successors, notably the economist
Jacques Turgot, actually attempted to reform the system and create internal free trade;
but the opposition of the vested interests, including officials, tax farmers, and the aris-
tocracy, forced him out of office. In the end it was the failure of the fiscal system to
produce sufficient revenue that led to the assembly of the Estates-General of 1789,
the beginning of the end of the Old Regime.
In addition to their attempts to reform and increase the proceeds of the tax Sys-
tem, Colbert, his predecessors, and his successors tried to increase the efficiency and
productivity of the French economy in much the same way that a drill sergeant tries
to enhance the performance of his soldiers. They issued numerous orders and decrees
with respect to the technical characteristics of manufactured items and the conduct of
merchants. They fostered the multiplication of guilds with the avowed intention of
improving quality controls, even when their real objective was to obtain more rev-
 Economic Nationalism and Imperialism 149

enue. They subsidized manufactures royales, both to supply their royal masters with
luxury goods and to establish new industries. To secure a “favorable” balance of trade,
they created a system of prohibitions and high protective tariffs.
The French kings began their attempts to centralize their power over the country,
and with it their control of the economy, in the aftermath of the Hundred Years War.
Louis XI (1461-83) prohibited French merchants from attending the fairs of Geneva
and at the same time granted special privileges to those of Lyons, which may have
contributed to the growth of the latter. He also extended royal control over municipal
guilds, but that was mainly to increase the royal revenues. One result of the Italian
wars was to stimulate aristocratic demand for the luxury consumer goods that the king
and his officers had encountered there. Francis I and his successors recruited Italian
artisans and established them in privileged manufactures royales for the production
of silk, tapestries, porcelain, fancy glassware, and such; these had a significant cul-
tural and artistic importance in succeeding centuries, but, except for the silk industry,
their immediate economic impact was negligible. The religious civil wars that ensued
from 1562 to 1598 occasioned much damage and destruction, and rendered coherent,
consistent economic policies impossible.
The man who, even more than Colbert, should be regarded as the founder of the
French tradition of étatisme (statism) in economic affairs was the Duke de Sully, prin-
cipal minister of Henry IV (1589-1610). Sully is generally regarded as an energetic,
efficient administrator who both increased revenues and held down expenses, but his
ambiguous legacy is best symbolized by two measures (usually attributed to Henry)
taken in 1598, soon after Henry had consolidated his powers as king. On the one hand,
in the Edict of Nantes Henry granted limited toleration to Protestants (Sully was one
of the principal advisers who persuaded Henry to convert to Catholicism to strengthen
his hold on the throne, but Sully himself remained a Protestant). On the other, he ar-
bitrarily, by decree, wrote down both the principal and the interest rates on outstand-
ing royal debts—in effect, a royal declaration of partial bankruptcy. Although a strong
advocate of royal absolutism, as a shrewd financier Sully opposed the subsidies in-
volved in the creation of manufactures royales, but Henry created them anyway; of
the forty-eight in existence at his death in 1610, forty had been established since 1603.
More characteristic of Sully’s achievements was his success in raising the yield of the
royal monopolies on the production of saltpeter, gunpowder, ammunition and espe-
cially salt. These monopolies had existed on the statute books for many decades, but
enforcement was lax; Sully enforced them rigorously, with the result that the yield of
the gabelle, for instance, nearly doubled during his tenure.
Richelieu and Mazarin, Sully’s successors as principal minister under Louis XII
and during the minority of Louis XIV, lacked both interest and ability in financial and
economic affairs. With their principal objective (after the maintenance of their own
positions) the aggrandizement of France in the international arena, they allowed state
finances to slip back into the deplorable conditions that prevailed before Sully. Col-
bert’s first task, therefore, was to restore some semblance of order to the shattered
state finances, which he did in characteristic fashion by abrogating approximately
one-third of the royal indebtedness. Colbert’s historical renown, however, derives
from his ambitious but largely unsuccessful attempts to regulate and direct the econ-
omy. Colbert was not a great innovator; historical precedents existed for virtually all
 150 A CONCISE ECONOMIC HISTORY OF THE WORLD

of his policies. What distinguished his regime, in addition to his comparatively long
tenure as the trusted lieutenant of Louis XIV, was the vigor of his efforts and the fact
that he wrote copiously about them.
One of Colbert’s principal objectives was to make France economically self-suf-
ficient. To this end he promulgated in 1664 a comprehensive system of protective tar-
iffs; when this failed to improve the trade balance he resorted in 1667 to still higher,
virtually prohibitive tariffs. The Dutch, who carried a large proportion of French com-
merce, retaliated with discriminatory measures of their own. Such measures of com-
mercial warfare contributed to the outbreak of actual war in 1672, but the war ended
in a stalemate, and in the peace treaty that followed France was obliged to restore the
tariff of 1664.
Colbert’s measures of industrial regulation were less directly related to the goal
of self-sufficiency, but not entirely foreign to it. He issued detailed instructions cov-
ering every step in the manufacture of literally hundreds of products. In itself, the
practice was not new, but Colbert also established corps of inspectors and judges to
enforce the regulations, which added considerably to costs of production. The regu-
lations were resisted and evaded by producers and consumers alike but, to the extent
that they were successfully enforced, they also hindered technological progress. Col-
bert’s Ordinance of Trade (1673), which codified commercial law, was far more ben-
eficial to the economy.
As a part of his grand design Colbert also sought to create an overseas empire.
The French had already, in the first half of the seventeenth century, established out-
posts in Canada, the West Indies, and India but, preoccupied with European power
politics, had failed to give them much support. Colbert went to the opposite extreme,
smothering the colonies with a mass of detailed, paternalistic regulations. He also cre-
ated monopolistic joint-stock companies to conduct trade with both the East and West
Indies (as well as similar companies for trade with the Baltic and Russia, the Levant,
and Africa); but, unlike their Dutch and English models, which resulted from private
initiative with the cooperation of the governments, the French companies were in ef-
fect government proxies in which private individuals, including members of the royal
family and nobility, had been induced or coerced into investing. Within a few years
they were all moribund.
Colbert, although a staunch Catholic, supported the limited toleration of the
Huguenots granted by the Edict of Nantes. After his death his weak successor acqui-
esced in Louis’ determination to stamp out the Protestant heresy, which culminated
in the revocation of the edict in 1685 and the subsequent flight of many Huguenots
to more tolerant climes. That, along with the continuation of Colbert’s stifling pater-
nalism and Louis’ disastrous wars, threw France into a serious economic crisis from
which it did not emerge until after the War of the Spanish Succession.

The Prodigious Increase of the Netherlands

Dutch economic policies differed significantly from those of the nation-states previ-
ously considered. For this there are two principal reasons. First, the structure of gov-
ernment of the Dutch Republic was quite unlike that of the absolute monarchies
of
 Economic Nationalism and Imperialism 151

continental Europe. Second, the Dutch economy depended on international com-

merce to a much greater degree than that of any of the Netherlands’ larger neighbors.
The Uniomof Utrecht of 1579, the agreement among the seven northern provinces
that eventually became the United Netherlands or Dutch Republic, was more in the
nature of a defensive alliance against Spain than the constitution of a nation-state. The
States-General, the legislative body of the Republic, concerned itself exclusively with
foreign policy, leaving domestic matters in the hands of the provincial States and town
councils. Moreover, all decisions had to be reached by a unanimous vote in which
each province had one voice; failure to agree required that the delegates return to their
provincial States for consultation and instruction. The provincial States, for their part,
were dominated by the chief towns. The towns were governed by self-perpetuating
town councils of from twenty to forty members, who were the effective rulers (the
burgher-oligarchs) of the Dutch Republic. Originally the members of this oligarchy
had been selected from among the wealthier merchants of the towns (at least in the
maritime provinces of Holland and Zealand; in the less urbanized provinces of the east
and north the provincial nobility and well-to-do farmers played more prominent roles).
There was a general tendency, pronounced by the middle of the seventeenth century,
for the members of this ruling group, known as “regents,” to be drawn from a rentier
class of landowners and bondholders, rather than active merchants. Nevertheless, the
regents were usually descended from merchant families, intermarried with them, and
were conscious of and responsive to their needs and desires. (See Fig. 6-6.)
The Dutch established their mercantile preeminence by the beginning of the sev-
enteenth century, and it continued to grow until at least the middle of the century. The
bases of Dutch commercial superiority were the so-called “mother trades,” those that
connected the Dutch ports with others of the North Sea, the Baltic, the Bay of Biscay,
and the Mediterranean. Within that region Dutch shipping accounted for as much as
three-quarters of the total. From the Baltic they brought grain, timber, and naval stores
to be distributed throughout western and southern Europe in exchange for wine and
salt from Portugal and the Bay of Biscay, for their own manufactured goods, mainly
textiles, and for herring. The herring fishery occupied a unique place in the Dutch
economy, with as much as one-quarter of the population depending on it either di-
rectly or indirectly. Dried, smoked, and salted herring was in great demand in a Eu-
rope perennially short of fresh meat. As early as the fifteenth century the Dutch had
perfected a method of curing the fish at sea, which allowed their fishing fleets to re-
main abroad for several weeks instead of returning to port every night. Fishing in the
North Sea off the coasts of Scotland and England, they soon undercut the Hanseatic
and Scandinavian fisheries in the Baltic and distributed their catch up the German
rivers, in France, England, the Mediterranean, and the Baltic itself.
The Dutch specialized in carrying the goods of others, along with their herring
exports, but they also exported some other products of their own. Dutch agriculture,
although it occupied a far smaller proportion of the labor force than elsewhere, was
the most productive in Europe and specialized in high-value produce such as butter,
cheese, and industrial crops. The Netherlands lacked natural resources such as coal
and mineral ores, but it imported raw materials and semifinished goods, such as rough
woolen cloth from England, and exported them in finished form. The shipbuilding in-
dustry, developed to a high level of technical perfection, depended on timber from the
 A CONCISE ECONOMIC HISTORY OF THE WORLD

FIGURE 6—6. Dutch merchant. Daniel Bernard, a prosperous Dutch merchant of the mid-
seventeenth ventury, is the subject of this portrait by Bartholomeus van der Helst. (By Van
der Helst: Museum Boymans-van Beuningen, Rotterdam.)

Baltic; but it supplied not only the Dutch fishing, merchant, and naval fleets, but those
of other countries as well. Similarly, the sailcloth and cordage industries obtained flax
and hemp from abroad.
The northern Netherlands, especially Holland and Zealand, benefited in great
measure from free immigration from other parts of Europe. In the immediate after-
math of the Dutch Revolt large numbers of Flemings, Brabanters, and Walloons, of
whom a disproportionate number were merchants and skilled artisans, flooded into
the northern cities. The ease with which Amsterdam achieved its rank as the princi-
pal entrepot of Europe was partly a result of the influx of merchants and financiers
from fallen Antwerp, who brought both their capitalist knowhow and their liquid cap-
ital. In subsequent years the Netherlands continued to gain both financial and human
capital by the inflow of religious refugees from the southern Netherlands, Jews from
Spain and Portugal, and, after 1685, Huguenots from France. These migrations both
symbolized and contributed to a policy of religious toleration in the Netherlands,
 Economic Nationalism and Imperialism 153

unique in its time. Although Calvinist fanatics occasionally sought to impose a new
religious orthodoxy, the merchant oligarchs succeeded in maintaining religious as
well as economic freedom, for Catholics and Jews as well as Protestants.
The Dutch concern for freedom was real, particularly with respect to freedom of
the seas. As a small maritime nation surrounded by vastly more populous, powerful
neighbors, the Netherlands (led, as usual, by the province of Holland and the city of
Amsterdam) resisted the pretensions of Spain to control the western Atlantic and the
Pacific oceans, of Portugal to the South Atlantic and Indian oceans, and of Britain to
the “British Seas” (including the English Channel). The Dutch jurist Hugo de Groot
(Grotius) wrote his famous treatise, Mare Liberum (“Freedom of the Seas’’), destined
to become one of the foundations of international law, as a brief in the negotiations
leading to a truce with Spain in 1609. In the frequent, more or less continual wars of
the seventeenth century, the Dutch insisted on their rights as neutrals to carry mer-
chandise to all combatants and were prepared to make war themselves to protect those
rights. (For that matter, individual Dutch merchants were not above trading with the
enemy, a practice that was tacitly accepted by the government.)
The Dutch commitment to freedom in matters of commercial and industrial pol-
icy was slightly more equivocal. Generally speaking, the cities (who were the effec-
tive units) followed free trade policies. No tariffs encumbered exports or imports of
raw materials or semifinished goods, which were to be processed and reexported; tar-
iffs and taxes on consumer goods were for revenue, not protection of domestic in-
dustries. The trade in precious metals, in particular, was entirely free, in striking con-
trast to the policies of other nations. Amsterdam, with its bank, bourse, and favorable
balance of payments, quickly became the world emporium for gold and silver; it has
been estimated that between one-fourth and one-half of the annual imports of silver
from the Spanish Empire eventually wound up in Amsterdam, even during the Dutch
War for Independence.
Freedom was also the rule in industry. Although guilds existed, they were neither
as widespread nor as powerful as in other countries; most major industries operated
entirely outside the guild system. More restrictive were the regulations imposed by
the larger towns and cities on their surrounding districts, which prevented the growth
of rural industries. The major exception to the absence of regulation in Dutch trade
and industry was the government-sanctioned “College of the Fishery,” which regu-
lated the herring fishery. The ships of only five cities were permitted to take part in
the “Great Fishery” (as opposed to the local fresh-herring fisheries for domestic con-
sumption). The College licensed vessels to control quantity, and also imposed strict
quality controls to maintain the reputation of Dutch herring. These restrictive policies
paid handsomely as long as the Dutch maintained their near-monopoly in the Euro-
pean market, but as other nations gradually adopted Dutch technology the policies
contributed to the stagnation and eventual decline of the herring trade, which was
symptomatic (and in part a cause) of the decline of the Dutch economy as a whole.
The most striking departure of the Dutch from their general rule of freedom was
with respect to their colonial empire. As the English ambassador to the Netherlands
truly stated in 1663, “It is mare liberum in the British Seas but mare clausum on ye
coast of Africa and in ye East Indies.” In contrast to Spain and Portugal, in which
trade with the overseas empire was regarded as a royal monopoly, the States-General
 154 A CONCISE ECONOMIC HISTORY OF THE WORLD

of the Netherlands turned over not only the control of trade but also the powers of
government to privately owned joint-stock companies, the East India Company for
the Indian Ocean and Indonesia, and the West India Company for the west coast of
Africa and North and South America. Although chartered initially as purely com-
mercial ventures, the companies soon discovered that to succeed in that capacity, in
competition with Portuguese, Spanish, English, and French rivals, to say nothing of
the aspirations and desires of the peoples with whom they wished to trade, they
needed to establish territorial control. To the extent that they were successful in this,
they became “states within a state”; monopoly of trade, with respect to both their own
nationals and competition with other nations, naturally followed.

“Parliamentary Colbertism” in Britain

Economic policies in England (and, after the union of the Scottish and English par-
liaments in 1707, in Great Britain) differed from those of both the Netherlands and
the continental absolute monarchies. Moreover, whereas the general character of eco-
nomic policies in other European nations remained more or less constant from the be-
ginning of the sixteenth to the end of the eighteenth century, those of England and
Britain underwent a gradual evolution corresponding to the evolution of constitu-
tional government. Henry VIII (1509—47) was as much an absolute monarch in En-
gland as any of his fellow sovereigns were in their countries. But whereas royal ab-
solutism increased in most continental countries in the sixteenth and seventeenth
centuries, a contrary development occurred in England, resulting in the establishment
of a constitutional monarchy under parliamentary control after 1688.
Another contrast between England and the Continent illuminates the nature and
consequences of economic policy. In Spain and France, for example, the fiscal de-
mands of the crown made it impossible for the government to pursue consistently a
rational policy of economic development. In England the fiscal demands of the crown
brought it into repeated conflicts with Parliament until the latter finally triumphed.
Unlike representative assemblies on the Continent, the English Parliament had
never
given up its prerogative to approve new taxes. Although economic and financial ques-
tions were not the only or even the most important causes of the English Civil War,
Charles I’s attempt in the 1630s to govern without Parliament and to collect taxes
without parliamentary approval was a major factor leading to the outbreak of armed
insurrection. Similarly, after the Stuart dynasty was restored in 1660, the profligacy
of Charles II and James II and their financial chicanery (e.g., the “Stop of the
Exche-
quer” of 1672, in which the government diverted revenues intended for
repayment of
royal debts to the prosecution of an unpopular war with the Dutch) exacerbated
reli-
gious and constitutional issues. After the installation of William and
Mary in 1689 as
constitutional monarchs Parliament took direct control of the government
’s finances
and in 1693 formally instituted a “national” debt distinct from the
personal debts of
the sovereign.
The so-called Glorious Revolution of 1688—89 constitutes a major
turning point
not only in political and constitutional history, but in economic
history as well. In the
matter of public finance alone, the 1690s saw, in addition to the
establishment of a
 Economic Nationalism and Imperialism 155

funded debt, the creation of the Bank of England, a recoinage of the nation’s money,
and the emergence of an organized market for public as well as private securities. The
success of the new financial system was not immediate; it was wracked in the early
years by a number of crises, culminating in the famous South Sea Bubble of 1720.
By the middle decades of the eighteenth century, however, when Britain was engaged
in a series of both European and colonial wars with France, its government could bor-
row money at only a fraction of the cost of its rival. Moreover, the ease, cheapness,
and stability of credit for public finance reacted favorably on private capital markets,
making funds available for investment in agriculture, commerce, and industry.
Anearlier historian referred to English economic policy making between the Glo-
rious Revolution and the American Revolution as “Parliamentary Colbertism.” Like
the term mercantilism, it is both inaccurate and misleading. It is inaccurate because
it ignores the substantial role of Parliament in policy making before 1688; and it is
misleading in suggesting that Parliament ever aspired to, much less obtained, the de-
gree of intervention in the economy that Colbert did. It does, nevertheless, have the
merit of indicating that, in England, economic policy making was not the prerogative
of an absolute monarch (and his minions), but responded to the varied and sometimes
conflicting interests of those groups—titled aristocrats, landed gentry, wealthy mer-
chants, professionals, courtiers, and others—who were effectively represented in Par-
liament.
It is out of the question in a brief survey to recount the myriad ways in which Par-
liament influenced, or attempted to influence, the economy, such as the laws that re-
quired corpses to be buried in woolen shrouds (at the behest of the woolen industry;
what better way to stimulate demand for its products than to bury them?), or those to
stimulate the fishing industry that decreed more “fish days” (meatless) for Protestant
than for Catholic England. Instead, we shall consider a few characteristic major pieces
of legislation, including one generally regarded as successful in achieving its objec-
tives, and others that either had negligible impacts or provoked adverse conse-
quences.
The Statute of Artificers of 1563 has often been pointed out as an archetypical
piece of mercantilist legislation, carefully thought out, providing a long-range plan
for the economy as a whole. In fact, it was nothing of the kind; it was a reaction to a
temporary situation, “a hotchpotch of compromise between the efforts of the Queen’s
councillors and numerous amendments originating in the House of Commons.”? (In
that sense it might be regarded as “typical” of mercantilist legislation.) Its main con-
cern was with social stability. Its principal provisions required all able-bodied per-
sons to engage in productive labor, with the first priority being agriculture, the sec-
ond the cloth industry, and then certain other crafts and industries deemed to be of
national importance. It established a norm of seven years’ apprenticeship for all arts
and crafts, including farming, and specified the social ranks from which apprentices
should be selected. Combined with subsequent legislation regulating wages and poor
relief, it would have, if effectively enforced, almost totally halted occupational and
social mobility, and thus economic development. But “effective enforcement” was
the key to almost all English (and other) economic legislation. In the case of the

3 Donald C. Coleman, The Economy of England, 1450-1750 (Oxford, 1977), p. 181.

 156 A CONCISE ECONOMIC HISTORY OF THE WORLD

Statute of Artificers, and most similar English legislation, enforcement was left to the
justices of the peace, part-time unpaid royal officials who had their own interests to
look out for. Except in the rare instances when these interests coincided with those of
the government, enforcement was lax at best, and nonexistent as a rule.
Less typical, perhaps, but more revealing as an example of the aims and conse-
quences of the policies of economic nationalism is the case of the infamous Cokayne
Project. In the Middle Ages England’s major export was raw wool. In the course of
the fifteenth and sixteenth centuries exports of rough, unfinished cloth, the monop-
oly of the Merchant Adventurers, surpassed those of raw wool. The principal market
for this cloth was the Low Countries, where it was finished, dyed, and reexported
throughout Europe. In 1614 Sir William Cokayne, a merchant, alderman of the City
of London, and confidant of (or money-lender to) King James I persuaded the latter
to revoke the monopoly of the Merchant Adventurers, forbid the export of undyed
cloth, and grant a monopoly of the export of finished cloth to a new company of which
Cokayne, of course, was the leading member. The rationale was that the finishing pro-
cesses were the most lucrative branches of cloth manufacture; by reserving them for
England the project would increase domestic employment and income, enhance the
royal revenue from the export tax, and strike a blow at the Dutch. The Dutch retali-
ated, however, by forbidding the importation of dyed cloth from England; moreover,
the finishing and dyeing trades required highly skilled artisans, who were in short sup-
ply in England. Cloth exports declined, unemployment spread in the woolen indus-
try, and a general depression ensued. In 1617 the government restored the monopoly
of the Merchant Adventurers, but the commercial crisis continued, exacerbated by the
renewed outbreak of war on the Continent. In 1624, under pressure from the House
of Commons, the government opened the cloth trade to all.
The most famous and effective of all the policies of Parliamentary Colbertism
were the Navigation Acts. Even Adam Smith granted them his grudging admiration,
but on the grounds of national defense, for he explicitly noted that they decreased na-
tional income. Navigation laws, the general purpose of which was to reserve a coun-
try’s international trade for its own merchant marine, were not unique to England
or,
in England, to the seventeenth century. Almost all countries had them; the first such
law was passed in England in 1381, and was repeated frequently thereafter. Gener-
ally speaking, however, such laws were ineffective for two reasons; they lacked
ade-
quate enforcement mechanisms and, more fundamentally, the merchant marines
they
were intended to benefit lacked capacity and competitive ability. In 1651,
however,
the Long Parliament of the Commonwealth government passed a law that
was in-
tended not only to protect the English merchant marine but also to deprive
the Dutch
of their near-monopoly of both shipping and fishing in English waters.
The Dutch
were sufficiently concerned that they declared war the following year.
Although the
Navigation Act was not the only reason for the declaration, its repeal
was one of the
objectives for which the Dutch argued, unsuccessfully, in the negotiations
that ended
the stalemated war. In 1660, after the restoration of Charles II,
Parliament renewed
and strengthened the act. As amended from time to time thereafter,
the Navigation
Law not only sought to protect the English merchant marine and
fishing fleet, but also
became the cornerstone of England’s colonial system.
Under the terms of the law all goods imported into Great Britain
had to be carried
 Economic Nationalism and Imperialism vil

in either British ships or ships of the country from which the goods originated. (British
ships were defined as those of which the owners, master, and three-fourths of the crew
were British subjects. The law also tried to protect the shipbuilding industry by re-
quiring that the ships be built in Britain; but that provision proved difficult to enforce,
and for many years Dutch shipbuilders supplied a considerable proportion of the
British merchant fleet.) Moreover, even British ships were required to bring goods di-
rectly from the country of origin, rather than from an intermediate port; in this way
the law sought to weaken Amsterdam’s position as an entrep6t as well as to cut into
the Dutch carrying trade. The coasting trade (from one British port to another) was
reserved entirely for British ships, as was the importation of fish. Trade with the
British colonies (in North America, the West Indies, India) also had to be carried in
British bottoms. (Colonial ships were regarded as British if they met the previously
noted stipulations.) In addition, all colonial imports of manufactured goods from for-
eign countries (e.g., metalwares from Germany) had to be landed first in Great
Britain; in effect, this reserved the colonial market for British merchants and manu-
facturers. Likewise, the staple colonial exports, such as tobacco, sugar, cotton,
dyestuffs, and eventually many other commodities, had to be shipped through Great
Britain, rather than directly to foreign ports.
The Navigation Laws were not easily enforced, especially in the colonies; more
than one New England fortune grew on the profits of illicit trade. Although the laws
were intended to injure the Dutch as much as they were to benefit the English, the
Dutch maintained their maritime and commercial supremacy until well into the eigh-
teenth century; even then their decline was relative rather than absolute, and a result
more of other causes (especially warfare) than of English competition. Nevertheless,
the Navigation Acts probably did promote the growth of the English merchant ma-
rine and maritime trade, as they were intended to do (but, as Adam Smith pointed out,
at a cost to British consumers). They could not have done so, however—as earlier,
similar legislation had not—if English merchants and shippers had not already be-
come involved in aggressive pursuit of foreign markets, and were thus willing and
able to take advantage of the privileges the laws conferred.
The Navigation Acts had yet another, unintended, effect: the loss of a large part—
and the economically most progressive and prosperous part—of the “old” British Em-
pire (Fig. 6-7). Although they were not the sole or even the most important cause of
the American Revolution, they were at the heart of the “old colonial system” and for
most Americans they symbolized the disadvantages, real and imagined, of colonial
dependence. From their parlous beginnings in the early seventeenth century, En-
gland’s North American colonies had grown prodigiously. In numbers alone the
record is impressive: from only a few thousand in 1630, they exceeded a quarter of a
million by the beginning of the eighteenth century and 2 million on the eve of the rev-
olution. The sinister counterpart of this achievement must, however, be deplored: the
displacement and eventual extinction of most native Americans and the enslavement
of thousands of black Africans.
The growth of income and wealth was even more impressive than the growth of
population as, after the suffering and disasters of the early years, they specialized
along lines of comparative advantage and traded extensively with one another, with
the mother country, and, illegally, with the Spanish Empire and parts of continental
 158 A CONCISE ECONOMIC HISTORY OF THE WORLD

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*Florida was a British colony from 1763 to 1780.

Europe. Virginia and the Chesapeake Bay area specialized in tobacco,

South Car-
olina in rice and indigo, the middle colonies in foodstuffs, some
of which they sold
to the southern colonies and New England. The latter had a more diversifi
ed econ-
omy, with commerce and the carrying trade being especially important
. Although the
Navigation Acts governed colonial commerce, enforcement was
not especially ef-
fective until after the Seven Years War (1763); even then it
was not terribly burden-
some, just enough to give those who sought political independence
for other reasons
a rallying cry.
One more example of British legislation must suffice. In the latter
part of the sev-
 Economic Nationalism and Imperialism 159

enteenth century the East India Company began importing inexpensive, light-weight,
brightly printed cloths from India, called calicoes, which quickly became popular.
The woolen industry in 1701 persuaded Parliament to pass the first Calico Act, pro-
hibiting the importation of printed cotton cloth. A new industry quickly sprang up, the
printing of imported plain cotton goods. The woolen industry again became alarmed,
and in 1721 Parliament obligingly passed a second Calico Act, which forbade the dis-
play or consumption of printed cotton goods. This, in turn, stimulated a domestic cot-
ton textile industry based on imported raw cotton, which eventually became the cra-
dle of the so-called industrial revolution. By the end of the century the manufacture
of cotton had displaced that of woolen goods to become Britain’s leading industry.
To summarize, in Britain the growth of Parliamentary power at the expense of the
monarchy brought with it better order in the public finances, a more rational system
of taxation than was found elsewhere in Europe, and a smaller state bureaucracy. The
ideal was still that of a “regulated” economy, as on the Continent, but the means of
regulation were quite different. Parliamentary control was most effective in economic
relations with the outside world (facilitated by Britain’s island nature) and Parliament
followed a policy of strict economic nationalism. Domestically, although Parliament
wished to control the economy, it generally lacked the ability to do so. As a result
British entrepreneurs enjoyed a degree of freedom and opportunity that was virtually
unique in the world.
 fh
The Dawn of Modern Industry

By the beginning of the eighteenth century several regions of Europe, mainly in west-
ern Europe, had acquired sizable concentrations of rural industry, mostly but not ex-
clusively in the textile trades. In the early 1970s a new term was invented to describe
the process of expansion and occasional transformation of these industries: proto-in-
dustrialization. The term was first employed with reference to the linen industry of
Flanders, a rural, cottage-based industry organized by entrepreneurs in Ghent and
other market towns that exported its output, linen cloth, to distant markets, especially
those of the Spanish Empire. The workers, family units of husband, wife, and chil-
dren, usually cultivated small plots of ground as well, although they also bought ad-
ditional supplies in markets. The term has subsequently been refined and extended in
both space and time to other, similar industries. In some instances—for example,
the
Lancashire cotton industry—it has been seen as the prelude to a fully developed
fac-
tory system. In others, however, such as the Irish and even the Flemish linen indus-
tries, no such transition occurred.
The essential features of a proto-industrial economy are dispersed, usually
rural
workers organized by urban entrepreneurs (merchant-manufacturers) who supply
the
workers with raw materials and dispose of their output in distant markets. The
work-
ers must also purchase at least a part of their means of subsistence. Perceptiv
e read-
ers will note that this definition seems to apply to those industries described
in Chap-
ters 3 and 5 as cottage industry, domestic industry, and the putting-out system.
Indeed,
critics of the term proto-industrialization regard it as superfluous. If
there is a signif-
icant difference, it is in the emphasis placed on distant markets; most
traditional cot-
tage or domestic industry catered only to local markets.
Proto-industrialization and the related terms refer primarily to consume
r goods
industries, especially textiles. Well before the advent of the factory
system in the cot-
ton industry, however, other large-scale, highly capitalized industrie
s existed, pro-
ducing capital or intermediate goods, and sometimes even consume
r goods. The
French manufactures royales have already been mentioned
(p. 149): they were usu-
ally located in large factorylike structures where skilled
artisans worked under the
supervision of a foreman or entrepreneur, but without
mechanical power. Similar
“proto-factories” were built by noble landowner-entrepreneu
rs in the Austrian Em-
pire (Bohemia and Moravia) and elsewhere. Large
landowners also acted as entre-
preneurs in the coal industry, mining the deposits located
on their estates. The Duke
of Bridgewater, who owned a mine at Worsley, hired the
self-taught engineer James

160
 The Dawn of Modern Industry 161

Brindley to build a canal from his mine to Manchester in 1759-61. Ironworks, usu-
ally located in rural areas near timber (for charcoal) and iron ore, sometimes em-
ployed hundreds, even thousands, of workers. Lead, copper, and glassworks also
frequently had large-scale organizations, as did shipyards. The state-owned Arsenal
of Venice, dating from the Middle Ages, was one of the earliest large-scale indus-
trial enterprises in history. The intricate organization of Dutch shipyards has already
been described (p. 115). The English government built the Woolwich Arsenal, near
London, and private entrepreneurs also maintained sizable installations at several
locations.
Impressive though these achievements were, they were overshadowed in the eigh-
teenth century by the rise of new forms of industrial enterprise.

Characteristics of Modern Industry

One of the most obvious differences between preindustrial and modern industrial so-
cieties is the greatly diminished relative role of agriculture in the latter. The counter-
part of its diminished importance, however, is the greatly increased productivity of
modern agriculture, which enables it to feed a large nonagricultural population. A re-
lated difference is the high proportion of the modern labor force engaged in the ter-
tiary, or service, sector (especially professional as opposed to domestic services); the
proportion is now 60 percent or more, in contrast to the 20 or 30 percent engaged in
manufacturing and related industries. Yet this is a relatively recent development, par-
ticularly notable in the second half of the twentieth century. During the period of in-
dustrialization proper, extending roughly from the beginning of the eighteenth cen-
tury (in Great Britain) to the first half of the twentieth century, the characteristic
feature of the structural transformation of the economy was the rise of the secondary
sector (mining, manufacturing, and construction), observable in the proportion of
both the labor force employed and the output.
The transformation was first noted in England, then Scotland, and Great Britain
has been truly described as “the first industrial nation.” A more picturesque but less
useful term, “the industrial revolution,” has been applied to the last few decades of
the eighteenth century and the first few in the nineteenth; as will become evident, the
term is both inaccurate and misleading. More important, its use deflects attention
from contemporaneous but different types of development in continental Europe. If
Great Britain had never existed, or had sunk beneath the ocean in a gigantic tidal
wave, Europe (and America) would have industrialized, albeit along somewhat dif-
ferent lines. Nevertheless, this chapter is devoted to the beginning of the process of
industrialization in eighteenth-century Britain (Fig. 7-1).
In the course of this transformation, which is more accurately, if prosaically, des-
ignated as the “rise of modern industry,” certain characteristics gradually emerged
that clearly distinguish “modern” from “premodern” industry. These are (1) the ex-
tensive use of mechanically powered machinery; (2) the introduction of new, inani-
mate sources of power (or energy), especially fossil fuels; and (3) the widespread use
of materials that do not normally occur in nature. A related feature is the larger scale
of enterprise in most industries.
 162 A CONCISE ECONOMIC HISTORY OF THE WORLD

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FiGURE 7-1. English industry in 1700. (Compare Figure 7-11, p. 182.)

The most significant improvements in technology involved the use of machinery

and mechanical power to perform tasks that had been done far more slowly and la-
boriously by human or animal power, or that had not been done at all. To be sure,
el-
ementary machines like the wheel, the pulley, and the lever had been used from
an-
tiquity, and for centuries humankind had used a fraction of the inanimate powers
of
nature to propel sailing ships and actuate windmills and waterwheels for rudimentar
y
industrial processes. During the eighteenth century a notable increase in the
use of
water power occurred in such industries as grain milling, textiles, and metallurgy
; and
in recent times we have witnessed the proliferation of a wide variety of prime
movers,
from small electric motors operated on household current to huge nuclear
reactors.
 The Dawn of Modern Industry 163

But the most important developments in the application of energy in the early stages
of industrialization involved the substitution of coal for wood and charcoal as fuel
and the introduction of the steam engine for use in mining, manufacturing, and trans-
portation. Similarly, although metallic ores had been converted into metals for cen-
turies, the use of coal and coke in the smelting process greatly reduced the cost of
metals and multiplied their uses, whereas the application of chemical science created
a host of new “artificial” or synthetic materials.

The Industrial Revolution: A Misnomer

Probably no term from the economic historian’s lexicon has been more widely ac-
cepted by the public than “industrial revolution.” This is unfortunate, because the term
itself has no scientific standing and conveys a grossly misleading impression of the
nature of economic change. Nevertheless, for more than a century it has been used to
denote that period in British history that witnessed the application of mechanically
powered machinery in the textile industries, the introduction of James Watt’s steam
engine, and the “triumph” of the factory system of production. By analogy, the term
has also been applied to the onset of industrialization in other countries, although
without general agreement on dates.
Early descriptions of the phenomenon emphasized the “great inventions” and the
dramatic nature of the changes. As an 1896 textbook put it, “The change . . . was sud-
den and violent. The great inventions were all made in a comparatively short space
of time,” a description that a more judicious scholar dryly characterized as exhibiting
“all the higher forms of historical inaccuracy.” Early interpretations also emphasized
what were assumed to be the deleterious consequences of the new mode of produc-
tion. Although increases in productivity as a result of the use of mechanical power
and machinery were acknowledged, most accounts stressed the use of child labor, the
displacement of traditional skills by machinery, and the unwholesome conditions of
the new factory towns.
Early proponents of the phrase, lacking both the data and the inclination to quan-
tify, were content with such impressionistic adjectives as sudden, rapid, violent, dis-
continuous, and so on. More recently, a number of scholars have devoted consider-
able effort to measuring the changes in industrial production, national income, and
related variables, and have discovered that they were all relatively modest. Not until
the middle decades of the nineteenth century, well after the conventional dates for the
“revolution,” did British industry begin to take on its “modern” character.
Despite efforts both to lengthen and to shorten the span of the “revolution,” the
conventional dating received the imprimatur of no less an authority than T. S. Ash-
ton, the most famous economic historian of eighteenth-century England. This is dou-
bly ironic, because Ashton, unlike most of his predecessors, viewed the outcome of
the period as an “achievement” rather than a “catastrophe,” and because he had no
special fondness for the term. According to him, “The changes were not merely ‘in-
dustrial,’ but also social and intellectual. The word ‘revolution’ implies a suddenness
of change that is not, in fact, characteristic of economic processes. The system of hu-
 164 A CONCISE ECONOMIC HISTORY OF THE WORLD

man relationships that is sometimes called capitalism had its origins long before 1760,
and attained its full development long after 1830: there is a danger of overlooking the
essential fact of continuity.”!

Prerequisites and Concomitants of Industrialization

As Ashton wrote, the changes were not merely industrial, but social and intellectual
as well. Indeed, they were also commercial, financial, agricultural, and even politi-
cal. In this “seamless web” of historical change it is difficult to assign priorities or
weights, especially when methods and units of measurement are unreliable or nonex-
istent; but there is reason to believe that the intellectual changes were the most fun-
damental, in the sense that they permitted or encouraged the others.
Already in the Middle Ages some individuals had begun to contemplate the prac-
tical possibilities of harnessing the forces of nature (see pp. 71—72). The later scien-
tific achievements associated with Copernicus, Galileo, Descartes, and Newton (to
mention only a few) reinforced such ideas. In England the influence of Francis Ba-
con, one of whose aphorisms was “knowledge is power,” led to the founding in 1660
of the Royal Society “for Improving Natural Knowledge.” Some scholars regard the
application of science to industry as the distinguishing characteristic of modern in-
dustry. Despite its attractiveness, this view has its difficulties. In the eighteenth-cen-
tury dawn of modern industry the body of scientific knowledge was too slender and
weak to be applied directly to industrial processes, whatever the intentions of its ad-
vocates. In fact, it was not until the second half of the nineteenth century, with the
flowering of chemical and electrical sciences, that scientific theories provided the
foundations for new processes and new industries. It is indisputable, however, that as
early as the late seventeenth century the methods of science—in particular, observa-
tion and experiment—were being applied (not always successfully) for utilitarian
purposes. Nor were such efforts limited to men of scientific training. Indeed, one of
the most remarkable features of technical advance in the eighteenth and early nine-
teenth centuries was the large proportion of major innovations made by ingenious tin-
kerers, self-taught mechanics and engineers (the word engineer acquired its modern
meaning in the eighteenth century), and other autodidacts. In many instances the term
experimental method may be too formal and exact to describe the process; trial-and-
error may be more apposite. But a willingness to experiment and to innovate pene-
trated all strata of society, including even the agricultural population, traditionally
the
most conservative and suspicious of innovation.
Just as England was the first nation to industrialize on a large scale, it was
one of
the first to increase its agricultural productivity. By the end of the seventeent
h cen-
tury England was already in advance of most of continental Europe in agricultur
al
productivity, with only about 60 percent of its workers involved primarily in
food pro-
duction. Although the actual number of workers in agriculture continued to
grow un-
til the middle of the nineteenth century, the proportion declined steadily
to about 36
percent at the beginning of the nineteenth century, to about 22 percent
in the mid-

'T. S. Ashton, The Industrial Revolution, 1760-1830 (Oxford, 1948), p.2.

 The Dawn ofModern Industry 165

nineteenth century (when the absolute number was at its maximum), and to less than
10 percent at the beginning of the twentieth century.
The means by which England increased its agricultural productivity owed much
to trial-and-error experimentation with new crops and new crop rotations. Turnips,
clover, and other fodder crops were introduced from the Netherlands in the sixteenth
century (see p. 112), and became widely diffused in the seventeenth. Probably the
most important agricultural innovation before scientific agriculture was introduced in
the nineteenth century was the development of so-called convertible husbandry, in-
volving the alternation of field crops with temporary pastures (frequently sown with
the new fodder crops) in place of permanent arable land and pastures. This had the
double advantage of restoring the fertility of the soil through improved rotations, in-
cluding leguminous crops, and of carrying a larger number of livestock, thus produc-
ing more manure for fertilizer as well as more meat, dairy produce, and wool. Many
landowners and farmers also experimented with selective breeding of livestock.
An important condition for both the improved rotations and selective breeding
was enclosure and consolidation of the fields (Fig. 7-2). Under the traditional open

FIGURE 7-2. The open fields surrounding the village of IImington in the English Midlands
were enclosed in 1778. In this aerial photograph from the 1950s the ridges and furrows of the
medieval open fields are still clearly visible. Compare with the map of the village of Shilbot-
tle in Figure 3-1. (From Medieval England: An Aerial Survey, by M. W. Beresford and J. K. S.
St. Joseph. Copyright 1969 by Cambridge University Press. Reprinted with permission.)
166 A CONCISE ECONOMIC HISTORY OF THE WORLD

Percentage of open-field arable enclosed by Percentage of waste enclosed by

Parliamentary Act, ca. 1750—1830 Parliamentary Act, ca. 1750—1830
fe 50.0 — 59.9 above 20
f | 40.0 — 49.9 (I) 15.0 - 19.9
(MM) 0 - 29 (MM) 100-149
I 20.0 - 29.9 | T] 50- 99
10.0 — 19.9

FIGURE 7—3. The last enclosures in England.

field system it was difficult, if not impossible, to obtain agreement among the many
participants on the introduction of new crops or rotations; and with livestock grazing
in common herds it was equally difficult to manage selective breeding. Notwith-
standing strong incentives for enclosure, it had many opponents, predominantly cot-
tagers and squatters who had no open field holdings of their own, but only custom-
ary rights to graze a beast or two on the common pasture. The most famous enclosures
were those carried out by acts of Parliament between 1760 and the end of the
Napoleonic Wars, for it was these that gave rise to a literature of protest (Fig. 7-3).
Enclosure by private agreement, however, had been going on almost continuously
from the late Middle Ages; it was especially active in the late seventeenth and the first
six decades of the eighteenth centuries. By that time more than half of England’s
arable land had been enclosed.
The new agricultural landscape that emerged to replace the nucleated villages sur-
rounded by their open fields consisted of compact, consolidated, and enclosed
(walled, fenced, or hedged) farms, mainly in the range of 100 to 300 acres. Con-
 The Dawn of Modern Industry 167

comitant with the processes of enclosure and technological improvement, a gradual

tendency toward larger farms emerged. By 1851 about one-third of the cultivated
acreage was in farms larger than 300 acres; farms smaller than 100 acres accounted
for only 22 percent of the land. Even so, the occupiers of the small farms outnum-
bered those of the others almost 2 to 1. The reason for this is that the small farmers
were Owner-occupiers who farmed with the help of family labor; the larger farmers
were capitalistic tenant farmers who rented their land for a cash payment and hired
landless agricultural laborers. It used to be thought that the enclosures “depopulated”
the countryside, but in fact the new techniques of cultivation associated with them ac-
tually increased the demand for labor. Not until the second half of the nineteenth cen-
tury, with the introduction of such farm machinery as threshers, harvesters, and steam
plows, did the absolute size of the agricultural labor force begin to decrease.
In the meantime, the increasing productivity of English agriculture enabled it to
feed a burgeoning population at steadily rising standards of nutrition. Indeed, for
about a century, from 1660 to 1760, it produced a surplus for export before the rate
of population growth overtook the rate of increase of productivity. The relatively
prosperous rural population, more specialized and commercially oriented than most
continental peasants, also provided a ready market for manufactured goods, ranging
from agricultural implements to such consumer products as clothing, pewterware, and
porcelain.
Commercialization of agriculture reflected a general process of commercializa-
tion of the entire nation. As early as the end of the seventeenth century English for-
eign trade per capita exceeded that of all nations except the Netherlands, and London
had developed a remarkably sophisticated commercial and financial organization that
was beginning to rival that of Amsterdam. Between 1688 and 1801, while the rela-
tive share of agriculture in national income declined from 40 to 32.5 percent and that
of mining, manufacturing, and building rose from 21 to only 23.6 percent, the rela-
tive share of trade and transport rose from 12 to 17.5 percent, an increase of almost
50 percent.
Already by the sixteenth century London had begun to function as a “growth pole”
for the English economy. Its advantages were both geographic and political. The Ro-
mans had selected the lowest point on the Thames at which the river could be bridged
for the city’s site; and the network of roads the Romans built, centered on London,
still served the English economy in the sixteenth and later centuries. Likewise, the
“pool” of London was the highest point on the Thames accessible to ocean-going
ships, and the city had already emerged in the Middle Ages as the most important port
in England. The location of the nation’s capital in Westminster, a short distance up-
river from the City of London, with which it eventually merged, enhanced both the
wealth and the population of the metropolis. Population growth was extremely rapid
in the sixteenth and seventeenth centuries, and by 1700 London had caught up with
or possibly surpassed Paris, previously the largest city in Europe.
Commercialization interacted with the developing financial organization of the
nation. The origins of the English banking system are obscure, but in the years after
the Restoration of 1660 a number of prominent goldsmiths in London began to func-
tion as bankers. They issued deposit receipts that circulated as banknotes, and granted
loans to creditworthy entrepreneurs. The founding of the Bank of England in 1694,
168 A CONCISE ECONOMIC HISTORY OF THE WORLD

with its legal monopoly of joint-stock banking, forced the private bankers to give up
their issues of banknotes, but they continued to function as banks of deposit, accept-
ing drafts and discounting bills of exchange. Meanwhile, the provinces outside Lon-
don remained without formal banking facilities, although “money scriveners” (bro-
kers), attorneys, and wealthy wholesale merchants performed some of the elementary
banking functions such as discounting bills of exchange and remitting funds to Lon-
don. The Bank of England established no branches, and its banknotes (of large de-
nomination) did not circulate outside London. Moreover, the Royal Mint was ex-
tremely inefficient; the denomination of its gold coins was too large to be useful in
paying wages or retail trading, and it minted very few silver or copper coins. This
dearth of small change prompted private enterprise to fill the gap: industrialists, mer-
chants, and even publicans issued scrip and tokens that served the needs of local mon-
etary circulation (Fig. 7-4). From these diverse origins came the institution of “coun-
try banks” (i.e., any bank not located in London), whose growth was extremely rapid
in the second half of the eighteenth century; by 1810 there were almost 800 of them.
The euphoria engendered by the Glorious Revolution resulted in the creation of
a number of joint-stock companies in the 1690s, some of them like the Bank of En-
gland with royal charters and grants of monopoly. (The law at that time was ambigu-
ous on the question of business organization.) A similar euphoria suffused the coun-
try after the successful conclusion of the War of the Spanish Succession, and it
culminated in the speculative financial boom known as the South Sea Bubble. The
episode received its name from the South Sea Company, chartered in 1711 with a
nominal monopoly of trade with the Spanish Empire, although the real reason for its
creation was to raise money for the government to prosecute the war. (A similar spec-
ulative mania took place in France at the same time. Called the Mississippi Bubble,
it was inspired by a Scottish financial adventurer with the unlikely name of John Law,
who persuaded the Duke of Orleans, regent for the child King Louis XV, to allow him

Figure 7-4. Token coin. “John Wilkinson, Iron Master” minted token coins both to pro-
vide a local monetary circulation and as a form of advertisement (and no doubt also a form
of ego satisfaction). (Reproduced by courtesy of the Trustees of the British Museum.)
 The Dawn of Modern Industry 169

to form a bank, the Banque Royale, and also a company to exploit French possessions
in North America, then called Mississippi.) The bubble burst in 1720 when Parlia-
ment, at the behest of the South Sea Company, passed the Bubble Act. The act pro-
hibited the formation of joint-stock companies without the express authorization of
Parliament, which proved loath to grant such authorizations. As a result England en-
tered its “industrial revolution” with a legal barrier against the joint-stock (or corpo-
rate) form of business organization, condemning most of its industrial and other en-
terprises to partnerships or simple proprietorships. Whether or not that restriction
hindered English industrialization has been debated extensively; but, in any case, it
was not a fatal hindrance. The Bubble Act was eventually repealed in 1825.
Another major consequence of the Glorious Revolution, already noted (p. 154),
was to place the public finances of the kingdom firmly in the hands of Parliament,
which significantly reduced the cost of public borrowing and thereby freed capital for
private investment. Although the system of taxation was highly regressive (i.e., it
taxed the low-income population more heavily, proportionately, than the wealthy),
that, too, permitted the accumulation of capital for investment. It is questionable
whether much of that accumulation went directly into industry, since most industrial
enterprises grew from small beginnings by means of reinvested profits. Indirectly,
however, by means of infrastructure investments, especially in transportation, the
capital contributed importantly to the process of industrialization.
The movement of large quantities of bulky, low-value goods, such as grain from
the fields to the growing urban markets, timber for building, and coal and ores from
mines to smelters and foundries, required cheap, dependable transportation. Before
the railway era water routes provided the most economical and efficient arteries of
transport. Britain owed much of its early prosperity and its head start in modern in-
dustry to its island location, which not only granted it virtually costless protection
from the disruption and destruction of continental warfare, but also provided it with
cheap transportation. The long coastline, excellent natural harbors, and many navi-
gable streams eliminated much of the need for overland transportation, which hin-
dered the growth of commerce and industry on the Continent.
Even with Britain’s natural advantages, the demand for improved transportation
facilities increased apace. In the thirty-year period from 1660 to 1689 fifteen private
acts of Parliament were passed for river and harbor improvements; from 1690 to 1719,
59 acts (including some for turnpike construction) were passed; and from 1720 to
1749, 130 acts. The 1750s witnessed the advent of the canal age, during which wa-
terways were built to connect navigable rivers with each other or mines with their
markets. Sometimes canal construction entailed great ingenuity, employing aque-
ducts and subterranean tunnels. Altogether, between 1750 and 1820, 3,000 miles of
navigable waterways, mainly canals, were added to the 1,000 already in existence, at
a cost of £17 million (Fig. 7-5). By means of these canals and navigable rivers, all the
major centers of production and consumption were connected together and with the
important ports. Canal enterprises were organized as private, profit-making compa-
nies chartered by act of Parliament (a principal exception to the objective of the Bub-
ble Act), which charged tolls for independent boat or barge operators, or sometimes
operated their own barge fleets for hire.
Britain’s network of canals and navigable rivers was extremely efficient for its
 suortion Broad canal
~~~ Narrow canal
—~—— Navigable river

Leeds and Liverpool

Irwell
Bridgewater
Rochdale
Huddersfield
Aire and Calder
Weaver
Trent
Grand Trunk
Loughborough
Coventry
Staffordshire and
ZrAarcrronmoooap
Worcestershire
= Warwick and
Birmingham
Pp Thames and Severn
R Oxford
S Grand Junction
T
Kennet and Avon

Ficure 7—5. Inland navigation.

170
 The Dawn of Modern Industry 171

FiGuRE 7—6. Turnpikes in 1770.

time but still did not satisfy the demand for inland transportation. Traditionally the
maintenance of roads was the responsibility of the parishes, using the forced labor of
the local inhabitants. Not surprisingly, the condition of roads so maintained was de-
plorable. Beginning in the 1690s Parliament created, by private acts, turnpike trusts
that undertook to build and maintain stretches of good roads on which users, whether
traveling by wagon, by carriage, on horseback, or by foot, were charged tolls. Such
trusts were not commercial companies, but were instigated and supervised by
trustees, usually local landowners, farmers, merchants, and industrialists, who sought
both to lower their tax liabilities for parish road upkeep and to improve road access
to markets. Although most turnpikes were relatively short, about thirty miles or so,
172 A CONCISE ECONOMIC HISTORY OF THE WORLD

many were interconnected, and eventually formed a dense network. The 1750s and
1760s saw the greatest spurt of turnpike construction: from 3400 miles in 1750, the
network grew to 15,000 miles in 1770 (Fig. 7-6) and reached a peak mileage of 22,000
in 1836, by which time the railways had begun to render them and the canals obso-
lete.

Industrial Technology and Innovation

Historians impressed with the revolutionary nature of industrial change point to the
rapid mechanization and growth of the cotton industry in the last two decades of the
eighteenth century. Almost a century earlier, however, and within only a few years of
one another, two other innovations were made whose impact might be regarded as
even more fundamental to industrialization, although many years passed before their
importance was felt. These innovations were the process for smelting iron ore with
coke, which freed the iron industry from exclusive reliance on charcoal, and the in-
vention of the atmospheric steam engine, a new and powerful prime mover that sup-
plemented and eventually replaced wind- and watermills as inanimate sources of
power.
Many attempts had been made to replace charcoal with coal in the blast furnace,
but impurities in the raw coal doomed them all to failure. In 1709 Abraham Darby, a
Quaker ironmaster at Coalbrookdale in Shropshire, processed coal fuel in much the
same way that other ironmasters made charcoal out of timber—that is, he heated coal
in a closed container to drive off impurities in the form of gas, leaving a residue of
coke, an almost pure form of carbon, which he then used as fuel in the blast furnace
to make pig iron (Figs. 7—7 and 7-8).
In spite of Darby’s technological breakthrough, the innovation diffused slowly;
as late as 1750 only about 5 percent of British pig iron was produced with coke fuel.
The continued rise in the price of charcoal after 1750, however, together with such
innovations as Henry Cort’s puddling and rolling process of 1783-84, finally freed
iron production altogether from reliance on charcoal fuel. (Cort’s process melted bars
of pig iron in a reverberatory furnace, so that the iron did not come in direct contact
with the fuel; the molten iron was then stirred or “puddled” with long rods to help
burn off the excess carbon. Finally, the semimolten iron was run through grooved
rollers, which both squeezed out more impurities and imparted desired shapes to the
bars of wrought iron; see Fig. 7-9.) Ironmasters achieved economies of scale by in-
tegrating all of these operations in one location, usually at or near the site of coal pro-
duction, and both total iron output and the proportion made with coal fuel accelerated
dramatically. By the end of the century iron production had expanded to more than
200,000 tons, virtually all coke-smelted, and Britain had become a net exporter of
iron and iron wares.
Steam power was first employed in the mining industries. As the demand for coal
and metals expanded, so the efforts to obtain them from ever deeper mines intensi-
fied. Many ingenious devices were invented to rid the mines of water, but flooding
remained a major problem, and the chief obstacle to further expansion of output. In
1698 Thomas Savery, a military engineer, obtained a patent for a steam pump, which
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174 A CONCISE ECONOMIC HISTORY OF THE WORLD

FIGURE 7-8. The iron bridge. This bridge over the Severn River near Coalbrookdale, with
girders of cast iron weighing almost 400 tons, was built by Abraham Darby III, the grandson
of the man who first smelted iron with coke, in 1779. It was assembled with interlocking
joints and wedges, without bolts or welding. It still stands today, as shown in this 1986
tourist snapshot. (Rondo Cameron.)

he appropriately called “The Miner’s Friend.” A few of Savery’s pumps were erected
in the first decade of the eighteenth century, mainly in the Cornish tin mines, but the
device had several practical defects—among them a tendency to explode. Thomas
Newcomen, an ironmonger and tinkerer who was familiar with the problems of the
mining industries, set out to remedy these defects by trial-and-error experiments, and
in 1712 succeeded in erecting his first atmospheric steam pump for a coal mine in
Staffordshire (Fig. 7-10).
Newcomen’s engine forced steam from a boiler into a cylinder containing a pis-
ton that was connected by means of a rocking T-beam to a pump. After the steam
forced the piston to the top of the cylinder, a jet of cold water inside the cylinder con-
densed the steam and created a vacuum, allowing the weight of the atmosphere to de-
press the piston and actuate the pump—hence the name atmospheric steam engine.
The Newcomen engine was large (it required a separate building to house it), cum-
bersome, and expensive; but it was also effective, if not thermally efficient. By the
end of the century several hundred had been erected in Britain, and a number on the
Continent as well. They were employed mainly in coal mines, where fuel was cheap,
but also in other mining industries. The engines were also used to raise water to op-
erate waterwheels when the natural fall was inadequate, and for public water supplies.
The major deficiency of the Newcomen engine was its large consumption of fuel
 The Dawn of Modern Industry Wis)

Damper

Chimney ~

Door lifting lever

Side plate : Chimney

Jorki 1
Rhea i ee
Stopper hole
Firebridge
Fire grate Bow! or working are
an Damper
control

Fore plate Cinder tap hole

PUDDLING FURNACE ~— SECTION PUDDLING FURNACE ~ EXTERIOR

FiGuRE 7-9. Cort’s puddling furnace. The puddling furnace was used (along with rolling
mills) to refine high-carbon pig iron into low-carbon bar iron. The puddling furnace and
rolling mill freed the iron industry from reliance on charcoal fuel. (From The Archaeology of
the Industrial Revolution, by Brian Bracegirdle, London, 1974. Reprinted with permission.)

in relation to the work produced. In the 1760s James Watt, a “mathematical instru-
ment maker” (laboratory technician) in the University of Glasgow, was asked to re-
pair a small working model of a Newcomen engine used for demonstration purposes
in the course of natural philosophy. Intrigued, Watt began to experiment with the en-
gine; in 1769 he took out a patent for a separate condenser, which eliminated the need
for alternate heating and cooling of the cylinder. A number of technical difficulties,
including that of obtaining a cylinder sufficiently smooth to prevent the steam from
escaping, still plagued the engine and delayed its practical use for several years. In
the interim Watt formed a partnership with Matthew Boulton, a successful hardware
manufacturer near Birmingham, who provided Watt with the time and facilities for
further experimentation. In 1774 John Wilkinson, a nearby ironmaster, patented a new
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 The Dawn of Modern Industry WI

boring machine for making cannon barrels, which also sufficed for engine cylinders.
The following year Watt obtained an extension of his patent for twenty-five years,
and the firm of Boulton and Watt began commercial production of steam engines. One
of their first customers was John Wilkinson, who used the engine to operate the bel-
lows for his blast furnace. the steam engine
Most of Boulton and Watt’s early engines were used for pumping mines, espe-
cially the tin mines of Cornwall, where coal was expensive and the savings in fuel
consumption compared with the Newcomen engine were considerable. But Watt
made a number of other improvements, among them a governor to regulate the speed
of the engine and a device to convert the reciprocating motion of the piston to rotary
motion. The latter, in particular, opened a host of new applications for the steam en-
gine, such as flour milling and cotton spinning. The first spinning mill to be driven
directly by a steam engine began production in 1785, dramatically hastening a process
of change that was already underway.
The textile industries had already grown to prominence in the “‘preindustrial” era
in Britain under the putting-out system. Manufacturers of woolen and worsted goods
were by far the most important (see p. 114), although linen counted for more in Scot-
land and Ireland than in England and Wales. (In England, corpses were required by
law to be buried in woolen shrouds, whereas in Scotland that privileged status was
reserved for linen.) The silk industry, introduced in the early decades of the eighteenth
century, employed factories and water-powered machinery in imitation of the Italians;
but the demand for silk was restricted by its high cost and continental competition.
The manufacture of cotton cloth, like that of silk, was a relatively new industry
in Great Britain. Introduced into Lancashire in the seventeenth century, probably by
immigrants from the Continent, it was stimulated by the Calico Acts of the early eigh-
teenth century (see pp. 158—159). At first the industry employed the hand processes
used in the woolen and linen industries and, because of the weakness of the yarn, used
linen warps to produce a type of cloth called fustians. Since it was new, cotton man-
ufacture was less subject than other industries to restrictive legislation and guild rules
and to traditional practices that obstructed technical change. Deliberate efforts to in-
vent labor-saving machinery for both spinning and weaving were made as early as
the 1730s. The early spinning machines were not successful, but in 1733 a Lancashire
mechanic, John Kay, invented the flying shuttle, which enabled a single weaver to do
the work of two, thereby increasing the pressure of demand for yarn. In 1760 the So-
ciety of Arts added to the incentive of the market by offering a prize for a successful
spinning machine. Within a few years several devices for mechanical spinning were
invented. The first was James Hargreaves’ spinning jenny, invented in 1764 but not
patented until 1770. The jenny was a relatively simple machine; in fact, it was little
more than a spinning wheel with a battery of several spindles instead of one. It did
not require mechanical power and could be operated in a spinner’s cottage, but it al-
lowed one person to do the work of several.
The water frame, a spinning machine patented in 1769 by Richard Arkwright, had
more general significance. Arkwright, originally a barber and wigmaker, probably did
not invent the water frame himself, and his patent was subsequently voided; but of all
the early textile innovators he was the most successful as a businessman. Because the
water frame operated with water power and was heavy and expensive, it led directly
 178 A CONCISE ECONOMIC HISTORY OF THE WORLD

to the factory system on the model of the silk industry. The factories, however, were
built most often near streams in the country or in small villages, so that they did not
result in concentrations of workers in the cities. Moreover, because water power ac-
tuated the machinery, the early factories required relatively few adult males as skilled
workers and supervisors; most of the labor force consisted of women and children,
who were both cheaper and more docile.
The most important of the spinning inventions was Samuel Crompton’s mule, so
called because it combined elements of the jenny and the frame. Perfected between
1774 and 1779 but never patented, the mule could spin finer, stronger yarn than any
other machine or hand spinner. After it was adapted for steam power, about 1790, it
became the favored instrument for cotton spinning. Like the water frame, it allowed
large-scale employment of women and children; but unlike the frame, it favored the
construction of huge factories in cities where coal was cheap and labor plentiful. Man-
chester, which had only two cotton mills in 1782, had fifty-two twenty years later.
The new spinning machines reversed the pressure of demand between spinning
and weaving, and led to a more insistent search for a solution to the problems of me-
chanical weaving. In 1785 Edmund Cartwright, a clergyman without training or ex-
perience in either mechanics or textiles, solved the basic problem through the appli-
cation of sheer intelligence and took out a patent for a power loom. Many minor
practical difficulties hindered the progress of mechanical weaving, however, and it
was not until the 1820s, when the engineering firm of Sharp and Roberts in Man-
chester built an improved power loom, that machinery began to replace the handloom
weavers in large numbers.
A rapid increase in the demand for cotton accompanied the technical innovations.
Since Britain grew no cotton domestically, the import figures for raw cotton provide
a good indication of the pace at which the industry developed. From less than 500
tons at the beginning of the century, imports rose to about 2,500 tons in the 1770s, on
the eve of the major innovations, and to more than 25,000 tons in 1800. Initially In-
dia and the Levant were the chief sources of supply, but their production did not ex-
pand rapidly enough to satisfy the growing demand. Cotton production began in
Britain’s Caribbean Islands and in the American South, but the high cost of separat-
ing seeds by hand from the short-staple American fibers, even with slave labor, dis-
couraged it until 1793 when Eli Whitney, a New Englander visiting the South, in-
vented a mechanical “gin” (engine). This machine (with improvements) answered the
need so well that the southern United States quickly became the leading supplier of
raw material to what soon became Britain’s leading industry. In 1860 Britain imported
more than 500,000 tons of raw cotton.
The innovations in spinning and weaving, along with the gin, were the most im-
portant but by no means the only innovations affecting the cotton industry. A host of
minor improvements took place in all stages of production, from the preparation of
the fibers for spinning to bleaching, dyeing, and printing. As costs of production fell
and the quantity produced increased, a large and growing percentage of the output
was exported; by 1803 the value of cotton exports surpassed that of wool, and half or
more of all cotton goods, yarn as well as cloth, went to markets overseas.
The drastic reductions in the price of cotton manufactures affected the demand
for wool and linen cloth and provided both incentives and models for technical
in-
 The Dawn ofModern Industry 179

novation. Unlike cotton, however, the latter industries were encrusted with tradition
and regulation, and the physical characteristics of their raw materials also made them
more difficult to mechanize. Innovation in these industries had scarcely begun be-
fore 1800, and they were not fully transformed until the second half of the nineteenth
century.
The technical changes involving cotton textiles, the iron industry, and the intro-
duction of steam power constitute the nucleus of early industrialization in Britain, but
they were not the only industries so affected. Nor did all the changes require the use
of mechanical power. At the very time that James Watt was perfecting the steam en-
gine, his illustrious countryman Adam Smith wrote in the Wealth of Nations of the
great increases in productivity obtained in a pin factory simply by the specialization
and division of labor. In some respects, Smith’s pin factory can be regarded as sym-
bolic of the many industries engaged in the production of consumer goods, from such
simple wares as pots and pans to highly sophisticated ones like clocks and watches.
Another representative industry was the manufacture of pottery. The introduction
of fine porcelain from China led to a fashion among the rich to substitute it for gold
and silver plate, and also provided a model for more utilitarian wares. Simultaneously,
the growing popularity of tea and coffee and the increase in incomes among the mid-
dle classes led them to prefer domestically produced “chinaware” to wooden or
pewter bowls and tableware. As in the iron industry, the rising price of charcoal in-
duced the pottery industry to concentrate in areas well supplied with coal. Stafford-
shire became the preeminent industry site, where hundreds of small masters produced
for a national market. For the most part they relied on an extensive division of labor
to increase productivity, although a few of the more progressive ones, such as Josiah
Wedgwood, came to employ steam engines to grind and mix raw materials.
The chemical industry also underwent significant expansion and diversification.
Some of the advances resulted from the progress of chemical science, especially that
associated with the French chemist Antoine Lavoisier (1743-94) and his disciples.
But even more industrial advance resulted from the empirical experiments of the man-
ufacturers of soap, paper, glass, paints, dyes, and textiles, as they sought to cope with
shortages of raw materials. It is likely that in the eighteenth century chemists learned
as much from the industrial users of chemicals as the latter benefited from chemical
science. (Much the same can be said for other sciences.) Sulfuric acid, one of the most
versatile and widely used of all chemical substances, provides an example. Although
known to alchemists, its production was both expensive and dangerous because of its
corrosive properties. In 1746 John Roebuck, an industrialist who had also studied
chemistry, devised an economical production process using lead chambers; in part-
nership with another industrialist, Samuel Garbett, he began production of sulfuric
acid on a commercial scale. Among other immediate uses, their product was em-
ployed as a bleaching agent in the textile industries in place of sour milk, buttermilk,
urine, and other natural substances. Sulfuric acid in turn was replaced in the 1790s,
when Scottish firms introduced chlorine gas and its derivatives as a bleaching agent,
a discovery of the French chemist Claude Berthollet. By then, however, it had already
achieved many other industrial uses.
Another group of chemicals widely used in industrial processes were the alkalis,
especially caustic soda and potash. In the eighteenth century these were produced by
 180 A CONCISE ECONOMIC HISTORY OF THE WORLD

burning vegetable matter, especially kelp and barilla, but because the supply of these
seaweeds was inelastic, new methods of production were sought. It was another
Frenchman, Nicholas Leblanc, who discovered in 1791 a process for producing al-
kalis using sodium chloride, or common salt. As with Berthollet’s chlorine bleach,
Leblanc’s process was first applied commercially in Great Britain. This “artificial
soda,” as it was called, had many industrial uses in the manufacture of soap, glass,
paper, paint, pottery, and other products, and it also produced valuable by-products
such as hydrochloric acid.
The coal industry, whose growth had been stimulated by the scarcity of timber for
fuel, and had in turn prompted the invention of the steam engine, remained for the
most part a highly labor-intensive industry, although it also required much capital. Its
by-products also proved useful. Coal tar, a by-product of the coking process, replaced
the natural tar and pitch for naval stores when the Napoleonic Wars cut off supplies
from the Baltic, and coal gas lit the streets of London as early as 1812.
The coal mines were also responsible for the first railways in Britain. As mines
went deeper with long underground tunnels, the coals was brought to the main shaft
for hoisting on sledges pulled by women or boys, frequently the wives and children
of the miners. By the 1760s ponies were used underground in some mines, and were
soon pulling wheeled carriages on tracks of metal plates, eventually on rails of cast
or wrought iron. Even earlier, in the seventeenth century, tracks and rails had been
used on the surface in the vicinity of the mines to facilitate haulage, with horses as
the usual draft animals. In the great coalmining regions on the estuary of the Tyne
River, in the vicinity of Newcastle, and in South Wales, rails were laid from the mines
to wharves along the river or sea to which coal carts descended by gravity. The carts
were returned to the mines by horses and, in the early years of the nineteenth century,
by stationary steam engines using cables to pull up the empty carts. By the time of
the first successful locomotive Britain already had several hundred miles of railways.
The steam locomotive was the product of a complex evolutionary process with
many antecedents. The principal ancestor was, of course, the steam engine, as im-
proved by James Watt, yet Watt’s engines were too heavy and cumbersome and did
not generate enough power per unit of weight to serve as locomotives. Moreover, Watt
himself opposed the development of locomotives on grounds of their potential dan-
ger, and discouraged his assistants from working with them. As long as his patent for
the separate condenser was in force (until 1800), effective progress was barred. Apart
from the steam engine itself, the design and construction of locomotive engines re-
quired the development of accurate and powerful machine tools. John Wilkinson,
whose boring machine made it possible for Watt to build his engine, was one of many
talented engineers and machine-makers. Others included John Smeaton (1724-92),
founder of the civil engineering profession, whose innovations brought the efficiency
of both waterwheels and atmospheric steam engines to their peaks. Henry Maudsley
(1771-1831), another in this pantheon, invented a slide-rest screw-cutting lathe about
1797, which made it possible to produce accurate metal parts.
Richard Trevithick (1771-1833), a Cornish mining engineer, deserves credit
for
building the first working locomotive in 1801. Trevithick used a high-pressure engine
(unlike Watt) and designed his locomotive to operate on ordinary roads. Although
technically operable, the locomotive was not an economic success because the roads
 The Dawn of Modern Industry 181

could not bear the weight. In 1804 he built another locomotive to run on a short mine
railway in the South Wales coalfield; again, although the locomotive was successful,
the light cast iron rails could not bear the weight. After a few more such trials Tre-
vithick devoted himself to building pumping engines for the Cornish mines, at which
he was eminently successful.
Although many other engineers, such as John Blenkinsop, contributed to the de-
velopment of the locomotive, George Stephenson (1781-1848), an autodidact, was
the most conspicuously successful. Employed as an engine-wright in the Newcastle
mining district, in 1813 he built a stationary steam engine with cables for hauling
empty coal cars back to the mine from the loading wharves. In 1822 he persuaded the
promoters of the projected Stockton and Darlington Railway, a colliery line, to use
steam rather than horse traction, and on its opening in 1825 he personally drove an
engine of his own design. The Liverpool and Manchester, generally regarded as the
world’s first common carrier railway, opened in 1830. All of its locomotives were de-
signed and built by Stephenson, whose “Rocket” had won the famous Rainhill trials
the previous year.

Regional Variation

In this summary account of the dawn of modern industry the terms Great Britain and
England have been used more or less interchangeably. Most early accounts of the so-
called industrial revolution concentrated on England alone. It is important to recog-
nize, however, the great regional variations in industrialization within England, as
well as the very different courses of economic change within the component parts of
the United Kingdom of Great Britain and Ireland.
Within England, the differential pace of change clearly emphasized the impor-
tance of the coalfields, located mainly in the northeast (especially Tyneside) and the
Midlands, although Lancashire also had important deposits (see Fig. 7-11). Lan-
cashire became almost synonymous with cotton, but it also contained important glass
and chemical works, and the cotton industry had outposts in the East Midlands (Der-
byshire and Nottinghamshire) as well. The iron industry and its many manufacturing
branches concentrated in the West Midlands (Birmingham and the “Black Country,”
Shropshire), South Yorkshire (especially Sheffield), and the northeast (especially
Newcastle, which was also a center of the chemical industry). The woolen industries
tended to concentrate in the West Riding of Yorkshire (especially Bradford and Leeds)
at the expense of the older, preindustrial centers of East Anglia and the West Coun-
try. Staffordshire almost monopolized the pottery industry, and had important iron-
works as well. Cornwall remained the major source of tin and copper, but had few
manufacturing industries as such. Except for the burgeoning metropolis of London,
with its many consumer goods industries (especially brewing), the south remained
primarily agricultural. It was not necessarily poor on that account; it had the most fer-
tile soil and the most advanced agrarian organization, and the growing urban centers;
buoyant demand for food ensured southern farmers and landlords a good return on
their labor and capital. The mainly pastoral extreme north and northwest, on the other
hand, lagged behind most other regions in income and wealth.
 182 A CONCISE ECONOMIC HISTORY OF THE WORLD

Cotton

Wool and
woolens
9 xX \)
NewcastleSy"y
en ‘< J Coal
t
\i.

SQ \ > Iron and steel

Q) Shipbuilding
Yorkshire @
York
49 Mp),
Irish Sea
“Ami = North Sea
OS alls
~~ Sheffield SY,
Cheshire® = CUTLERY \
\ rs .

LEAD e Xe y Boston
Derby _/Nottingham
5 Uh POTTERY Kings yp
ANN ‘¢ Birmingham
| eCoventry
SILK ;
e Cambridge
Ipswich@
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Portsmouth

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English Channel

FIGURE 7-11. English industry in 1800.

Wales, conquered by the English in the Middle Ages, had always been treated as
something of a poor relation. In the latter part of the eighteenth century the extensive
coalfields of South Wales provided the basis for a large iron industry, which by 1800
produced about one-fourth of British iron; but it was oriented to the export trade
and
spawned few subsidiary processing industries. The island of Anglesey contained
im-
portant copper mines, but the ores were smelted mostly in South Wales,
around
Swansea. The northeastern part of the country, adjacent to Cheshire and Lancashire,
benefited slightly from the spillover of their industries; yet most of the interior
of the
country, mountainous and infertile, remained pastoral and poor. The road to
fame and
fortune for ambitious Welshmen lay through England or Scotland. One
who took this
road was Robert Owen, who made a fortune in the cotton industries of
Manchester
 The Dawn of Modern Industry 183

and New Lanark before devoting the remainder of his long life to philanthropic and
humanitarian causes.
Scotland, unlike Wales, maintained its independence from England until the vol-
untary union of the parliaments in 1707. In the mideighteenth century, however, Scot-
land was a poor and backward country. The majority of its sparse population still en-
gaged in near-subsistence agriculture, and in large areas of the Highlands the tribal
system of social and economic organization remained intact. Less than a century later
Scotland stood with England at the forefront of the world’s industrial nations. With less
than one-seventh of the population of Great Britain, Scotland produced more than a
fifth of the value of cotton textiles and more than a fourth of the pig iron. The Carron
Company, established in 1759, was the first large-scale integrated ironworks using
coke fuel anywhere in the world. The Scots also accounted for many of the leading in-
novators and entrepreneurs in the chemical and engineering industries. In short, Scot-
land’s transformation from backward household economy to leading industrial econ-
omy was even more spectacular than the contemporary industrialization of England.
The reasons for Scotland’s remarkable transformation have often been debated.
Its only natural resource of any significance consisted of the coal measures (inter-
mingled with “blackband” iron ore) in the narrow Lowland stretch between the Firth
of Forth and the Firth of Clyde, an area that supported most of Scotland’s urban pop-
ulation and almost all of its modern industries. Scotland’s inclusion in the British Em-
pire after 1707 gave it access not only to English markets, but to those of England’s
colonies in North America and elsewhere, which undoubtedly contributed to the
quickening of the tempo of economic life. The country’s educational system, from
parish schools to its four ancient universities (as compared with only two in England),
created an unusually literate population for the time. Similarly, Scotland’s precocious
banking system, entirely distinct from England’s and virtually free of government
regulation, allowed Scottish entrepreneurs relatively easy access to credit and capi-
tal. Finally, one should not dismiss the fact that Scotland remained without a distinct
political administration, apart from the local governments, from the Treaty of Union
until 1885. Although this situation was deplored by those who felt that a distinctively
Scottish government might have taken more vigorous and effective action to promote
economic growth, it may be that the absence of a central government in Scotland was
a blessing in disguise.
Ireland, in sad contrast to Scotland, failed almost entirely to industrialize. The En-
glish treated Ireland, even more than Wales, as a conquered province. Whether this was
the main or even a determining reason for Ireland’s fate cannot be considered here. The
fact is that the Irish population, like that of Great Britain, more than doubled between
the mideighteenth century and 1840, but without appreciable urbanization or industri-
alization. When the disastrous potato famine struck in the mid-1840s, Ireland lost a
fourth of its population in less than a decade through starvation and emigration.

Social Aspects of Early Industrialization

Table 7-1 indicates the approximate population of Great Britain and of England and
Wales at selected dates between 1700 and 1850. The figures show the rapid rise in
 184 A CONCISE ECONOMIC HISTORY OF THE WORLD

TABLE 7-1. Populations of England and Wales

and Great Britain, 1700—1850 (millions)

1700 1750 1800 1850

England and Wales 5.8 6.2 92 17.8

Great Britain ; -- 74 10.7 20.6

Source: B. R. Mitchell and P. Deane, Abstract of British Historical Statistics (Cam-

bridge, 1962).

population during the early stages of industrialization; a more detailed breakdown

would show that population began to grow in the 1740s after remaining virtually stag-
nant in the first part of the century, that the growth rate accelerated in the 1780s and
reached a maximum in the decade 1811-20, and then declined slightly to 1850.
Britain fully participated in, and possibly even led, Europe’s third logistic.
That the growth of population was not uniquely related to the process of indus-
trialization is supported by the fact that it was a general European phenomenon, not
confined to Great Britain and other industrializing nations. On the other hand, it
would be incorrect to say that there was no relation; the contrasting fates of Britain
and Ireland in the middle decades of the nineteenth century suggest that industrial-
ization was at least a permissive factor in the continued growth of population.
The mechanisms of the growth that occurred in the eighteenth century are imper-
fectly understood, in large part for want of sufficiently detailed information. It is pos-
sible that the birth rate rose somewhat because of earlier marriages, as the growth of
both cottage and factory industries allowed young couples to set up households with-
out waiting for a farmstead or completing an apprenticeship. Even more likely, the
death rate declined because of several interrelated factors: the introduction of the
practice of inoculation against small pox early in the century and vaccination from
1798, improvements in medical knowledge and the establishment of new hospitals,
and, most important, a rise in the standard of living, which was both an effect and a
cause of economic growth. Agricultural progress brought both a greater abundance
and a greater variety of foodstuffs, improving nutrition; increased coal production
made for warmer dwellings; soap production, which doubled in the second half of the
century, indicated a greater awareness of personal hygiene and, together with the
greatly increased output of cheap cotton cloth, contributed to higher standards of
cleanliness.
Immigration and emigration also affected the total population. Throughout the
eighteenth and early nineteenth centuries the greater economic opportunities of En-
gland and Scotland attracted Irish men and women, either temporarily or permanently,
even before the huge influx following the potato famine. Political and religious
refugees also came from continental Europe. On the other hand, more than a million
English, Welsh, and Scots left their homelands for overseas destinations in the eigh-
teenth century, mainly in the British colonies; most went in search of greater eco-
nomic opportunity, but some—delinquent debtors and other classified as criminal
s—
were forcibly deported to America and later to Australia. On balance, Great
Britain
 The Dawn of Modern Industry 185

probably lost more than it gained through international migration in the eighteenth
century.
Even more important for the process of economic growth, internal migration
greatly altered the geographical location of the population. Most of this migration was
for relatively short distances, from the countryside to the growing industrial areas,
but, together with the higher rates of natural increase, it produced two notable changes
in the spatial distribution of the population: (1) a shift in density from the southeast
to the northwest and (2) increasing urbanization.
At the beginning of the eighteenth century the bulk of the population of England
was concentrated south of the Trent River, much of it in about a dozen counties in the
southeastern corner of the country; Wales and Scotland were much less densely pop-
ulated than England. By the beginning of the nineteenth century the most densely pop-
ulated county outside the London metropolitan area was Lancashire, followed by the
West Riding of Yorkshire and four counties including the West Midlands coalfields.
The Lowland belt of Scotland between the Firths of Forth and Clyde and the Tyne-
side coalfield also registered notable gains. This distribution reflected the importance
of coal in the industrializing economy.
In 1700 London, with a population in excess of half a million, was far and away
the largest city in Britain, and probably the largest in Europe. No other British city
exceeded 30,000. By the time of the first census in 1801 London had more than a mil-
lion, and Liverpool, Manchester, Birmingham, Glasgow, and Edinburgh each had
more than 70,000 and were growing rapidly. The census of 1851 officially classified
more than half the population as urban, and by 1901 the proportion had grown to more
than three-quarters.
The growth of cities was not an unmixed blessing. They contained huge ram-
shackle tenements and long rows of miserable cottages in which the families of the
working classes crowded four and even more persons per room. Sanitary facilities
were generally nonexistent, and refuse of all kinds were disposed of by being thrown
into the street. Drainage facilities, where they existed, usually took the form of open
ditches in the middle of the streets, but more often than not rain, wastewater, and
refuse were left to stand in stagnant pools and rotting piles that filled the air with vile
odors and served as breeding ground for cholera and other epidemic diseases. The
streets were mostly narrow, crooked, unlighted, and unpaved.
In part, the deplorable conditions resulted from extremely rapid growth, inade-
quacy of the administrative machinery, lack of experience by local authorities, and
the consequent absence of planning. For example, Manchester grew from a “mere vil-
lage” at the beginning of the eighteenth century to a town of 25,000 in 1770, and to
more than 300,000 in 1850; but it did not secure a charter of incorporation until 1838.
The rapid growth of cities is even more surprising in view of the fact that it resulted
entirely from migration from the countryside; because of the hideous sanitary condi-
tions, the death rate exceeded the birth rate (infant mortality was especially high), and
the rate of natural increase was actually negative. That people consented to live in
such conditions is evidence of the great economic pressures forcing them to move.
Although the agricultural labor force continued to grow until about 1850, the increase
of the rural population was greater than could be absorbed by traditional rural pur-
suits, including cottage industry as well as purely agricultural labor.
 186 A CONCISE ECONOMIC HISTORY OF THE WORLD

An earlier textbook asserted that workers were “forced into the factories by the
lure of high wages.” Such a statement reveals more about the preconceptions of the
author than about the economic conditions of the era. That factory workers received
higher wages than either agricultural laborers or workers in domestic industry there
can be no doubt. This was true not only of the adult male labor force, but of women
and children, too. Many accounts of the so-called industrial revolution in Britain
stress the employment of women and children in the factories, as though it were a
novelty; nothing could be farther from the truth. The employment of women and chil-
dren in both agriculture and domestic industry was a phenomenon of longstanding,
which the factory system merely adopted.
Factories developed first in textiles and spread slowly to other industries. Facto-
ries could pay higher wages because the productivity of labor was higher as a result
of both technological advance and the provision of more capital per laborer. In this
way factories gradually attracted more labor, and the general trend of real wages was
upward. This trend may have been interrupted during the French wars, from 1795 to
1815, when the demands of government finance created an inflationary situation in
which many wage earners fell behind in the growth of real income. The upward trend
of real wages resumed after 1812—13 for most categories of workers, although the pe-
riodic depressions of the era brought distress to workers as a result of unemployment.
For the last century and more a major scholarly debate has raged over the ques-
tion of the standard of living of British workers from the latter part of the eighteenth
century to the middle of the nineteenth century. (There is no dispute that the standard
rose after 1850.) No consensus has been reached, nor is it likely that one will be; the
available data are not conclusive and, more important, it is difficult to assign accu-
rate weights to the changing fortunes of various segments of the population. Some
groups, such as factory workers and skilled artisans, clearly improved their lot; oth-
ers, such as the unfortunate handloom weavers, disappeared as a result of technolog-
ical obsolescence (but of course they went into other occupations).
On balance, it seems likely that there was a gradual improvement in the standard
of living of the working classes in the century from 1750 to 1850, although some
groups probably experienced a setback during the French wars. The debate is further
complicated by the relative changes in the distribution of income and wealth. Most
workers, including even the lowest paid, improved their situation slightly, but the in-
comes of those who depended mainly on rent, interest, and profit rose in greater
pro-
portion. In other words, the inequality of the distribution of income and wealth,
which
was already great in the preindustrial economy, became even greater in the early
stages of industrialization.
 6
Economic Development in the
Nineteenth Century: Basic
Determinants |

The nineteenth century witnessed the definitive triumph of industrialism as a way of

life in Europe, especially western Europe. From their beginnings in Britain, the
forms of modern industry spread across the English Channel and the North Sea to
Belgium, France, Germany, and the other nations of Europe, as well as across the
Atlantic to the United States and, much later, to other areas of the world. In the
process they greatly transformed the conditions of life and work in the affected ar-
eas. The transformations took different shapes in different regions and nations, de-
pending on local circumstances and the timing of the onset of industrialization.
These differences are sketched out in the chapters that follow. In this chapter we con-
sider the broad general tendencies in the basic determinants—population, resources,
technology, and institutions.

Population

After virtual stagnation from the early or midseventeenth century to the mideigh-
teenth century, the population of Europe again began to grow from about 1740 (Fig.
8-1). By 1800 it had risen to almost 200 million, or slightly more than one-fifth of the
estimated world total of approximately 900 million. (More precise—not necessarily
more accurate—figures are given in Table 8-1.) In the nineteenth century population
growth in Europe accelerated, and by 1900 the figure exceeded 400 million, or about
one-quarter of the world total of approximately 1.6 billion. (These figures do not in-
clude the population of European origin overseas, notably in the United States, the
British dominions, and Latin America, which would swell the proportion of European
stock to more than 30 percent of the world total.) Population growth continued in the
twentieth century, although the rate of growth in Europe decelerated slightly while
that of the rest of the world increased. By 1950 Europe’s population had increased to
more than 550 million in a world total of almost 2.5 billion.
Such rates of increase, in both Europe and the world as a whole, were unprece-
dented. Apart from short-term fluctuations (which could sometimes be severe, as dur-

187
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 Economic Development in the Nineteenth Century: Basic Determinants 189

TABLE 8-1. Growth of Population (millions)

1800 1850 1900 1950

Europe 187.0 266.0 401.0 559.0

United Kingdom 16.1 Diles) 41.8 50.6
Great Britain“ 10.7 20.9 Oia
Ireland 52; 6.5 4.5
Germany 24.6 35.9 56.4 69.0?
France Niles) 35.8 39.0 41.9
Russia 37.0 60.2 111.0 193.0°
Spain 10.5 na 16.6 28.3
Italy 18.1 24.3 325 46.3
Sweden 2.3 3:5 orl 7.0
Belgium na 4.3 6.7 8.6
Netherlands na Ball Spill 10.0
North America 16.0 39.0 106.0 217.0
United States 38) 23.2 76.0 Neatsy
South America 9.0 20.0 38.0 111.0
Asia 602.0 749.0 937.0 1302.0
Africa 90.0 95.0 120.0 198.0
Oceania 2.0 2.0 6.0 13.0
World total 906 1171 1608 2400

“Census dates, 1801, 1851, and 1901.

>West Germany.
“1946.
Sources: W. S. Woytinsky and E. S. Woytinsky, World Population and Production: Trends and Outlook. (New York, 1953),
pp. 34 and 44. Great Britain and Ireland from B. R. Mitchell and P. Deane, Abstract of British Historical Statistics
(Cambridge, 1962), pp. 8-10.

ing the Black Death), world population had doubled approximately every thousand
years from the invention of agriculture until the end of the eighteenth century. In the
nineteenth century the population of Europe doubled in less than a hundred years,
and in the twentieth century even that rate has been exceeded for the world as a
whole. At present rates of natural increase, world population will double in twenty-
five or thirty years.
During the nineteenth century Britain and Germany, the two most important in-
dustrial nations in Europe, had growth rates in excess of | percent per year. (A con-
stant rate of 1 percent would result in a doubling of the population in about seventy
years.) Russia, on the other hand, one of the least industrialized countries in Europe,
had the highest growth rate of any major European country—about 2 percent on av-
erage for the entire century. France, another important industrial country, which had
the largest population in western Europe at the beginning of the century, lagged far

FiGurE 8-1 (left). Top: Population densities in Europe, about 1750. Bottom: Population
densities in Europe, about 1914. (From Figures 1.9a and 1.13b, in Atlas of World Population,
by Colin McEvedy and Richard Jones. Penguin Books, 1978. Copyright © 1978 by Colin
McEvedy and Richard Jones.)
 190 A CONCISE ECONOMIC HISTORY OF THE WORLD

behind the others, especially in the second half of the century; for the century as a
whole its growth rate averaged only about 0.4 percent per year.
There is thus no clear correlation between industrialization and population
growth. Other causal factors must be sought. Before improvements in transportation
that permitted the large-scale importation of foodstuffs from overseas in the last quar-
ter of the nineteenth century, one major constraint on population growth was Europe’s
own agricultural resources. Agricultural production increased enormously during the
century, for two reasons. First, the amount of land under cultivation was extended.
This was especially important in the case of Russia, which had vast tracts of vacant
land, and also in other parts of eastern Europe and Sweden. Even in western Europe,
however, more land was made available by the abolition of fallow and the cultivation
of formerly marginal lands or wastelands. Second, agricultural productivity (output
per worker) increased because of the introduction of new, more scientific techniques.
Better knowledge of soil chemistry and an increased use of fertilizer, at first natural,
then artificial, increased yields on ordinary soils and made possible the cultivation of
former wasteland. The lower cost of iron promoted the use of improved, more effi-
cient tools and implements. Agricultural machinery, such as steam-driven threshers
and mechanical reapers, debuted in the second half of the century.
Cheap transportation also facilitated the migration of the population. As in
Britain, the migration was of two types: internal and international. Altogether, about
60 million left Europe between 1815 and 1914. Of these, almost 35 million went to
the United States, and an additional 5 million to Canada. Some 12 or 15 million went
to Latin America, chiefly Argentina and Brazil. Australia, New Zealand, and South
Africa took most of the rest. The British Isles (including Ireland) supplied the largest
number of emigrants, about 18 million. Large numbers also left Germany, the Scan-
dinavian countries, and after about 1890, Italy, Austria-Hungary, and the Russian Em-
pire (including Poland). Migration within Europe was also substantial, although
in
some cases it was only temporary. Large numbers of Poles and other Slavic and Jew-
ish peoples moved west into Germany, France, and elsewhere. France attracted
Ital-
ians, Spanish, Swiss, and Belgians, while England obtained immigrants
from all of
Europe. In the east the tsar settled about 1.5 million peasant families in Siberia
be-
tween 1861 and 1914, in addition to many criminals and political deportees.
Except for the latter, the migrations were mostly voluntary. In a few cases
the mi-
grants fled from political persecution or oppression, but the majority
moved in re-
sponse to economic pressure at home and opportunities for a better
life abroad. In the
eight years following the Great Famine of 1845, for example, more
than 1.2 million
people left Ireland for the United States, and many more crossed
the Irish Sea to
Britain. New and nearly empty lands overseas, such as
Canada, Australia, and New
Zealand, attracted a steady stream of immigrants, most of
them from the British Isles.
Relatively large numbers of Italians and Germans migrated to
what became the eco-
nomically most progressive countries of South America.
Internal migration, although less dramatic, was even
more basic to the process of
economic development in the nineteenth century. Important
regional shifts in the con-
centration of population took place in all countries, but the
most fundamental change
was the growth of the urban population, both in toto and
as a percentage of the total.
 Economic Development in the Nineteenth Century: Basic Determinants 191

At the beginning of the nineteenth century England was already the most urbanized
nation, with about 30 percent of its population living in agglomerations of 2,000 in-
habitants or more. The Low Countries, with a long urban tradition, probably had a
similar proportion (the province of Holland, dominated by the metropolis of Amster-
dam, was above 50 percent). Italy, also with a long urban tradition, had suffered a de-
population of its major cities in the early modern period, and by the beginning of the
nineteenth century the urban population probably amounted to no more than one-
fourth or one-fifth of the total. Similar proportions obtained in France and western
Germany, whereas in most of the rest of Europe, and elsewhere in the world, the ur-
ban population amounted to no more than 10 percent of the total.
Urbanization, along with industrialization, proceeded apace in the nineteenth cen-
tury. Britain once again led the way. By 1850 more than half the British population
lived in towns and cities of more than 2,000 inhabitants, and by 1900 the proportion
reached three-quarters. By that time most of the other industrial nations were at least
50 percent urbanized, and even the predominantly agrarian nations showed a strong
tendency to urbanization. For example, in the Russian Empire, which as a whole had
no more than 12.5 percent of its population living in urban agglomerations, Moscow
and St. Petersburg could nevertheless boast populations of 1 million or more.
The population of industrial countries not only lived in cities, it preferred the
largest cities. For example, in England and Wales the proportion of the population liv-
ing in small towns (2,000 to 20,000 inhabitants) has remained roughly constant, at
about 15 percent, from the beginning of the nineteenth century to the present, whereas
the proportion in the large cities (over 20,000 inhabitants) has risen from 27 percent
to more than 70 percent. In 1800 there were barely twenty cities in Europe with pop-
ulations of as much as 100,000, and none in the Western Hemisphere; by 1900 there
were more than 150 such cities in Europe and North America, and by 1950 more than
600. In the midtwentieth century there were more cities with a population in excess
of 1 million (sometimes greatly in excess) than there were cities with a population of
100,000 in 1800.
There are many social and cultural reasons for people wanting to live in cities.
Historically, the chief limitation on the growth of cities has been economic—the im-
possibility of supplying large urban populations with the necessities of life. With the
technological improvements of modern industry not only were these limitations re-
laxed, but in some cases economic considerations required the growth of cities. In
preindustrial societies most of even the nonagricultural population lived in rural ar-
eas. It was cheaper to carry the finished products of industry, such as textiles and iron,
to distant markets than to carry food and raw materials to concentrations of workers.
The introduction of steam power and the factory system, the transition from charcoal
to coke as fuel for the iron industry, and the improvements in transportation and com-
munications changed the situation. The rise of the factory system necessitated a con-
centration of the work force. Because of the new importance of coal, some of the
largest centers of industry arose on or near the sites of coal deposits—the Black Coun-
try of England, the Ruhr area in Germany, the area around Lille in northern France,
and the Pittsburgh area in America. These examples also underline the importance of
resources in modern economic growth.
 192 A CONCISE ECONOMIC HISTORY OF THE WORLD

®e, Bituminous coal

>. Brown coal and lignite

FIGURE 8-2. Coalfields of Europe. (From An Historical Geography of Europe 1800-191

4,
by Norman J. G. Pounds. Copyright © 1985 by Cambridge Universit
y Press. Reprinted with
permission.)

Resources

Industrial Europe did not experience any magical increase in the

quantity or quality of
its natural resources, compared with preindustrial Europe,
but, as a result of techno-
logical change and the pressure of increased demand, resource
s that were formerly un-
known or of little value suddenly acquired enormous, even
critical, importance. This
was notably the case for coal, and those regions of Europe
endowed with plentiful coal
deposits became the primary sites of heavy industry in the
nineteenth century (Fig. 8-
2). Regions without indigenous coal supplies had to import
coal, although, of course,
they also continued to rely on their traditional sources of
water and wind power. In the
late nineteenth century, with the introduction of
hydroelectricity, those regions that
were abundantly supplied with water power, such as Switzerl
and, parts of France, Italy,
and Sweden-Norway, obtained a new source of comparative
advantage.
Europe as a whole was relatively well endowed with
conventional mineral re-
 Economic Development in the Nineteenth Century: Basic Determinants 193

sources, such as iron ore, other metallic ores, salt, and sulfur. Some of these, such as
the tin of Cornwall, had been exploited from antiquity, and most of the others had
been tapped to a limited extent in the Middle Ages and early modern times, but the
demands of modern industry greatly intensified the pressure for their use. This re-
sulted in a systematic search for previously unknown sources, and scientific and tech-
nological research to enhance their exploitation. In some cases, as domestic sources
were exhausted, the search for new supplies extended overseas, where European cap-
ital and technology facilitated the opening of new territories, as in the American West,
the British dominions, and parts of Latin America. Increasingly in the later nineteenth
century the search for raw materials, in addition to other motives, led the European
nations to extend political control over the poorly organized or weakly ruled areas of
Africa and Asia.

The Development and Diffusion of Technology

Simon Kuznets, a Nobel Prize winner in economics, referred to the period in which
we live as the “modern economic epoch.”’! According to him, an economic epoch is
determined and shaped by the applications and ramifications of an “epochal innova-
tion.” For example, in his view the epochal innovation of the early modern period of
European history was the development of navigational and related techniques that
permitted the discovery of America and of an all-water route to the Orient, achieve-
ments that Adam Smith, writing in 1776, called “the two greatest and most important
events recorded in the history of mankind.”* According to Kuznets (and no doubt
Smith would have agreed), a large part of the economic history—and even the polit-
ical, social, and cultural history —of the years from 1492 to 1776 can be explained
by reference to the progress of exploration and discovery, maritime commerce and
growth of navies, and related phenomena.
The present (modern) economic epoch, in Kuznets’ terms, began in the latter half
of the eighteenth century, and the epochal innovation he associated with it is “the ex-
tended application of science to problems of economic production.”* As noted in the
previous chapter, scientific knowledge as such had only limited applications in eco-
nomically productive processes in the eighteenth, or even in the first half of the nine-
teenth century. That period in technological history from the early eighteenth century
to approximately 1860 or 1870 is best regarded as the era of the artisan inventor.
Thereafter, however, scientific theories increasingly formed the basis of production
processes, notably in such new industries as electricity, optics, and organic chemicals;
but they also greatly influenced technical developments in metallurgy, power pro-
duction, food processing and preservation, and agriculture, to mention only the most
prominent fields.
In analyzing the process of technological change in any period of history, but es-

! Simon Kuznets, Modern Economic Growth: Rate, Structure, and Spread (New Haven, CT, 1966),
Chap. 1.
2 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Glasgow ed.), R. H.
Campbell and A. S. Skinner, eds. (Oxford, 1976), II, p.626.
3 Kuznets, Modern Economic Growth, p.9.
 194 A CONCISE ECONOMIC HISTORY OF THE WORLD

pecially in the modern economic epoch, it is wise to bear in mind the distinctions be-
tween three closely related but conceptually different terms: invention, innovation,
and diffusion of new technology. Invention, in terms of technology, refers to a
patentable novelty of a mechanical, chemical, or electrical nature. In and of itself, in-
vention has no particular economic significance. Only when it is inserted into an eco-
nomic process—that is, when it becomes an innovation—does it assume economic
significance. For example, James Watt’s invention of the separate condenser for the
Newcomen steam engine, which he patented in 1769, played a negligible role in the
economy until, in partnership with Matthew Boulton, he began to produce and mar-
ket steam engines commercially in 1776. Diffusion refers to the process by which an
innovation spreads, within a given industry, between industries, and internationally
across geographical frontiers. Diffusion is by no means an automatic process of repli-
cating the initial innovation; because of the different requirements of different indus-
tries, different factor proportions in different environments and cultural differences
among nations, it may face problems similar to those connected with introducing an
original innovation.
The industrial superiority that Great Britain had achieved by the first quarter of
the nineteenth century rested on technological advances in two major industries, cot-
ton textiles and iron manufacture, supported by an extensive use of coal as an in-
dustrial fuel and by the growing use of the steam engine as a source of mechanical
power. The mechanization of cotton spinning was virtually complete by 1820, mak-
ing it the first modern factory industry, while that of weaving had scarcely begun.
The other principal textile industries, wool and linen, had also just begun to mech-
anize, although they, along with cotton weaving, made rapid strides in the next sev-
eral decades. The iron industry had completed the transition to coke smelting of
iron
ore and the use of the puddling process and rolling mills for refining the product
of
the blast furnace. Coal was used extensively not only to fire steam engines, blast
fur-
naces, and puddling furnaces, but also as fuel in a number of other industries, such
as glass manufacture, salt refining, brewing, and distilling. Steam engines
provided
power for textile factories and iron foundries, and for actuating pumps in
coal and
tin mines; they were also used less extensively in flour mills, pottery factories,
and
other industries.
In the next half century—that is, until about 1870—the efforts of
many continen-
tal industrialists, sometimes abetted by their governments, were devoted
to acquiring
and naturalizing the technological gains of British industry. Some details
of these ef-
forts are related in the chapters devoted to individual countries
. Meanwhile, however,
the pace of technological change accelerated and spread to many industries
not previ-
ously affected by science-based (or science-influenced) technology.
Indeed, some pre-
viously nonexistent industries were created de novo as a result of
scientific discoveries.
The textile industries, together the largest employers of labor
and the most im-
portant in terms of value of output of any manufacturing
industry in almost every
country, underwent numerous minor technical improvements
as they expanded out-
put enormously. Many innovations were the work of continen
tal and American in-
dustrialists, as they sought to achieve or surpass the technica
l efficiency of their
British rivals. Overall, however, there were no major technica
l breakthroughs com-
parable to the remarkable series of innovations in the last
third of the eighteenth cen-
 Economic Development in the Nineteenth Century: Basic Determinants 195

tury. Such was not the case in other industries, however. Many of the most revolu-
tionary technical developments occurred long after the conventional dates for the in-
dustrial revolution in Britain.

Prime Movers and Power Production

When Watt’s basic patent expired in 1800 fewer than 500 of his engines were at work
in Britain and only a few dozen on the Continent. As fundamental as his contributions
were to the evolution of steam technology, Watt’s engines had many limitations as in-
dustrial prime movers. In the first place, their thermal efficiency was quite low, gen-
erally less than 5 percent (that is, they extracted less than 5 percent of the theoreti-
cally possible work from the heat energy consumed). On average, they generated only
about 15 horsepower, scarcely more than a moderately efficient windmill or water-
wheel. They were also heavy, clumsy, and subject to numerous breakdowns. Finally,
they worked at relatively low pressure, only a few pounds above atmospheric pres-
sure, which greatly limited their effectiveness. Several reasons accounted for their
limited usefulness, among them imperfect scientific knowledge, insufficient strength
of the metals used in their construction, and lack of accurate tools.
The next fifty years witnessed many important developments in steam engine
technology. Lighter, stronger metals, more accurate machine tools, and better scien-
tific knowledge, including mechanics, metallography, calorimetry, and the theory of
gases as well as the embryonic science of thermodynamics, all contributed. Although
it is likely that scientists learned more from the steam engine—culminating in
Helmholtz’s formulation in 1847 of the first law of thermodynamics—than they con-
tributed to it, their contributions were not negligible. The first advances, however,
came from practical mechanics and engineers such as the Cornishman Richard Tre-
vithick and the American Oliver Evans, who constructed and experimented with high-
pressure engines, which Watt regarded as both unsafe and impractical. These and
other experiments led to the use of steam engines to propel steamboats and locomo-
tives, with profound consequences for the transportation industry. Many engines were
used in industry as well. By 1850 France had more than 5,000 fixed or stationary en-
gines, Belgium more than 2,000, Germany almost 2,000, and the Austrian Empire
about 1,200. Although exact figures are not available, it is probable that Great Britain
had more steam engines than all the continental countries combined. As early as 1838
the textile industries alone (which were, however, the largest users) had more than
3,000. In comparison, the United States in 1838 had fewer than 2,000 stationary steam
engines in all its industries.
The power and efficiency of engines had increased greatly, as well. Engines pro-
ducing 40 to 50 horsepower were common, and some produced more than 250. Ther-
mal efficiency was three times more than that of the best Watt engines. Compound,
double- and triple-acting engines were introduced. By 1860 large compound marine
engines could develop more than 1,000 horsepower.
Technological progress also occurred in the case of the steam engine’s chief early
competitor, the waterwheel. From the 1760s on, while Watt was experimenting with
and improving the steam engine, other engineers and inventors turned their attention
to improving the waterwheel. They introduced new, more efficient designs and, as a
 196 A CONCISE ECONOMIC HISTORY OF THE WORLD

result of the fall in the price of iron, large all-metal wheels came into widespread use.
By the early decades of the nineteenth century some very large wheels could gener-
ate more than 250 horsepower. Moreover, in the 1820s and 1830s French scientists
and engineers invented and perfected the hydraulic turbine, a highly efficient device
for converting the force of falling water into useful energy. It is not widely appreci-
ated, but water power reached its peak use (apart from the generators of electricity,
which came later) in the third quarter of the nineteenth century. It was only after about
1850, and more noticeably after 1870, that steam power clearly outdistanced its rival.
By the end of the nineteenth century the effective limits of the reciprocating steam
engine had been reached, with some triple-expansion marine engines capable of gen-
erating 5,000 horsepower. Even these huge installations, however, were inadequate
for the newest use of steam power, the generation of electricity. For one thing, the
maximum rotational velocity of the crankshaft that a reciprocating engine could pro-
duce was too low for the much higher velocities required by a dynamo, or electrical
generator. In addition, the vibrations of the reciprocating engine were inimical to ef-
ficient generation ofelectricity. The solution to these problems was found in the steam
turbine, developed in the 1880s by the British engineer, Charles A. Parsons, and the
Swedish inventor, Gustav de Laval. Progress with this new device was rapid, and by
the early decades of the twentieth century it was possible to generate more than
100,000 kilowatts from a single installation.
Electrical phenomena had been observed in early times, but as late as the eigh-
teenth century electricity was regarded as simply a curiosity. Toward the end of that
century the researches of Benjamin Franklin in America and of the Italians Luigi Gal-
vani and Alessandro Volta, who invented the voltaic pile or battery, raised it from the
status of a parlor trick to a laboratory pursuit. In 1807 Sir Humphry Davy discovered
electrolysis, the phenomenon by which an electric current decomposes the chemical
elements in certain aqueous solutions, which gave rise to the electroplating industry.
The next phase in the study of electricity was dominated by Davy’s student Michael
Faraday, the Danish physicist Hans Oersted, and the French mathematician André
Ampeére. In 1820 Oersted observed that an electric current produces a magnetic field
around the conductors, which led Ampére to formulate a quantitative relationship be-
tween electricity and magnetism. Between 1820 and 1831 Faraday discovered
the
phenomenon of electromagnetic induction (the generation of an electrical current
by
revolving a magnet inside a coil of wire) and invented a primitive, hand-operated gen-
erator. Building on these discoveries, Samuel Morse developed the electric telegraph
in America between 1832 and 1844. But the industrial use of electricity was
held up
by the difficulties involved in devising an economically efficient generator.
Scientists and engineers experimented with a variety of devices to generate
elec-
tricity, and in 1873 a papermaker in southeastern France attached his
hydraulic tur-
bine, which drew water from the Alps, to a dynamo. This apparentl
y simple innova-
tion had important long-range consequences, for it enabled regions
poor in coal but
rich in water power to supply their own energy requirements. The
invention of the
steam turbine in the following decade freed the generation of electricit
y from water
power sites and shifted the energy balance back toward coal and
steam. Nevertheless,
the development of hydroelectric power became tremendously
important for coal-
short countries previously in the backwaters of industrial developm
ent.
 Economic Development in the Nineteenth Century: Basic Determinants 197

A host of practical applications for electricity were developing contemporane-

ously. Electricity had been used in the new electroplating industry and in telegraphy
since the 1840s. Lighthouses began to use electric arc lamps in the 1850s, and by the
1870s arc lamps were used in a number of factories, stores, theaters, and public build-
ings. The perfection of the incandescent electric lamp almost simultaneously between
1878 and 1880, by Joseph Swan in England and Thomas Edison in the United States,
made arc lighting obsolete and inaugurated a boom in the electrical industry. For sev-
eral decades electricity competed hotly with two other recently perfected illuminants,
coal gas and kerosene.
Electricity has many other uses than illumination. It is one of the most versatile
forms of power available. In 1879, the same year that Edison patented his electric
lamp, Werner von Siemens of Germany invented the electric tram, or streetcar, with
revolutionary consequences for mass transportation in the burgeoning metropolises
of the time. Within a few years electric motors had found dozens of industrial appli-
cations, and inventors were even beginning to think of household appliances. Elec-
tricity can also be used to produce heat, and in this way came to be employed in the
smelting of metals, notably the recently discovered aluminum.
Petroleum is another major energy source that came into prominence in the sec-
ond half of the nineteenth century. Although it had been known and used early through
accidental discoveries, its commercial exploitation began with the drilling of Drake’s
well at Titusville, Pennsylvania, in 1859. Like electricity, liquid petroleum and its by-
product, natural gas, were at first used primarily as illuminants. Crude petroleum con-
sists of several components, or “fractions.” Of these kerosene was at first considered
the most valuable because of its suitability for oil lamps. Other fractions were used
as lubricants, the demand for which grew rapidly with the spread of machinery with
moving parts, and for medicinal purposes. The heavier, residual fractions, at first
treated as waste products, eventually were used in household and industrial heating,
in competition with coal and other traditional energy sources. The highest, most
volatile fractions, naptha and gasoline, were long regarded as dangerous nuisances.
Meanwhile, however, a number of inventors and engineers, notably the Germans
Nikolaus Otto, Karl Benz, and Gottfried Daimler, were experimenting with internal
combustion engines. By 1900 a variety of such engines were available, most of which
used as fuel one of the several distillates of liquid petroleum, such as gasoline and
diesel oil. By far the most important use for the internal combustion engine was in
light transport facilities such as automobiles, motor trucks, and buses; in the hands of
such entrepreneurs as the Frenchmen Armand Peugeot, Louis Renault, and André Cit-
roen, the Englishman William Morris, and the American Henry Ford, it gave rise to
one of the twentieth century’s major industries. The internal combustion engine also
had industrial applications, and in the twentieth century it made possible the devel-
opment of the aircraft industry.

Cheap Steel
By the beginning of the nineteenth century coke smelting and the puddling process
for producing pig iron and refining it into wrought iron were virtually universal in
Britain, giving British ironmasters a competitive advantage over their foreign coun-
198 A CONCISE ECONOMIC HISTORY OF THE WORLD

terparts. In the latter part of the eighteenth century attempts had been made in both
France and Prussian Silesia, under royal patronage, to introduce coke smelting, but
neither was economically successful, and in the turmoil of the Revolutionary and
Napoleonic wars no further experiments were conducted. With the return of peace af-
ter 1815, continental ironmasters rushed to adopt the puddling and rolling method for
converting pig iron to wrought iron, but, because of the different relative prices of
charcoal and suitable coking coal on the Continent and in Britain, they were slower
to adopt coke smelting. The first successful coke-fired blast furnaces on the Conti-
nent were built in Belgium (then a part of the kingdom of the United Netherlands) in
the latter 1820s; a few French ironmasters adopted coke in the 1830s and 1840s, but
the process did not become predominant until the 1850s. Germany was even slower
to adopt coke smelting, with the great rush occurring in the 1850s. In the United
States, with its abundant supplies of timber for charcoal, and an alternative to coke in
the form of eastern Pennsylvania’s anthracite coal, coke smelting was not widely
adopted until after the Civil War. Elsewhere in Europe—in Sweden, the Austrian Em-
pire, Italy, and parts of Russia—small charcoal-fired industries hung on tenaciously.
The only major technical innovation in the iron industry in the first half of the
nineteenth century was the hot blast, patented by the Scottish engineer James B.
Neilson in 1828. By using waste gases to preheat the air used in the blast furnace,
the hot blast brought about more complete combustion of the fuel, lowered fuel con-
sumption, and sped up the smelting process. It was quickly adopted by ironmasters
in Scotland, on the Continent, and even in the United States, but more slowly in En-
gland and Wales.
The most dramatic technological innovations affecting the iron industry, occur-
ring in the second half of the century, concerned the manufacture of steel. Steel is
actually a special variety of iron; it contains less carbon than cast iron, but more than
wrought iron. As a result, it is less brittle than the former, but harder and more durable
than the latter. It had been made for many centuries, but in small quantities at high
cost, so that its use was limited to such quality products as files, watch springs, sur-
gical instruments, swordblades, and fine cutlery. In 1856 Henry Bessemer, an En-
glish inventor, patented a new method for producing steel directly from molten iron,
eliminating the puddling process and yielding a superior product (Fig. 8-3). The out-
put of Bessemer steel increased rapidly and soon displaced ordinary iron for a vari-
ety of uses. The Bessemer process did not always yield a uniformly high grade of
steel, however, and could not be used with phosphorus-bearing iron ores. To remedy
the former defect, in the 1860s a father-and-son team of French metallurgists, Pierre
and Emile Martin, and the Siemens brothers, Friedrich in Germany and William in
England, developed the open hearth, or Siemens-Martin, furnace. It was slower and
somewhat more costly than the Bessemer process, but produced a higher-quality
product. In 1878 two English cousins, Sidney G. Thomas and Percy C. Gilchrist,
patented the “basic” process (so named because it used limestone or other basic ma-
terials to line Bessemer’s converter or the open hearth furnace to neutralize the acidic
phosphorus in the ore), which permitted the use of the plentiful phosphorus-bearing
iron ores. As a result of these and other innovations, the annual world production of
steel rose from less than half a million tons in 1865 to more than 50 million tons on
the eve of World War I.
 Economic Development in the Nineteenth Century: Basic Determinants 199

‘SONA AMERAARRR EH!

ToMMARHUUOTAN
A
“ANNA

FIGURE 8—3. The Bessemer converter, which produced steel “without fuel” by blowing air
through molten iron to burn off excess carbon: (a) Turned down for charging; (b) blowing;
and (c) turned down for tapping. (From The Archaeology of the Industrial Revolution, by
Brian Bracegirdle, London, 1974. Reprinted with permission.)

The expansion of the steel industry had a profound impact on other industries,
both those that supplied the steel industry (such as coal) and those that used steel.
Steels rails for railways lasted longer and were safer than iron ones. Steels plates for
shipbuilding resulted in larger, lighter, faster ships and could also be used as heavy
armor for warships. The use of steel beams and girders made it possible to build sky-
scrapers and a variety of other structures. Steel soon replaced iron and wood in tools,
toys, and hundreds of other products ranging from steam engines to hairpins.

Transport and Communications

The steam locomotive and its adjuncts, iron (or steel) railways, more than any other
technological innovation of the nineteenth century, epitomized the process of eco-
nomic development (Fig. 8-4). They were both the symbols and the instruments of
industrialization. Before the railway inadequate transportation facilities constituted a
major obstacle to industrialization in both continental Europe and the United States.
Lacking Britain’s endowment of natural waterways and handicapped by greater dis-
FIGURE 8-4. Steam locomotives. The steam locomotive epitomized nineteenth-century
technology, and its evolution was rapid, from the “Rocket” (top) of 1829 to the huge freight
locomotives (bottom) of the early twentieth century so prevalent in the United States. (The
Rocket from the Science Museum, London; locomotive from The Railroad Scene, by
William D. Middleton, New York, 1927.)

200
 Economic Development in the Nineteenth Century: Basic Determinants 201

TABLE 8-2. The Growth of Railways

(length of railway open, in kilometers)

Country 1840 1870 1914

Austria-Hungary 144 6,112 22,9814
Belgium 334 2,897 4,676
Denmark 0 770 3,951
Finland 0 483 3,683
France 410 15,544 37,400
Germany 469 18,876 61,749
Italy 20 6,429 19,125
Netherlands iy) 1,419 3,339
Norway 0 359 3,165
Russia 27 10,731 62,300
Spain 0 5,295 15,256
Sweden 0 1727 14,360
Great Britain 2,390 21,558? 32,623
United States 4,510 84,675 410,475
41913;
61871.

Sources: B. R. Mitchell, European Historical Statistics, 1750-1970 (New York, 1975),

pp. 582-84. United States figures from Historical Statistics of the United States,
Colonial Times to 1957 (Washington, 1960), pp. 427, 429.

tances to cover, continental and American industrialists found themselves pent up in

local markets that offered little scope for extensive specialization and expensive cap-
ital equipment. The railway and, to a lesser extent, the steamship changed that state
of affairs. Railways offered cheaper, faster, more dependable transportation; also, dur-
ing the period of their construction, from roughly 1830 until the end of the century,
their demands for iron, coal, timber, bricks, and machinery proved a potent stimulus
to the industries that supplied them.
As noted in the previous chapter, by the end of the eighteenth century British coal-
fields had many miles of railways on which wagons were propelled by gravity, horse-
power, and human beings. The opening of the Stockton and Darlington Railway in
1825 heralded the railway age, and the Liverpool-Manchester Railway, the first de-
signed specifically for steam locomotion and as a common carrier, inaugurated it in
1830. Thereafter the British railway network developed rapidly. Britain had both the
technical expertise and the reservoirs of capital needed for construction; Parliament,
under the influence of liberal ideas on economic policy that had recently triumphed,
readily granted charters to private joint-stock companies. Frenzies of both speculation
and construction resulted (“manias,” as they were called), inevitably punctuated by fi-
nancial crises. Nevertheless, by 1850 Britain had constructed more than a fourth of its
eventual network, almost as much as the rest of Europe combined (see Table 8-2).
N = tO A CONCISE ECONOMIC HISTORY OF THE WORLD

France, Austria, and the United States had short, horsedrawn railways by 1830
(and France even had a few miles of steam railways), but the United States outstripped
even Britain and rivaled all of Europe in the construction of railways. It drew on Eu-
ropean capital and suppliers as well as on the abundant enthusiasm of private pro-
moters and state and local governments to span the vast distances of the country.
Many of the railways were cheaply constructed, however, and were built to widely
varying standards.
Belgium made the best early showing of any continental country in railway plan-
ning and construction. Rejoicing in its newly won independence (from the United
Netherlands), the middle-class government resolved to build a comprehensive net-
work at state expense to facilitate the export of Belgian manufactures and win the
transit trade of northwestern Europe. The first section, and the first wholly steam-op-
erated railway on the Continent, opened in 1835. Ten years later the basic state-owned
network was complete, after which the job of providing branch and secondary lines
was turned over to private enterprise.
France and Germany were the only other continental nations to make significant
railway progress by midcentury. Germany, although divided into several independent
and rival states, achieved the most. Beginning with the short Nuremberg-Fiirth line
in 1835, construction took place at varying but generally rapid rates in several of the
states. Some followed a policy of state ownership and operations; others left railways
to private enterprise, though usually with subsidies. Still others allowed both state and
private enterprise. Although France had a centralized government and by 1842 acom-
prehensive railway plan centered on Paris, it built more slowly. Parliamentary wran-
gling over the question of state or private enterprise and sectional conflicts over the
location of the main lines held up the railway era in France until the coming of the
Second Empire. After 1852 construction proceeded rapidly.
Elsewhere progress was minimal before midcentury. The first railway in the Aus-
trian Empire, a horse-powered line in Bohemia from Budweiss to Linz, dated from
the 1820s. In 1836 the government granted a concession for the first steam railway to
a private company sponsored by the Rothschild family, but in 1842 the state under-
took to construct railways for its own account, a policy that continued until financial
difficulties in the following decade forced the state to dispose of its railways to pri-
vate companies. By midcentury only some 1,700 kilometers of state and private rail-
ways were in operation, and those almost exclusively in Bohemia and the German-
speaking portions of the empire.
The Netherlands had a flurry of activity in the late 1830s and early 1840s, which
linked the major cities, but the financial results were poor and the railways fell into
disfavor. The excellent Dutch canals and the few brick highways across the flat coun-
tryside were adequate for the needs of internal commerce. The Netherlands still lived
by the sea and maintained communication with the interior by the Rhine and Meuse
rivers. The railway network did not connect with that of the rest of Europe until 1856.
A few short railways had been constructed in the Italian peninsula in the 1830s
and 1840s, but, divided as the country was among several petty, impoverished prin-
cipalities, railways made little progress until the advent of the statesman Camillo de
Cavour in the kingdom of Sardinia in the 1850s. Switzerland and Spain had both in-
 Economic Development in the Nineteenth Century: Basic Determinants
203

augurated short lines in the 1840s, but, as in Italy, serious construction did
not begin
until the 1850s.
The government of the tsar, after connecting the city of St. Petersburg with
the
imperial summer palace outside the city by rail in 1838, did not again venture
into the
field until the middle 1840s. It then undertook, primarily for military purposes
and by
means of loans raised abroad, the important lines from St. Petersburg to Moscow
and
from St. Petersburg to the Austrian and Prussian frontiers. (Nicholas I is reputed
to
have settled a dispute among his engineers as to the route of the Moscow-St. Peters-
burg railway by drawing a straight line between the two cities on the map with a ruler
and stating, “There, gentlemen, is the line I want you to build.”) The midcentur
y mark
passed, however, with only the relatively short section from Warsaw to the Austrian
frontier in operation.
Elsewhere in eastern and southeastern Europe, whether in areas dominated by em-
peror, tsar, or sultan, there were no thoughts of railways in 1850. Even in the
West,
Denmark had just begun to make plans, and three countries—Sweden, Norway, and
Portugal—had neither railways nor plans.
The second half of the nineteenth century was the great age of railway construc-
tion, in Europe and elsewhere, as is evident from Table 8-2. British engineers, with
their head start in experience and numerous foundries and machine shops, built some
of the first railways on the Continent; subsequently they were responsible for the
greater part of construction in India, Latin America, and southern Africa. Americans
built their own railways from the beginning, although with the assistance of European
(mainly British) capital and some equipment. The French, after some early lessons
from the British, not only built their own railways, but most of those throughout
southern and eastern Europe, including Russia. The Germans also built most of their
own railways, and some in eastern Europe and Asia, and in the process strengthened
their huge metallurgical and engineering establishments.
The first locomotives, although marvels in their day, were actually quite puny (see
Fig. 8-4, top). Continual improvements in locomotive design created the huge ma-
chines of the late nineteenth and early twentieth centuries, by which time electric trac-
tion and diesel engines had begun to challenge the primacy of steam locomotives. Tun-
nels pierced the Alps as early as the 1870s. Sleeping cars, although introduced in the
United States in 1837, did not become common in Europe until the 1870s, by which
time continuous networks of rails crossed political boundaries with ease. The famed
Orient Express, from London and Paris to Constantinople, made its first run in 1888.
The steamship, although developed earlier than the locomotive, played a less vi-
tal role in the expansion of commerce and industry until late in the century. In fact,
for ocean commerce the wooden sailing ship reached its peak development, both tech-
nically and in the tonnage of goods carried, after 1850. In the first half of the century
steamers made their greatest contribution in the development of inland commerce
(Fig. 8-5). Credit for inventing the steamboat is usually given to the American, Robert
Fulton, whose ship, the Clermont, made its first successful run on the Hudson in 1807,
although there are earlier claimants for the distinction. Within a few years steamers
appeared on the Great Lakes and the rivers of the Mississippi system as well as in
coastal waters. Prior to 1850 steamboats probably contributed more than railroads to
204 A CONCISE ECONOMIC HISTORY OF THE WORLD

FiGURE 8—5. Steamboat on the Rh6ne River. In the first half of the nineteenth century
steamboats made their greatest contributions in inland navigation. Ocean steamers came
later. (From La Navigation & vapeur sur la Sa6ne et le Rhéne, by Felix Rivet, Paris, 1962.
Reprinted courtesy of Chamber of Commerce, Lyon, France.)

opening the trans-Allegheny West. In Europe they could be seen on such broad rivers
as the Rhine, the Danube, the Rhéne, and the Seine, as well as on the Mediterranean
and Baltic seas and the English Channel. Steam came to the North Atlantic with the
voyage of the auxiliary steamer Savannah in 1820, but regular trans-Atlantic service
did not begin until 1838, when the Sirius and Great Western made simultaneous voy-
ages from England to New York. Samuel Cunard, an Englishman, inaugurated his fa-
mous line in 1840, but soon ran into stiff competition from other companies. Until
the end of the American Civil War ocean steamers carried chiefly mail, passengers,
and expensive, lightweight cargo. The true age of the ocean steamer did not arrive un-
til the development of the screw propeller (1840s), the compound engine (1850s),
steel hulls (1860s), and the opening of the Suez Canal in 1869. Thereafter its progress
was rapid, and steamships played a major role in integrating the world economy.
Perhaps no single invention in the nineteenth century compared with that of print-
ing in the fifteenth century in its effect on the field of communication. Nevertheless,
the cumulative effects of nineteenth-century innovations were comparable. Paper-
making machinery, invented about 1800, and the cylindrical printing press, first used
by the London Times in 1812, greatly reduced the cost of books and newspapers.
Wood pulp replaced rags as the raw material for paper in the 1860s. Together with the
reductions in stamp and excise taxes on paper and printing, they brought reading ma-
 Economic Development in the Nineteenth Century: Basic Determinants 205

terial within reach of the masses and contributed to their increasing literacy. Im-
provements in printing and typesetting culminated in the linotype machine, invented
by the German-American Ottmar Mergenthaler in 1885, further extending the influ-
ence of the daily newspaper. By 1900 several newspapers in the largest cities had daily
circulations of more than a million copies, compared with 50,000 for the London
Times during the 1860s, the largest circulation of that period.
The invention of lithography in 1819 and the development of photography after
1827 made possible the cheap reproduction and wide dissemination of visual images.
Great Britain introduced the penny post in 1840; in that year the number of letters
delivered by the Royal Mail was more than twice the number delivered in 1839.
Within a few years most Western countries had adopted a system of flat-rate, prepaid
postal charges.
Even more significant was the invention in 1832 of the electric telegraph by the
American Samuel Morse. By 1850 most major cities in Europe and America had
been linked by telegraph wires, and in 1851 the first successful submarine telegraph
cable was laid under the English Channel. In 1866, after ten years of trying and sev-
eral failures, the American Cyrus W. Field succeeded in laying a telegraph cable un-
der the North Atlantic Ocean, providing nearly instantaneous communication be-
tween Europe and North America. Other submarine telegraph cables followed. The
telephone, patented by Alexander Graham Bell in 1876, made distant communica-
tion even more personal, but its principal use in the beginning was in facilitating lo-
cal communications.
The Italian inventor-entrepreneur Guglielmo Marconi, building on the scientific
discoveries of the Englishman James Clerk Maxwell and the German Heinrich Hertz,
invented wireless telegraphy (or radio) in 1895. As early as 1901 a wireless message
was transmitted across the Atlantic, and by the time of the Titanic disaster in 1912 ra-
dio had come to play a significant role in ocean navigation. In the field of business
communications the invention of the typewriter (Scholes’s patent, 1868; “Model I
Remington,” 1874) and other rudimentary business machines helped busy executives
keep up with and contribute to the increasing flow of information that their large-scale
operations and worldwide activities made necessary. The typewriter also played a role
in bringing women into the office work force.

The Application of Science

All of these developments relied much more than earlier technological innovations
on the application of science to industrial processes. The electrical industry, in par-
ticular, required a high degree of scientific knowledge and training. In other indus-
tries scientific advance became more and more the prerequisite of technological ad-
vance. This did not mean, however, that scientists abandoned their laboratories for
boardrooms, or conversely, that businessmen became scientists. It did mean, how-
ever, an increasing interaction between scientists, engineers, and entrepreneurs. Mar-
coni, although he had a smattering of scientific knowledge, was primarily a busi-
nessman. Bessemer and Edison were prototypes of a new occupational category, the
professional inventor. Edison, who invented the phonograph and the moving picture
camera as well as the incandescent lightbulb and a host of lesser novelties, actually
206 A CONCISE ECONOMIC HISTORY OF THE WORLD

devoted a large part of his time to business matters setting up large-scale generating
and transmitting equipment for electricity. Increasingly, technological development
required the cooperation of numbers of scientific and engineering specialists whose
work was coordinated by business executives who realized the potentialities of,
though they did not possess special expertise in, the new technology.
The science of chemistry proved especially prolific in the birth of new products
and processes. It had already created artificial soda, sulfuric acid, chlorine, and a num-
ber of heavy chemicals of particular importance in the textile industry. While seek-
ing a synthetic substitute for quinine in 1856 William Perkin, an English chemist, ac-
cidentally synthesized mauve, a highly prized purple dye. This was the beginning of
the synthetic dyestuffs industry, which within two decades virtually drove natural
dyestuffs from the market. Synthetic dyestuffs proved to be the opening wedge of a
much larger complex of organic chemical industries, whose output included such di-
verse products as drugs and pharmaceuticals, explosives, photographic reagents, and
synthetic fibers. Coal tar, a by-product of the coking process previously regarded as
a costly nuisance, served as the principal raw material for these industries, thus turn-
ing a bane into a blessing.
Chemistry also played a vital role in metallurgy. In the early nineteenth century
the only economically important metals were those known from antiquity: iron, cop-
per, lead, tin, mercury, gold, and silver. After the chemical revolution associated with
Antoine Lavoisier, the great French chemist of the eighteenth century, many new met-
als were discovered, including zinc, aluminum, nickel, magnesium, and chromium.
In addition to discovering these metals, scientists and industrialists found uses for
them and devised economical production methods. One major use was in making al-
loys, a mixture of two or more metals with characteristics different from its compo-
nents. Brass and bronze are examples of natural alloys (alloys that occur in nature).
Steel is actually an alloy of iron with a small amount of carbon and sometimes other
metals. In the second half of the nineteenth century metallurgists devised many spe-
cial alloy steels by adding small amounts of chromium, manganese, tungsten, and
other metals to impart specially desired qualities to ordinary steel. They also devel-
oped a number of nonferrous alloys.
Chemistry likewise came to the aid of such old, established industries as food pro-
duction, processing, and preservation. The scientific study of soil that was initiated
in Germany in the 1830s and 1840s, notably by the agricultural chemist Justus von
Liebig, led to greatly improved agricultural practices and the introduction of artificial
fertilizers. Scientific agriculture thus developed along with scientific industry. Can-
ning and artificial refrigeration produced a revolution in dietary habits and, by per-
mitting the importation of otherwise perishable foodstuffs from the New World and
Australasia, allowed Europe’s population to grow far beyond what its own agricul-
tural resources would support.

The Institutional Framework

Economic development may take place in a variety of institutional contexts, as the pre-
vious chapters have shown. Clearly, however, some legal and social environments, just
 Economic Development in the Nineteenth Century: Basic Determinants 207

as some natural environments, are more conducive to material advance than others. The
institutional setting for economic activity in nineteenth-century Europe, which pro-
duced the first industrial civilization, gave wide scope to individual initiative and en-
terprise, permitted freedom of occupational choice and geographical and social mobil-
ity, relied on private property and the rule of law, and emphasized the use of rationality
and science in the pursuit of material ends. None of these elements was wholly new in
the nineteenth century, but their juxtaposition and the explicit recognition granted to
them made them powerful contributors to the process of economic development.

Legal Foundations
Great Britain, as we have seen, had already acquired a substantially modern frame-
work for economic development, adapted to both social and material innovation and
change. One of the key institutions of that framework was the legal system known as
common law (“common” because, from at least the time of the Norman Conquest, it
was common to the entire kingdom of England, superseding purely local laws and
customs). The distinctive features of common law were its evolutionary character, its
reliance on custom and precedent as set forth in written legal decisions, and its flex-
ibility. It provided protection for private property and interests against the depreda-
tions of the state (“an Englishman’s home is his castle”) and at the same time pro-
tected the public interest from private exactions (e.g., by prohibiting combinations in
restraint of trade). It also incorporated the customs of merchants (the “law merchant’’)
as they had developed in specialized commercial courts. Transmitted to the English
colonies in the process of settlement, common law became the basis for the legal sys-
tems of the United States and the British dominions when they achieved indepen-
dence or autonomy.
On the Continent, meanwhile, the outmoded institutions of the past had ossified
in the face of the eroding forces of change to the point that gradual, peaceful transi-
tion to the new order was no longer possible. The French Revolution, by shattering
the Old Regime, opened new vistas and new opportunities for enterprise and ambi-
tion. It abolished outright the decaying remnants of the feudal order, and instituted a
more rational legal system that was eventually enshrined in the Napoleonic Codes.
The charter of the new order is to be found in the Declaration of the Rights of Man
and the Citizen (borrowing heavily from the American Declaration of Independence,
which, in turn, had borrowed from the writings of the French philosophes). The first
article proclaimed that “men are born and remain free and equal in their rights,” rights
specified as liberty, property (“inviolable and sacred”), security, and resistance to op-
pression. The Declaration also spelled out the guarantees necessary to preserve those
rights: uniformity of laws, freedom of speech and of the press, equitable taxation im-
posed by the citizens themselves or their representatives, and responsibility of public
officials. All citizens were to be “equally admissible to all dignities, offices, and pub-
lic employments, according to . . . their virtues and their talents.”
The revolutionary assemblies went beyond mere declarations to the specifics of the
legal foundations of the new order. In addition to abolishing the feudal regime and es-
tablishing private property in land, they did away with all internal customs duties and
tariffs, abolished craft guilds and the whole apparatus of state regulation of industry, pro-
208 A CONCISE ECONOMIC HISTORY OF THE WORLD

hibited monopolies, chartered companies, and other privileged enterprises, and replaced
the arbitrary and inequitable levies of the Old Regime with a rational and uniform sys-
tem of taxation. In 1791 the Assembly went so far as to pass the drastic Le Chapelier
Law prohibiting organizations or associations of both workers and employers.
Naturally, the French carried their revolutionary reforms to the lands they con-
quered in the course of the Revolutionary and Napoleonic wars. Belgium, the left
bank of the Rhine in Germany, much of Italy, and for a short time Holland and parts
of northern Germany were all incorporated in the French Empire. With few excep-
tions the whole body of reform was applied to these territories directly. The Confed-
eration of the Rhine, the Swiss Confederation, the Grand Duchy of Warsaw, the king-
dom of Naples, and Spain, all under French “protection,” accepted the greater part of
the revolutionary legislation. The influence of the reforms extended even to countries
not directly dominated by the French. Prussia was the most profoundly affected. Af-
ter the humiliation of Jena in 1806 a group of intelligent and patriotic officials came
to the fore in the Prussian administration, determined to regenerate the country by ad-
ministrative and social reforms so that it might withstand the conqueror and assume
the leadership of a German nation.
The purgative work of the revolution should not be regarded as mere negative acts
of demolition. On the contrary, these acts represented the essential first steps toward
a positive, constructive, and fairly consistent policy. In the end, however, modern
French institutions—and those of several other nations influenced by the French—
received their definitive stamps not from the revolution itself but from Napoleon. The
reaction in public opinion that made the dictatorship of Napoleon possible was a re-
action to the excesses of the revolution and to the corruption and license that flour-
ished under the Directory. As such, it favored a compromise with some, though by no
means all, of the institutions and traditions of the Old Regime. Napoleon’s genius and
good fortune lay in his ability to synthesize the highly rational achievements of the
revolution with the deeply ingrained habits and traditions built up over a thousand
years of history. His policies were further influenced by his military cast of mind,
which was impressed by hierarchical order and called for strict discipline, and by the
exigencies of continual warfare.
The Napoleonic synthesis is perhaps best seen in the great work of legal codifica-
tion begun during the revolution but completed under the empire. A classic compro-
mise between the received Roman law, as adopted to local needs and customs, and the
new revolutionary legislation, the Codes nevertheless preserved the fundamental prin-
ciples of the revolution: equality before the law, a secular state, freedom of conscience,
and economic freedom. The Code civile, promulgated in 1804, is the most funda-
mental and important. Written by middle-class lawyers and jurists, it clearly reflected
the preoccupations and interests of the propertied classes. It treated property as an ab-
solute, sacred, and inviolable right. It also specifically sanctioned freedom of contract
and gave valid contracts the force of law. It recognized the bill of exchange and other
forms of commercial paper and expressly authorized loans at interest—a provision of
signal importance for the development of industry in Roman Catholic countries.
As the French abolished the institutions of the Old Regime in the territories they
conquered, they laid the foundations of the new. The Code civile, which accompanied
the French armies of occupation, remained when the latter had departed. Throughout
 Economic Development in the Nineteenth Century: Basic Determinants 209

Europe and beyond, including Louisiana and Quebec as well as practically all of Latin
America, the Code civile was either adopted outright or formed the basis of national
codes.
Another of the Napoleonic Codes of particular importance for economic devel-
opment was the Code de Commerce, promulgated in 1807. Before this, no single com-
prehensive rule had governed the forms of business enterprise. In Britain the Bubble
Act of 1720 prohibited joint-stock companies unless they possessed charters from
Parliament (see p.169); similar prohibitions had long been the rule on the Continent.
The enlarged scale of enterprise brought about by the new technology required new
legal forms to facilitate the accumulation of capital and spread the risks of investment.
Britain repealed its Bubble Act in 1825, but incorporation continued to require a spe-
cial charter until 1844, when associations of twenty-five or more persons were al-
lowed to form joint-stock companies by simple registration. Even then, limited lia-
bility for shareholders was not normally available until a series of acts in the 1850s
granted limited liability on registration, under certain conditions. A new, comprehen-
sive law of 1862 made limited liability generally available.
The Code de Commerce distinguished three main types of business organiza-
tions: (1) simple partnerships, in which the partners were individually and collec-
tively liable for all debts of the business; (2) sociétés en commandite, limited part-
nerships in which the active partner or partners assumed unlimited liability for the
affairs of the concern, whereas the silent or limited partners risked only the amounts
they actually subscribed; and finally (3) sociétés anonymes, corporations in the
American sense, with limited liability for all owners. These were “anonymous” com-
panies in the sense that the names of individuals could not figure in the official des-
ignation of the company. Because of their privileges, each anonyme had to be ex-
plicitly chartered by the government, which, in the first half of the century, was
extremely loath to grant such charters. A commandite, however, could be established
simply by registering with a notary public, and it quickly became the favored form
of enterprise. Eventually, a law of 1863 allowed free incorporation with limited lia-
bility to firms whose capital stock did not exceed 20 million francs, and in 1867 an-
other law removed even that restriction.
The commandite form was adopted in most continental nations and performed a
vital function in gathering capital for commerce and industry in the transitional pe-
riod before free incorporation, at a time when most governments proved even more
conservative than the French in granting charters for anonymes. After France adopted
free incorporation in 1867, other countries soon followed. By 1900 only Russia and
the Ottoman Empire, among the major nations, still required specific authorization
for incorporation. In the United States, on the other hand, where egalitarian senti-
ments and hostile attitudes toward special privilege were stronger than in Europe, and
where the individual states as well as the federal government could charter corpora-
tions, free incorporation became the rule as early as the 1840s.

Economic Thought and Policy

The period of the Napoleonic Wars witnessed what was in some respects the culmi-
nation of the economic nationalism and imperialism of earlier centuries, with the at-
210 A CONCISE ECONOMIC HISTORY OF THE WORLD

tempted British blockade of the Continent and Napoleon’s Continental System as a

response. Neither was entirely effective in its principal purpose, which was to limit
or destroy the war-making potential of the adversary’s economy, but they both repre-
sented the extremes of the policies of economic nationalism. Even earlier, however,
intellectual currents that condemned those policies had begun to flow.
In the 1760s and 1770s the Physiocrats (called les économistes in France) had be-
gun to advocate the merits of economic freedom and competition. In 1776, the year
of the American Declaration of Independence, Adam Smith published in The Wealth
of Nations what was to become a declaration of individual economic independence.
Smith has sometimes been portrayed as an apologist for businessmen or “the bour-
geoisie,” but that results from a misreading (or a nonreading) of his text. His criti-
cisms of merchants are no less scathing than his condemnation of foolish or mis-
guided governments. Concerning their penchant for monopoly, for example, he wrote,
“People of the same trade seldom meet together, even for merriment and diversion,
but the conversation ends in a conspiracy against the publick, or in some contrivance
to raise prices.”* Smith’s major concern throughout the book, however, was to show
that the abolition of vexatious and “unreasonable” restrictions and restraints on indi-
vidual enterprise would promote competition within the economy, and this, in turn,
would maximize the “wealth of nations.” Smith’s book was quite popular for a philo-
sophical treatise. It went through five editions before his death in 1790, and was sub-
sequently translated into all major languages. Statesmen and politicans on both sides
of the Atlantic quoted him in support of or opposition to particular pieces of legisla-
tion during his lifetime, and he acquired a number of disciples on the Continent. It
was not until well after his death, however, and until a number of other writers such
as the Reverend T. R. Malthus and David Ricardo had contributed to the body of lit-
erature known as “classical political economy,” that Smith’s ideas began to be im-
plemented in legislation. This occurred first in the United Kingdom in the 1820s and
1830s. Some of the reforms, it is true, such as the revision of the criminal and penal
laws in a humanitarian direction, the reduction in the number of capital offenses, and
the creation of a metropolitan police force, owed more to Jeremy Bentham and the
Utilitarians than to Smith and the classical economists (although there was some over-
lap in the two schools, particularly in the person of John Stuart Mill). The foremost
achievement of the latter group was the repeal of the Corn Laws, which ushered in a
long period of free trade in Great Britain (see later, p. 292).
In addition to free trade, the tenets of economic liberalism (as the new doctrine
was known) called for a reduction of the role of government in the economy. In its
name the system of taxation was overhauled and simplified, and the Combination
Acts, the Navigation Acts, the Usury Laws, and other legislative symbols of the Old
Regime in economic life were all repealed. According to Smith and his “system of
natural liberty,” the government had only three functions to perform: “first, the duty
of protecting society from the violence and invasion of other independent societies:
secondly, the duty of protecting, as far as possible, every member of the society from
the injustice or oppression of every other member of it, or the duty of establishing an

* Smith, Wealth of Nations (Glasgow ed.), I, p.145.

 Economic Development in the Nineteenth Century: Basic Determinants 211

exact administration of justice; and thirdly, the duty of erecting and maintaining cer-
tain publick works and certain publick institutions, which it can never be for the in-
terest of any individual, or small number of individuals, to erect and maintain. . . .”°
This idealized description of the role of government according to the classical
economists gave rise to a myth, namely, the myth of laissez faire. The phrase first ap-
peared in English usage in 1825, and it literally translated by the imperative “let do.”
The popular understanding of it was that individuals, especially businesspersons,
should be free of all government restraint (except criminal laws) to pursue their own
selfish interests. Thomas Carlyle satirized it as “anarchy plus a constable.”
Laissez faire in practice, however, was by no means as heartless, as selfishly mo-
tivated, or as inexorable as extremist statements indicated. The main target of the clas-
sical economists was the old apparatus of economic regulation, which in the name of
national interest frequently erected pockets of special privilege and monopoly, and in
other ways interfered with individual liberty and the pursuit of wealth. At the same
time that Parliament was dismantling the old system of regulation and special privi-
lege, moreover, it was enacting a new series of regulations concerned with the gen-
eral welfare, especially of those least able to protect themselves. The measures in-
cluded the Factory Acts, new health and sanitary laws, and the reform of local
government. These were not the work of any one class or segment of the population,
although they drew on the intellectual capital of the Utilitarians. Humanitarian re-
formers of both aristocratic and middle-class backgrounds joined forces with leaders
of the working classes to agitate for them, and they were voted for by Whigs and To-
ries as well as Radicals.
Economic liberalism had its advocates on the Continent as well, but they never
achieved the same degree of success as their British counterparts. One reason for this
was that the tradition of state paternalism was much more deeply ingrained on the
Continent than in Britain. Another was that, since Britain was the acknowledged tech-
nological leader, many individuals looked to the government to help close the gap.
Free trade won some adherents, and there was some reduction in government inter-
ference in the economy, but on the whole government played a more active role than
in Great Britain.
Overseas, the United States had a unique blend of government and private en-
terprise. The classical economists had few purist adherents in the United States. Var-
ied as actual economic policies were in the numerous burgeoning states, they
achieved a pragmatic and workable compromise between the demands of individual
liberty and the requirements of society. Because of rival sectional interests and the
triumph of the Jeffersonian and Jacksonian Democrats, the federal government
played the minimal role assigned it by classical theory and, until the Civil War, gen-
erally followed a liberal or low-tariff commercial policy. State and local govern-
ments, on the other hand, took an active role in promoting economic development.
The “American System,” as Henry Clay called it, regarded government as an agency
to assist individuals and private enterprise to hasten the development of the nation’s
material resources.

> Smith, Wealth ofNations (Glasgow ed.), I, pp.687—88.

NR tO A CONCISE ECONOMIC HISTORY OF THE WORLD

Class Structure and Class Struggles

Socially, Old Regime Europe was organized into three “orders,” the nobility, the
clergy, and all others—the common people or “commons” (see Chapter 3, p. 48). A
modern functional analysis in terms of social class would revise the classification
slightly. At the top of the social pyramid was a ruling class of landowners, which in-
cluded some non-nobles as well as the higher clergy and the nobility per se. The eco-
nomic basis of their political power and social status was ownership of the land, which
enabled them to live “nobly” without working. Next on the social scale was an upper
middle class, or haute bourgeoisie, of great merchants, high government officials, and
professionals such as attorneys and notaries; although these frequently owned some
real property as well, the principal bases of their positions were their special knowl-
edge and skills, their stock in trade (for merchants), and their personal contacts with
the aristocracy. Still lower on the social scale stood a lower middle class, or petite
bourgeoisie, consisting of artisans and handicraftsmen, retail tradesmen and others
engaged in service occupations, and independent small holders. At the bottom lay the
peasants, domestic workers in cottage industries, and agricultural laborers, whose
numbers included many indigents and paupers.
The shift from agriculture to the new forms of industry and the growth of cities
brought about the rise of new social classes. It is readily apparent that an individual’s
place in the social hierarchy depends in part on how he or she makes a living, and in-
dividuals in the same occupation are likely to share common values and a common
outlook, different from and perhaps conflicting with the values and outlooks of those
engaged in other occupations. The nineteenth century sometimes saw bitter struggles
between rival groups for social and political recognition and dominance.
At the beginning of the century the peasants were by far the most numerous group.
At the end of the century they still constituted a majority in Europe as a whole, but in
the more industrialized areas their relative numbers had drastically decreased. Iso-
lated by poor communications and bound by a traditionalist mentality, their greatest
desire was to obtain land. Their participation in broad social movements was gener-
ally sporadic and limited to their immediate economic interests.
In the years immediately after Waterloo the landed aristocracy continued to en-
joy social prestige and political power, despite the effects of the French Revolution.
Its position of leadership was sharply challenged, however, by the rapidly growing
middle classes. By the middle of the century the latter had succeeded in establishing
themselves in the seats of power in most of western Europe, and during the second
half of the century they made deep inroads into the exclusive position of the aristoc-
racy in central Europe.
At the beginning of the nineteenth century urban workers constituted a small mi-
nority of the population, but with the spread of the industrial system they began to
gain numerical superiority. To speak of “the” working class is misleading, however,
for there were many gradations and differences within the laboring population. Fac-
tory workers proper, although among the objects of greatest attention for historians
ofindustrialization, were only one element of it, and not the largest at that. Moreover,
within that one element were many different attitudes and circumstances among, for
instance, textile workers, iron workers, pottery workers, and others. Miners, although
 Economic Development in the Nineteenth Century: Basic Determinants 213

they resembled factory workers in some respects, differed in others. Domestic ser-
vants, artisans, and handicraftsmen had all existed before the rise of modern indus-
try. Many of the skilled workers sank to the status of the unskilled as machines re-
placed them in their work. Others, however, including carpenters, masons,
machinists, and typesetters, found demand for their services increasing with the
growth of industries and cities. Casual laborers, such as dockers and porters, consti-
tuted another important group, as did transport workers, clerical workers, and others.
Their common characteristic that enables us to treat them as one for some purposes
(although even this was not precise or universal) was their dependence for a living on
the sale of their labor for a daily or weekly wage.
Karl Marx prophesied in the middle of the nineteenth century that the polariza-
tion he thought he observed in the then-advanced industrial societies would continue
until, ultimately, only two classes would be left, the ruling class of capitalists (who in
his opinion would absorb and replace the aristocracy) and the industrial proletariat.
Gradually, all of the intervening classes would be forced down into the proletariat un-
til the latter, with its overwhelming weight of numbers would rise up in revolution and
overthrow the ruling class of capitalists. As a prediction, this prophesy had been falsi-
fied by the facts of history. Rather than polarize two mutually antagonists classes, the
spread of industrialization has greatly swollen the middle classes of white-collar work-
ers, skilled artisans, and independent entrepreneurs. Successful revolutions, when they
occurred, as in Russia in 1917, were the work of small bands of militant professional
revolutionaries preying on the weaknesses of societies debilitated by war.
The more usual forms of working-class solidarity and self-help were trade unions
and eventually, in some countries, working-class political parties. Although trade
unions have a long history, running back to the journeyman’s associations of the later
Middle Ages, the modern movement dates from the rise of modern industry. In the
first half of the nineteenth century unions were weak, localized, and usually short-
lived in the face of opposition by antagonistic employers and unfavorable or repres-
sive legislation. Most Western nations have passed through at least three phases in
their official attitudes toward trade unions. The first phase, that of outright prohibi-
tion or suppression, was typified by the Le Chapelier Law of 1791 in France, the Com-
bination Acts of 1799-1800 in Britain, and similar legislation in other countries. In
the second phase, marked in Britain by the repeal of the Combination Acts in 1824—
25, governments granted limited toleration to trade unions, allowing their formation
but frequently prosecuting them for engaging in overt action such as strikes. A third
phase, not achieved until the twentieth century in some countries and not at all in oth-
ers, accorded full legal rights to working men and women to organize and engage in
collective activities.
In Britain in the 1830s the trade union movement became involved in a broader
political movement known as Chartism, whose purpose was to achieve suffrage and
other political rights for the disenfranchised. After the movement’s failure in 1848,
trade union organization fell off until 1851. Then the Amalgamated Society of Engi-
neers (machinists and mechanics) was formed, the first of the so-called New Model
unions. The distinctive feature of the New Model union was that it organized skilled
workers only, and on a craft basis; it represented the “aristocracy” of labor. Unskilled
workers and workers in the new factory industries remained unorganized until near
214 A CONCISE ECONOMIC HISTORY OF THE WORLD

the end of the century. New Model unions aimed modestly at improving the wages
and working conditions of their own members, already the best paid in British in-
dustry, through peaceful negotiations with employers and mutual self-help. They es-
chewed political activities and rarely resorted to strikes except in desperation. As a
result, they grew in strength, but membership remained low. Attempts to organize the
large mass of semiskilled and unskilled workers resulted in successful strikes by the
“match girls” (young female workers in the match industry) in 1888 and the London
dockworkers in 1889. By 1900 trade union membership surpassed 2 million, and in
1913 it had reached 4 million, or more than one-fifth of the total work force.
On the Continent trade unions made slower progress. From the beginning French
unions were closely associated with socialism and similar political ideologies. The
varying and mutually antagonistic forms taken by French socialism badly splintered
the movement, resulted in a fickle and fluctuating membership, and made it nearly
impossible to agree on nationwide collective action. In 1895 French unions succeeded
in forming a national nonpolitical General Confederation of Labor (CGT), but even
it did not include all active unions, and it frequently had difficulty in commanding lo-
cal obedience to its directives. The French labor movement remained decentralized,
highly individualistic, and generally ineffective.
The German labor movement dated from the 1860s. Like that of the French, it
was associated from the beginning with political parties and political action; unlike
the French movement, it was more centralized and cohesive. The German labor move-
ment had three main divisions: the Hirsch-Dunker or liberal trade unions, appealing
mainly to skilled craftsmen; the socialist or “free” trade unions, with a far larger mem-
bership; and developing somewhat later, the Catholic or Christian trade unions,
founded with the blessing of the Pope in opposition to the “godless” socialist unions.
By 1914 the German trade union movement had 3 million members, five-sixths be-
longing to the socialist unions, making it the second largest in Europe.
In the economically backward countries of southern Europe, and to some extent
in Latin America, French influence predominated in working-class organizations.
Trade unions were fragmented and ideologically oriented. They were savagely re-
pressed by employers and the state and were mostly without consequence. Trade
unions in the Low Countries, Switzerland, and the Austro-Hungarian Empire fol-
lowed the German model. They achieved moderate success at the local level, but re-
ligious and ethnic differences as well as opposition from government hindered their
effectiveness as national movements. In the Scandinavian countries the labor move-
ment developed its own distinctive traditions. It allied itself with the cooperative
movement as well as with the Social Democratic political parties and by 1914 had
done more than any other trade union movement to alleviate the living and working
conditions of its membership. In Russia and elsewhere in eastern Europe trade unions
remained illegal until after World War I.
Early attempts to form mass working-class organizations in the United States had
limited effectiveness in the face of governmental and employer opposition, and the
difficulty in securing cooperation among working men of different skills, occupa-
tions, religions, and ethnic backgrounds. In the 1880s Samuel Gompers took the lead
in organizing closely knit local unions of skilled workers only, and in 1886 he united
them into the American Federation of Labor (AFL). Like the New Model unions of
 Economic Development in the Nineteenth Century: Basic Determinants 215

Britain, the AFL followed bread-and-butter tactics, concentrating on the welfare of

its own members, steering clear of ideological entanglements, and avoiding overt po-
litical action. Consequently, it succeeded in achieving many of its limited goals but
left the majority of American industrial workers unorganized. In the British domin-
ions trade unions developed in traditional British form, but with greater commitment
to socialist programs. The first Trades Union Congress in Australia took place in 1879,
only eleven years after the first of its kind in Britain.

Education and Literacy

Another feature of economic development in the nineteenth century, less remarked
on but scarcely less remarkable than the growth of cities, of industrial workers, and
of incomes, was the growth of literacy and education. Tables 8-3 and 8-4 present some
rough data for selected countries at selected dates. In all cases it is virtually certain
that the rates were lower in 1800 than in 1830 or 1850. The tables show a rough (not
a precise) correlation between levels and rates of industrialization, on the one hand,
and educational effort and attainment on the other. It is significant that Great Britain
(or the United Kingdom), the first industrial nation, ranks high in both tables, but not
at the top. In general, the countries of northwestern Europe (and the United States)
make the best showing, in terms of both effort and attainment, whereas those of south-
ern and eastern Europe (for which Spain, Italy, and Russia are proxies) are least im-
pressive. This corresponds with both levels and rates of industrialization.
Perhaps the most surprising aspect of Table 8-3 is the high standing of Sweden in
both 1850 and 1900; Sweden was a poor country in the midnineteenth century, but in
the second half of the century had one of the highest rates of growth of any country

TABLE 8-3. Adult Literacy of Selected Countries (percentage)

Country ca. 1850 ca. 1900

Sweden 90 (99)¢
United States (white only) 85-90 94
Scotland 80 (97)

Prussia 80 88
England and Wales 67-70 (96)
France 55-60 83
Austria (excluding Hungary) 55-60 77
Belgium 55-60 81
Italy 20-25 52
Spain 2S) 44
Russia 5-10 28

“Figures in parentheses are almost certainly exaggerated.

Sources: Calculated from Carlo M. Cipolla, Literacy and Development in the West
(Harmondsworth, 1969), Tables 21, 24, and 31; figures in parentheses are from Michael
G. Mulhall, Dictionary ofStatistics (London, 1899; reprinted 1969), p. 693.
216 A CONCISE ECONOMIC HISTORY OF THE WORLD

TABLE 8-4. Primary School Enrollment Rates

from Selected Countries (per 10,000 population)

Country 1830 1850 1900

_ United States 1,500 1,800 1,969

Germany 1,700 1,600 1,576
United Kingdom 900 1,045 1,407
France 700 930 1,412

Spain 400 663 1,038

Italy 300 463 (1860) 881

Russia — 98 (1870) 348

Source: Richard E. Easterlin, “Why Isn’t the Whole World Developed?” Journal of
Economic History, 41 (March 1981).

in Europe. Its high initial level of literacy is attributable to religious, cultural, and po-
litical factors antedating the onset of industrialization, but the large stock of human
capital so acquired stood it in good stead once industrialization had begun. The same
broad generalization applies, perhaps to a lesser degree, to the other Scandinavian
countries, the United States, Germany (Prussia), and (within the United Kingdom)
Scotland.
Beyond the quantitative data one must inquire into the nature and scope of edu-
cation. Before the nineteenth century publicly supported educational institutions
scarcely existed. The well-to-do hired private tutors for their children. Religious and
charitable institutions, and in a few cases fee-charging proprietary schools, provided
elementary education for a fraction of the population, mainly in the towns. No one
dreamed of universal literacy; indeed, much influential opinion opposed literacy for
the “laboring poor” as being incompatible with their “stations” in life. Technical ed-
ucation was provided almost exclusively through the apprenticeship system. Sec-
ondary and higher education was reserved largely for the children (mainly sons) of
the privileged classes, except for aspiring members of the clergy. With few exceptions
(notably in Scotland and the Netherlands), the ancient universities had long since
ceased to be centers for the advancement of knowledge; mired in a traditional cur-
riculum that emphasized the classics, they trained bureaucrats for church and state,
and gave the semblance of a liberal education to the sons of the ruling classes.
The French Revolution introduced the principle of free publicly supported edu-
cation, but in France itself the principle was disregarded by the Restoration govern-
ments until after 1840. Meanwhile, several of the German, Scandinavian, and Amer-
ican states, which already benefited from a tradition of widespread primary education,
established publicly supported systems, although they did not become compulsory or
universal until later in the century. In England the Factory Act of 1802 required own-
ers of textile mills to provide elementary instruction for their apprentices, but the law
was poorly enforced; another law of 1833 required instruction for all child workers.
In the first half of the century many artisans and skilled workers attended “mechan-
ics’ institutes,” evening schools supported by either fees or charitable institutions, but
 Economic Development in the Nineteenth Century: Basic Determinants ZA

Britain lagged notably in the provision of public education. Southern and eastern Eu-
rope lagged even further than Britain.
The French Revolution occasioned other educational innovations of particular
significance for the industrial age. These were specialized schools for science and en-
gineering, of which the Ecole Polytechnique and the Ecole Normale Supérieure are
the most famous. Established at university level, but outside the university system
(which Napoleon reorganized to train professionals and bureaucrats), these institu-
tions not only provided advanced instruction but also engaged in research. They were
widely imitated throughout Europe, except in Great Britain, and a graduate of the
Polytechnique organized instruction at the U.S. Military Academy at West Point, the
first engineering school in America.
The post-Napoleonic reform era in Germany resulted in the revitalization of its
old universities and the creation of several new ones. Scientific training borrowed
heavily from the curriculum and methods of the Ecole Polytechnique, but was made
available to a far larger number of students than in the French system. Thus, as sci-
ence became more and more the foundation of industry, Germany stood ready to take
advantage of the situation. When American educators in the 1870s began to be con-
cerned with the need to remodel their system of higher education, they turned to Ger-
many rather than France or England for a model. Subsequently, French and British
universities, and those of other countries as well, fell in line.

International Relations
At the Congress of Vienna in 1814—15 Napoleon’s victors tried to reestablish the
Old Regime, politically, socially, and economically, but their efforts proved in vain.
The ideological forces of democracy and nationalism unleashed by the French Rev-
olution, together with the economic forces of incipient industrialization, undermined
their efforts. Moreover, a divergence of interest among the victors, notably between
Great Britain and the restored rulers of continental Europe, hastened the breakdown
of the restored old order. The final decay of the Old Regime, except in Russia and
the Ottoman Empire, became evident in the revolutions of 1830 and 1848 on the
Continent.
The revolutions were not predominantly economic manifestations, but they did
have significant economic consequences, mainly as a result of the realignment of po-
litical forces. In France, for example, the revolution of 1830 replaced a resolutely
backward-looking government with one more amenable to commercial and industrial
interests, whereas in that of 1848 the urban working classes made a determined bid
for political power before they were crushed by the forces of repression. The revolu-
tion of 1830 in the southern Netherlands resulted in the creation of a new nation, Bel-
gium, which soon showed itself to be one of the most economically progressive on
the Continent. The revolutions of 1848 in central Europe finally brought about the ex-
tinction of the remnants of the feudal regime.
In all of these revolutions nationalism was a potent force. Nationalism as an ide-
ology did not belong to any social class as such. It was principally espoused by mem-
bers of the educated middle classes, but it also reflected the aspirations of the divided
peoples of Italy and Germany for unified nations, and the aspirations of the subject
218 A CONCISE ECONOMIC HISTORY OF THE WORLD

nationalities in the Austrian, Russian, and Ottoman empires, the Belgian Netherlands,
Norway, and Ireland for autonomy and freedom. In Germany the achievement of eco-
nomic unification under the Prussian-dominated Zollverein in the 1830s preceded the
achievement of political unification in 1871, and helped lay the foundations for Ger-
man industrial power. The failure to achieve a similar economic unification before
the creation of the kingdom of Italy in 1861 (in spite of an attempt in 1848) hindered
that country’s rise to great power status. The achievement of independence by Greece,
Serbia, Romania, and Bulgaria from the Ottoman Empire, unaccompanied by any no-
table economic progress, made those countries pawns in the chess games of power
politics.
The nineteenth century witnessed no massive, devastating wars such as the
Napoleonic Wars that began it or World War I which ended it. The relatively brief,
limited wars that occurred in between sometimes had significant political outcomes,
with implications for economic policy, but they did not seriously hinder the accumu-
lation of capital or the process of technical change. Toward the end of the century, it
is true, political tensions, sometimes exacerbated by economic rivalry, became more
acute and overflowed into the revival of European imperialism. The economic aspects
of that imperialism will be analyzed in a subsequent chapter. For the present it is suf-
ficient to note that this revival of imperialism greatly enlarged the world market sys-
tem, with Europe at its core.
 9
Patterns of Development:
The Early Industrializers

From one point of view the process of industrialization in the nineteenth century was
a European-wide phenomenon. (The fact that by the century’s end the United States
had become the leading industrial nation does not alter the matter, because the United
States was basically European in its culture.) One hardy scholar has even estimated
Europe’s gross “national” product for the nineteenth century (see Fig. 9-1). Although
such estimates are easy to criticize in detail because of deficient sources, the two out-
standing features of Figure 9-1 are undoubtedly correct in general: (1) the numerous
short-term fluctuations and (2) the steady long-term growth.
From a different point of view, however, industrialization was basically a regional
phenomenon, as discussed previously (p. 181). The regions in question might lie
wholly within a single nation, as in the case of southern Lancashire and its immedi-
ately adjacent areas; or they might overlap national boundaries, as with the Austrasian
coalfield, which runs from the English Channel in northern France through Belgium
and into western Germany, terminating with the Ruhr area. For many scholars re-
gional analysis offers the most satisfying means of understanding the process of in-
dustrialization.
Yet a third way to view the process of industrialization, however, is the more con-
ventional method of looking at it in terms of national economies. Such a procedure
has the disadvantages of possibly overlooking the international and supranational
ramifications of the process and of ignoring or slighting its regional dynamics; but it
has two powerful offsetting advantages. The first is the purely technical advantage
that most quantitative descriptive measures of economic activity are collected and ag-
gregated in terms of national economies. Second, and more fundamentally, the insti-
tutional framework of economic activity, and the policies intended to influence the
direction and character of that activity, are most often set within national boundaries.
Fortunately, the three approaches are not mutually exclusive. In the preceding
chapter the international and supranational aspects of the process of industrialization
were stressed, particularly with regard to population and technology; the international
dimensions of commerce and finance are again stressed in Chapter 12. In this and the
following chapter, we look at the varied national patterns of growth, glancing at their
regional manifestation as well, when important.

219
 220 A CONCISE ECONOMIC HISTORY OF THE WORLD

i) 130
120 120
‘Sol = 100
30
80} — 80
70
us
60} — 60
50}- 50
40 40
30 — pp a -{+$— —- }-4- + 30
| mea
1830 1840 1850 1860 1870 1880 1890 1900 1910

FIGURE 9-1. Index of Europe’s gross national product (1899-1901 = 100). [From Paul
Bairoch, “Europe’s Gross National Product: 1900-1975,” in Journal ofEuropean Economic
History, 5 (Fall 1976), 288.]

Great Britain

We begin with Great Britain, “the first industrial nation.” At the end of the Napoleonic
Wars Britain was clearly the world’s leading manufacturing nation, producing about
one-quarter of the total world industrial production according to some estimates. !
Moreover, as a result of both its lead in manufacturing and its role as the world’s over-
whelmingly superior sea power, achieved during the late wars, it emerged as the
world’s leading commercial nation as well, accounting for between one-fourth and
one-third of total international commerce—well over twice that of its leading rivals.
Britain retained its dominance as both an industrial and trading nation for most of the
nineteenth century. After some slippage in the middle decades of the century, it still
accounted for about one-quarter of the total international commerce in 1870, and ac-
tually increased its share of total industrial production to more than 30 percent. After
1870, even as total output and trade continued to increase (e.g., industrial production
increased by 250 percent between 1870 and 1913), it gradually lost its lead to other
rapidly industrializing nations. The United States overtook it in total industrial pro-
duction in the 1880s and Germany in the first decade of the twentieth century. On the
eve of World War | it was still the leading commercial nation, but it then commanded
only about one-sixth of total trade and was closely followed by Germany and the
United States.
Textiles, coal, iron, and engineering, the bases of Britain’s early prosperity, re-
mained its standbys. As late as 1880 its production of cotton yarn and cloth surpassed
that of the rest of Europe combined; by 1913, although its relative position had
de-
clined, it still accounted for one-third of total European production,
more than twice
as much as its closest competitors. Similarly, in the iron industry Britain reached
its
relative peak around 1870, producing more than half the world’s pig iron.
By 1890,
however, the United States had snared the lead, and in the early years of the
twenti-
' That is, the output of modern, market-oriented industries; there
is no way of computing the value of
traditional household industries in India and China (and elsewhere), much
of which was destined for fam-
ily consumption.
 Patterns of Development: The Early Industrializers 221

eth century Germany also forged ahead. In the coal industry, on the other hand, Britain
maintained its lead in Europe (although the United States overtook it at the beginning
of the twentieth century) and produced a surplus for export. On a per capita basis,
Britain produced almost twice as much coal throughout the century as its leading Eu-
ropean rivals, Belgium and Germany. (See Fig. 9-3, later.) The northeastern coalfield
(Northumberland and Durham) and South Wales had exported to the Continent from
early in the century, and even before; in 1870 that trade was valued at 3 percent of to-
tal British exports. The rapid industrialization of Britain’s coal-poor European neigh-
bors resulted in a remarkable rise; in 1913 exports of coal, a raw material, accounted
for more than 10 percent of the value of all exports from the world’s most highly in-
dustrialized nation.
The engineering industry, a creation of the late eighteenth century, can trace its
roots in all three of the industries just mentioned. The textile industry needed machine
builders and machine menders, the iron industry produced its own; and the coal in-
dustry’s need for efficient pumps and cheap transport resulted in the development of
both the steam engine and the railway. Railways, as suggested in the previous chap-
ter, constituted the most important new industry of the nineteenth century. They were
especially important for both their forward and backward linkages to other industries.
Moreover, as a result of Britain’s pioneering role in the development of railways, the
foreign demand both in Europe and overseas for British expertise, materiel, and cap-
ital provided a strong stimulus for the entire economy.
Similarly, the evolution of the shipbuilding industry from sail to steam propul-
sion, and from wood to iron to steel construction, was another potent stimulus. Newly
constructed steam tonnage did not surpass new sailing tonnage until 1870, but its pre-
dominance increased rapidly thereafter; by 1900 the output of new sailing ships had
fallen to less than 5 percent of the total. Iron began to replace wood on a large scale
in the construction of both steam and sailing ships in the 1850s, and steel to replace
iron in the 1880s. In the early years of the twentieth century the British shipbuilding
industry produced, on average, more than | million tons a year, virtually all steel
steamships. That accounted for more than 60 percent of world construction. (For a
few years in the 1880s and 1890s Britain produced more than 80 percent of the total.)
A substantial fraction of this output, between one-sixth and one-third, was exported.
These impressive achievements notwithstanding, the pace and extent of British
industrialization should not be exaggerated, as they often have been. Recent research
has demonstrated that the rate of industrial growth in the century 1750—1850 was con-
siderably slower than earlier, impressionistic estimates had implied, and that

even as late as 1870 about half the total steam horsepower in manufacturing was in
textiles, and that in many trades power-driven mechanization had as yet made com-
paratively little impact. The great majority of industrial workers in 1851 and perhaps
in 1871 were not in large-scale factory industry but were still craftsmen in small
workshops. The massive application of steam power did not occur until after 1870,
rising from a total of around 2 million h.p. by that date to nearly 10 million h.p. in
1907.”

2 A. E. Musson, “Technological Change and Manpower,” History, 67 (June 1982): 240-41.

 222 A CONCISE ECONOMIC HISTORY OF THE WORLD

The census of 1851 further confirms these generalizations. For example, agricul-
ture was still the largest single employer of labor—until as late as 1921—with do-
mestic service second. The textile industries accounted for less than 8 percent of the
total labor force (the cotton industry alone for about 4 percent). Blacksmiths out-
numbered workers in the primary iron industry by 112,500 to 79,500; shoemakers
(274,000) were more numerous than coalminers (219,000).
Britain reached its peak of industrial supremacy in relation to other nations in the
two decades from 1850 to 1870. The growth rate of gross national product from 1856
to 1873—both peak years of the business cycle—averaged 2.5 percent, lower than
its century-long average and substantially lower than those of the United States and
Germany during the same period. On a per capita basis it was even lower than that of
France, traditionally regarded as the laggard among the great powers. How should
this lackluster performance be evaluated?
In the first place, growth rates are to some extent misleading, as units with a small
statistical base can post high growth rates with very modest absolute increments of in-
crease. More fundamentally, Britain could not retain its preeminence indefinitely, as
other less-developed but well-endowed nations began to industrialize. In that sense,
Britain’s relative decline was inevitable. Moreover, in view of the vast resources and
rapid population growth of the United States and Russia, it is not surprising that they
would eventually overtake the small island nation in total output. More difficult to ex-
plain is the low rate of growth of output per capita; from 1873 to 1913 the rate of growth
of total factor productivity (output per unit of all inputs) was zero.
Many explanations for this disappointing performance have been offered. Some
are highly technical, involving the relative prices of primary products and manufac-
tured goods, the terms of trade, investment ratios and patterns, and so on. At the risk
of some oversimplification, for present purposes these can be ignored. Some have
seen availability of natural resources and access to raw materials as a problem, but it
was certainly a minor one. The cotton industry, of course, had always depended on
imported raw cotton, but that did not prevent Britain from becoming the world’s lead-
ing manufacturer of cotton goods; and in any case all other European cotton produc-
ers also obtained their raw material from abroad, frequently by way of Britain. Na-
tive ores of nonferrous metals—copper, lead, and tin—were gradually depleted or
could not compete with cheaper supplies from overseas; but in most cases those
cheaper supplies were mined and imported by British firms operating abroad. By the
beginning of the twentieth century the iron industry imported about one-third of its
ore, mainly from Spain; but that was largely because of the failure of the industry to
switch completely to the Thomas-Gilchrist basic process of steelmaking, which
would have allowed it to use domestic phosphoric ore.
The latter instance points to another possible cause of Britain’s relative decline:
entrepreneurial failure. The question has been (and still is) hotly debated by scholars,
with no definitive resolution in sight. Without question, Victorian Britain had
some dy-
namic, aggressive individual entrepreneurs; William Lever (of Lever
Brothers, later
Unilever) and Thomas Lipton (tea), among others, became household
names. On the
other hand, there is abundant evidence that late Victorian entrepreneurs
generally did
not exhibit the dynamism of their forebears, as the sons and grandsons
of the founders
of family firms adopted the lifestyle of leisured gentlemen and left the
day-to-day op-
 Patterns of Development: The Early Industrializers 223

eration of their firms to hired managers. The tardy, almost half-hearted introduction of
new, high-technology industries (in those days), such as organic chemicals, electric-
ity, optics, and aluminum, even though many of the inventors were British, is one sign
of entrepreneurial lethargy. Even more telling is the tardy and partial response of
British entrepreneurs to new technology in those staple industries in which they were,
or had been, leaders. The slow and incomplete adoption of the Thomas-Gilchrist
process is a case in point and, in the same industry, the relatively slow adoption of the
Siemens-Martin furnace. The textile industries long resisted the introduction of supe-
rior spinning and weaving machinery invented in the United States and on the Conti-
nent, and the Leblanc soda producers fought a thirty-year losing rearguard action
against the Solvay ammonia-soda process, introduced from Belgium.
In part, the backwardness of the British educational system may be blamed for
both the industrial slowdown and the entrepreneurial shortcomings. Britain was the
last major Western nation to adopt universal public elementary schooling, important
for training a skilled labor force. The few great English universities paid slight atten-
tion to scientific and engineering education (the Scottish universities did, however).
Although they had revived somewhat from their eighteenth-century torpor, they were
still primarily engaged in educating the sons of the leisured classes in the classics.
This was part of the perpetuation of aristocratic values, with their disdain for com-
mercial and industrial achievements. The contrast with the eighteenth century is strik-
ing, and ironic; at that time British society was widely regarded as more fluid and
open than those of the ancien régime on the Continent. A century later the percep-
tions, if not the reality, were reversed.
This discussion of the triumphs and tribulations of British industry in the nine-
teenth century has proceeded with only incidental mention of the international con-
text—a glaring omission that will be remedied to some extent in Chapter 12, but a
few remarks need to be made here to put the discussion in proper perspective.
Of all large nations, Great Britain was most dependent on both imports and ex-
ports for its material well-being. Thus, the commercial policies, especially tariffs, of
other nations had important repercussions. More than that, Britain depended to a
greater extent than even smaller nations on the international economy for its suste-
nance. It had by far the largest merchant marine and the largest foreign investments
of any nation—both important earners of foreign exchange. From the beginning of
the nineteenth century, if not before, in spite of its important export industries, Britain
had an “unfavorable,” or negative, balance of commodity trade. The deficit was cov-
ered (more than covered) by the earnings of the merchant marine and foreign invest-
ments, which enabled the latter to increase almost continually throughout the century.
Furthermore, in the latter part of the century the central role of London in the inter-
national insurance and banking industries added still more to these invisible earnings.
The importance of these international sources of income can be judged by a brief com-
parison: earlier we compared the growth rate in gross national product from 1856 to
1873 with that for 1873 to 1913: 2.5 versus 1.9. The comparable figures for gross do-
mestic product (i.e., GNP less foreign earnings) were 2.2 and 1.8.
To conclude this all-too-brief discussion of Great Britain’s pattern of industrial-
ization in the nineteenth century, it should be said that, for all its vicissitudes, the per
capita real income of Britons increased by roughly 2.5 times between 1850 and 1914,
 224 A CONCISE ECONOMIC HISTORY OF THE WORLD

income distribution became slightly more equal, the proportion of the population in
dire poverty fell, and the average Briton in 1914 enjoyed the highest standard of liv-
ing in Europe.

The United States

The most spectacular example of rapid national economic growth in the nineteenth
century was the United States. The first federal census of 1790 recorded fewer than
4 million inhabitants. In 1870, after the limits of continental expansion had been
reached, the population had risen to almost 40 million, larger than that of any Euro-
pean nation except Russia. In 1915 the population surpassed 100 million. Although
the United States received the bulk of emigration from Europe, the largest element
of population growth resulted from the extremely high rate of natural increase. At
no time did the foreign-born population surpass one-sixth of the total. Nevertheless,
the American policy of almost unrestricted immigration until after World War I
placed a definite stamp on national life, and America became known as the melting
pot of Europe.
The numbers of immigrants entering the country annually rose rapidly though un-
steadily from fewer than 10,000 in 1820-25 to more than 1 million in the early years
of the twentieth century. Until the 1890s the great majority came from northwestern
Europe; immigrant stock from those countries continued to constitute the largest part
of the foreign-born population. By 1900, however, new immigrants from Italy and
eastern Europe dominated the listings. In 1910 the foreign-born population numbered
13,500,000 or about 15 percent of the total. Of these, about 17 percent came from
Germany; 10 percent from Ireland; almost as many from Italy and the Austro-Hun-
garian Monarchy; about 9 percent each from Great Britain, Scandinavia, Canada
(many of British origin), and Russia; almost 7 percent from Russian, Austrian, and
German Poland; and a scattering from other countries.
Income and wealth grew even more rapidly than population. From colonial times
the scarcity of labor in relation to land and other resources had meant higher wages
and a higher standard of living than in Europe. It was this fact, together with the re-
lated opportunities for individual achievement and the religious and political liberties
enjoyed by American citizens, that drew the immigrants from Europe. Although the
Statistics are imperfect, it is probable that the average per capita income at least dou-
bled between the adoption of the Constitution and the outbreak of the Civil War. Al-
most surely, it more than doubled between the end of that war and the outbreak
of
World War I. What were the sources of this enormous increase?
Abundant land and rich natural resources help explain why the United States had
higher per capita incomes than Europe, but they do not in themselves explain
the
higher rate of growth. The reasons for that are to be found mainly in the same
forces
that were operating in western Europe, namely, the rapid progress of technolog
y and
the increasing regional specialization, although there were also special factors
at work
in the United States. For example, the continued scarcity and high cost
of labor placed
a premium on labor-saving machinery, in agriculture as well as industry.
In agricul-
ture the best European practices yielded consistently higher returns
per acre than in
 Patterns of Development: The Early Industrializers 225

FIGURE 9-2. Harvesting wheat in Nebraska. Labor scarcity and the introduction of labor-
saving machinery characterized both industry and agriculture in the United States. Here one
man with a reaper-binder and a team of four horses does work that would have occupied a
dozen European workers. (From The American Land, by William R. Van Dersal. Copyright
1943 by Oxford University Press. Reprinted with permission.)

the United States, but American farmers using relatively inexpensive machinery
(even before the introduction of tractors) obtained far larger yields per worker (Fig.
9-2). A similar situation prevailed in manufacturing.
The huge physical dimensions of the United States, with varied climates and re-
sources, permitted an even greater degree of regional specialization than was possi-
ble in individual countries in Europe. Although at the time it won its independence
almost 90 percent of its labor force was engaged primarily in agriculture, and much
of the remainder in commerce, the new nation soon began to diversify. In 1789, the
year the Constitution took effect, Samuel Slater arrived from England and the fol-
lowing year, in partnership with Rhode Island merchants, established America’s first
factory industry. Soon afterward, in 1793, Eli Whitney’s invention of the cotton gin
set the American South on its course as the major supplier of the raw material for the
world’s largest factory industry (see Chapter 7, p. 178).
This dichotomy led to one of the first major debates on economic policy in the
new nation. Alexander Hamilton, the first secretary of the treasury, wished to spon-
sor manufactures by means of protective tariffs and other measures (see his Report
on Manufactures, 1791). Thomas Jefferson, the first secretary of state and third pres-
ident, on the other hand, preferred the “encouragement of agriculture, and of com-
merce as its handmaid” (from his first inaugural address, in 1801). The Jeffersonians
won the political struggle, but the Hamiltonians (after Hamilton’s tragic and untimely
226 A CONCISE ECONOMIC HISTORY OF THE WORLD

death) saw his ideas triumph. The New England cotton industry, after weathering
some severe ups and downs before 1815, emerged in the 1820s, and remained until
1860, as America’s leading factory industry and one of the world’s most productive.
In its shadow a number of other industries, notably the manufacture of guns by means
of interchangeable parts (another Eli Whitney innovation) developed, and laid the ba-
sis for subsequent mass production industries.
Another advantage of the size of the United States was its potential for a large do-
mestic market, virtually free of artificial trade barriers. But to realize that potential
required a vast transportation network. At the beginning of the nineteenth century the
sparse population was scattered along the Atlantic seacoast; communication was
maintained by coastal shipping supplemented by a few post roads. Rivers provided
the only practical access to the interior, and that was severely limited by falls and
rapids. To remedy this deficiency the states and municipalities, in cooperation with
private interests (the federal government was scarcely involved), engaged in an ex-
tensive program of “internal improvements,” meaning primarily the construction of
turnpikes and canals. By 1830 more than 11,000 miles of turnpikes had been built,
mainly in southern New England and the mid-Atlantic states. Canal construction got
seriously underway after 1815 and reached a peak in the 1820s and 1830s. By 1844
more than 3,000 miles had been constructed and more than 4,000 by 1860. Public
funds accounted for almost three-quarters of the total of 188 million dollars invested.
A few of the enterprises—notably New York State’s Erie Canal—were spectacularly
successful, but the majority were not; many did not even recoup the capital invested.
A major reason for the disappointing economic performance of the canals was the
advent of a new competitor, the railway. The railway age began almost simultane-
ously in the United States and Great Britain, although for many years the United
States depended heavily on British technology, equipment, and capital. Nevertheless,
American promotors quickly seized the opportunity of this new means of transporta-
tion. By 1840 the length of completed railways exceeded not only that in Britain, but
that in all of Europe, and continued to do so for most of the century (see Table 8-2).
As in Britain, railways in America were important not only as producers of trans-
portation services but also for their backward links to other industries, especially iron
and steel. Although this importance has sometimes been exaggerated, it should not be
ignored. Before the Civil War, it is true, the iron industry was largely scattered, small-
scale, and dependent on charcoal technology, and much railway material, especially
rails, was imported from Britain. Even so, in 1860 iron ranked fourth in value added
by manufacture, after cotton, lumber, and boots and shoes. After the war, with the
widespread adoption of coke-smelting, the introduction of the Bessemer and open
hearth processes of steelmaking, and the enormous expansion of demand by the
transcontinental railways, it quickly became the largest American industry in terms
of value added by manufacture.
In spite of the rapid growth of manufactures, the United States remained a pre-
dominantly rural nation throughout the nineteenth century. The urban population did
not pull abreast of the rural until after World War I. In part this was because much
manufacturing took place in what were essentially rural areas. As noted earlier, the
iron industry was mainly rural-based until after the Civil War. Other industries,
em-
ploying cheap and efficient water power, remained so even longer. Although steam
 Patterns of Development: The Early Industrializers Piz

engines gradually encroached on water power, it was the advent of central electric-
ity-generating stations that caused the decline of rural-based industries. The westward
movement continued after the Civil War, encouraged by the Homestead Act and the
opening of the trans-Mississippi West by the railways. Agricultural products contin-
ued to dominate American exports, although the non-agricultural labor force sur-
passed workers in agriculture in the 1880s, and the income from manufacturing be-
gan to exceed that from agriculture in the same decade. By 1890 the United States
had become the world’s foremost industrial nation.

Belgium

The first region of continental Europe to adopt fully the British model of industrial-
ization was the area that became the kingdom of Belgium in 1830. In the eighteenth
century it had been (with the exception of the Prince-Bishopric of Liége) a posses-
sion of the Austrian Habsburgs. From 1795 until 1814 it was incorporated in the
French Republic-Empire, and from 1814 to 1830 it formed a part of the kingdom of
the United Netherlands. In spite of these frequent and, in the short run, upsetting po-
litical changes, it exhibited a remarkable degree of continuity in its pattern of eco-
nomic development.
Proximity to Britain was not a negligible factor in its early and successful imita-
tion of British industrialization, but there were other, more fundamental reasons. In
the first place, the region had a long industrial tradition. Flanders was an important
center of cloth production in the Middle Ages, and in the east the Sambre-Meuse val-
ley was famous for its metalwares (see Chapter 5, p. 117). Bruges and Antwerp were
the first northern cities to assimilate Italian commercial and financial techniques in
the late Middle Ages. Although the region’s economy suffered from Spanish rule and
other misfortunes after the revolt of the Dutch (see Chapter 5, p. 96), it recovered
somewhat under the more benign rule of Austria in the eighteenth century. An im-
portant hand-powered rural linen industry grew up in Flanders, and coalmining de-
veloped in the Hainaut basin and the Sambre-Meuse valley.
Second, Belgium’s natural resource endowment resembled that of Britain. It had
easily accessible coal deposits and, despite its small size, produced the largest out-
puts of any continental country until after 1850. It also had iron ore in proximity to
the coal deposits, and ores of lead and zinc as well. In fact, a Belgian entrepreneur,
Dominique Mosselman, played a leading role in founding the modern zinc industry,
and the firm he created, the Société de la Vieille Montagne, virtually monopolized the
industry for many years.
Third, in part because of its location, traditions, and political connections, the re-
gion that became Belgium received important infusions of foreign technology, entre-
preneurship, and capital, and enjoyed a favored position in certain foreign markets,
especially those of France. The process began under the Old Regime, and accelerated
during the period of French domination. The Biolley family, natives of Savoy, settled
at Verviers early in the eighteenth century and entered the woolen industry. By the
end of the century they had by far the most important establishments in that industry.
The Biolleys attracted still other migrants who came to work for them and eventually
 received skilled
228 A CONCISE ECONOMIC foreign
HISTORY OF THE WORLD entrepreneurs

set up on their own. Among these was William Cockerill, a skilled mechanic from the
Leeds woolen industry, who came to Verviers by way of Sweden and in 1799 set up
his shop for the construction of spinning machinery. Louis Ternaux, a native of Sedan
who fled France in 1792 and traveled in Britain studying British industrial processes,
returned to France under the Directory and set up several woolen factories in both
France and the annexed Belgian provinces. In 1807 one of his factories near Verviers,
equipped with water-powered spinning machinery built by Cockerill, employed 1,400
workers. |
In 1720 an Irishman, O’ Kelly, erected the first Newcomen steam pump on the
Continent for a coal mine near Liége. Ten years later an Englishman, George Sanders,
built another for a lead mine at Vedrin. Before the end of the Old Regime almost sixty
Newcomen engines were at work in the area that became Belgium. In 1791 the Périer
brothers of Chaillot, near Paris, installed the first Watt-type engine in the same area,
and by 1814 had built eighteen or more of a total of twenty-four of that type on the
future Belgian territory. They were employed in textile factories, ironworks, and the
cannon foundry in Liége, which the Périers operated themselves, in addition to coal
mines; but their small total number is indicative of the relatively poor performance
of the engines. Mineowners, in particular, preferred the older Newcomen-type en-
gines, which continued to be erected as late as the 1830s.
Coal mines were the largest users of steam engines, of both the Newcomen and
Watt varieties, and also attracted the greatest amount of French entrepreneurship and
capital. During the French domination a traffic of great importance to both the Bel-
gian coal industry and French industry in general developed and survived the various
political transformations after 1814. In 1788 the Austrian Netherlands exported
58,000 tons of coal to France, whereas Britain supplied 185,000 tons; in 1821 the
southern Netherlands exported 252,000, Britain 27,000 tons; and in 1830 Belgium
sent more than 500,000 tons, Britain about 50,000 tons. The network of canals and
other waterways connecting northern France with the Belgian coalfields, begun dur-
ing the Old Regime but continued by the succeeding regimes, greatly facilitated this
traffic. French capitalists found Belgian coal an attractive investment. During the
great industrial booms of the 1830s, 1840s, and as late as the 1870s, when coal pro-
duction spurted, new mines were sunk in Belgium with French capital.
The cotton industry grew up in and around the city of Ghent, which in effect be-
came the Belgian Manchester. Already the principal market for the rural linen indus-
try of Flanders, the city saw the establishment, from the 1770s, of several calico print-
ing works—which, however, did not use mechanical power. At the beginning of the
nineteenth century a local entrepreneur, Lievin Bauwens, not previously associated
with the textile industry, went to England at great personal risk, with France and
Britain at war, as an industrial spy. He managed to smuggle out some Crompton mule-
spinning machines, a steam engine, and even skilled English workers to tend the ma-
chines and build others on their model. He installed the machines in an abandoned
convent in Ghent in 1801; thus began the modern Belgian cotton industry. Bauwens
soon had local competition, but the industry grew rapidly, especially with the protec-
tion of Napoleon’s Continental System. By 1810 it employed 10,000 workers, mainly
women and children. The vagaries of war and, even more, the peace that followed
 Patterns of Development: The Early Industrializers 229

subjected the industry to violent fluctuations that bankrupted many entrepreneurs, in-
cluding Bauwens, but the industry itself survived and grew. Power looms for weav-
ing appeared in the 1830s, and by the end of the decade the introduction of mechan-
ical spinning of flax, also in Ghent, spelled the doom of the rural linen industry.
A traditional iron industry, fueled by charcoal, had long existed in the Sambre-
Meuse valley and in the Ardennes Mountains to the east. It played a significant part
in the military-industrial effort of the Revolutionary and Napoleonic wars, but re-
mained wedded to traditional techniques. In 1821 Paul Huart-Chapel introduced pud-
dling and rolling in his ironworks near Charleroi. In 1824 he began building a coke-
fired blast furnace, which finally became operational in 1827— the first commercially
successful one on the Continent. Others soon followed including, in 1829, that of John
Cockerill, whose partner was none other than the Dutch government of King Willem I.
In 1807 William Cockerill moved his textile machine works from Verviers to
Liege and took two of his sons, James and John, into his partnership. William retired
in 1813, and John bought out his brother in 1822. Meanwhile, about 1815, the firm
began to manufacture steam engines as well as textile machinery; for this purpose
they employed a large number of skilled English workers, some of whom later went
into business for themselves or to work for other Belgian firms. The Cockerills an-
nounced plans to build coke blast furnaces as early as 1820, and in 1823 John ob-
taineda subsidized loan from the Dutch government for that purpose. He also hired
as a consultant David Mushet, a well-known Scottish ironmaster. But difficulties,
both financial and technical, continued to plague the enterprise. In 1825 the govern-
ment purchased a half interest in it for | million florins; but even this further infusion
of government funds was insufficient to enable it to achieve its goal, and before it did
so in 1829 the government had invested an additional 1,325,000 florins.
On the eve of the Belgian Revolution of 1830 (which, ironically, dispossessed the
Dutch government of its investment) the Cockerill firm was unquestionably the
largest industrial enterprise in the Low Countries, and probably the largest on the
Continent (Fig. 9-3). It employed almost 2,000 workers and represented a capital in-
vestment of more than 3 million florins (about 1.5 million dollars), a huge sum for
the times. With its coal and iron mines, blast furnaces, refineries, rolling mills, and
machine shops, it was also one of the first vertically integrated metallurgical firms.
As such, it served as a model for other firms in the burgeoning industry.
The Belgian Revolution, quite mild in terms of loss of life and property, never-
theless produced an economic depression because of the uncertainty over the new
state’s character and future. The depression ran its course shortly, however, and the
middle years of the decade witnessed a vigorous industrial boom. Apart from in-
ternational economic conditions, which were also favorable, two special factors
were primarily responsible for the character and extent of the boom in Belgium: (1)
the government’s decision to build a comprehensive railway network at state ex-
pense (see Chapter 8, p. 202), a boon in particular to the coal, iron, and engineer-
ing industries; and (2) a remarkable institutional innovation to the field of banking
and finance.
In 1822 King Willem I authorized the creation of a joint-stock bank, the Société
Générale pour favoriser I’Industrie Nationale des Pays-Bas (known after 1830 as the
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Société Générale de Belgique), with its headquarters in Brussels; he endowed it with

state properties valued at 20 million florins and invested a considerable portion of his
private fortune in its shares. The bank had the broadest possible attributes for an en-
terprise of its nature, but its performance for the first decade was lackluster at best.
After the revolution, however, with a new governor appointed by the new govern-
ment, it stimulated an investment boom unprecedented on the Continent. Between
1835 and 1838 it created thirty-one new sociétés anonymes with a combined capital
of more than 100 million francs, including blast furnaces and ironworks, coalmining
companies, the Phénix machine works in Ghent, the Antwerp Steamship Company, a
textile factory, sugar refineries, and glassworks. In all of these promotions it had the
cooperation of James de Rothschild of Paris, the most influential investment banker
of his day, who facilitated access to the French capital market.
In 1835 arival group of financiers obtained a charter for another joint-stock bank,
the Banque de Belgique. Modeled on the Société Générale in every important respect
(although substantially smaller), the new bank lost no time in imitating its forerunner
in the field of investment banking. In less than four years it established twenty-four
industrial and financial enterprises with a combined capital of 54 million francs.
These included coal mines, metallurgical establishments, the St. Léonard machine
works in Liége, textile mills, and sugar refineries, and of special importance, the com-
pany that became the world’s largest producer of nonferrous metals, the Société de le
Vieille Montagne, which it purchased from the founder, Mosselman. Like the Société
Générale, the Banque de Belgique had a French connection through the private
Parisian bank of Hottinguer et Cie. It was said that more than nine-tenths of its capi-
tal was French.
By 1840, if not before, Belgium was clearly the most highly industrialized coun-
try on the Continent and, in per capita terms, a very close follower of Great Britain.
Although, like other early industrializers, its rate of industrial growth eventually de-
clined slightly and fell behind that of the newly industrializing nations, by 1914 it re-
mained the most highly industrialized nation on the Continent in per capita output,
second only to Great Britain in Europe. Throughout the century the bases of its pros-
perity continued to be the industries that had initiated its growth: coal, iron (and steel),
nonferrous metals, engineering, and, to a lesser degree than in Britain, textiles. In the
chemical industry the introduction of the Solvay ammonia-soda process boosted an
otherwise slow-growing industry, and Belgian engineering firms excelled in the in-
stallation abroad (as well as at home) of narrow-gauge railways and, after 1880, elec-
tric street railways and interurbans. Throughout the century as well, Belgian industry
depended heavily on the international economy; ultimately, 50 percent or more of its
gross national product derived from exports. France was especially important. Indeed,
under plausible counterfactual assumptions, if Belgium had been incorporated with
France throughout the century, we would have “lost” important statistics on a regional
economy, but those of France would have shown a much more impressive total
growth. As it was, France in 1844 imported 30 percent of all Belgian pig iron pro-
duction; nor was that an exceptional year. For the century as a whole, France imported
more than 30 percent of its coal supplies, of which more than half came from Bel-
gium, mainly from French-owned mines.
* 232 A CONCISE ECONOMIC HISTORY OF THE WORLD

France

Of all the early industrializers, France had the most aberrant pattern of growth. That
fact gave rise to a large literature, both in the nineteenth century and more recently,
devoted to explaining the supposed “backwardness” or “retardation” of the French
economy. Still more recently, however, new empirical research and theoretical in-
sights have shown that the earlier debates were based on a false premise. In fact, al-
though the pattern of industrialization in France differed from that of Great Britain
and the other early industrializers, the outcome was no less efficient and, in terms of
human welfare, may have been more so. Moreover, looking at the patterns of growth
of successful late industrializers, it appears the French pattern may have been more
“typical” than the British.
In seeking a solution to this paradox it is worth looking at the basic determinants
of economic growth. The most striking feature of the nineteenth century, in the case
of France, was its low rate of demographic growth (see Chapter 8, p. 189). When all
relevant measures of growth (GNP, industrial production, etc.) are reduced to a per
capita basis, it appears that France did very well indeed. Second is the matter of re-
sources. British, Belgian, and eventually American and German industrialization
were based to a large extent on abundant coal resources. France, although not totally
deprived of coal, was much less well endowed and, moreover, the character of its de-
posits rendered their exploitation more expensive. These facts had important impli-
cations for other, coal-connected industries, such as iron and steel, that we will ex-
plore later. In technology, France was no laggard—far from it. French scientists,
inventors, and innovators took the lead in several industries, including hydropower
(turbines and electricity), steel (the open hearth process), aluminum, automobiles,
and, in the twentieth century, aviation. The institutional factor is much more complex
and difficult to evaluate; as noted in Chapter 8, the Revolutionary and Napoleonic
regimes provided the basic institutional context for most of continental Europe, but
many important changes took place in the course of the nineteenth century, the analy-
sis of which is most conveniently postponed until another chapter.
It is now well established that modern economic growth in France began in the
eighteenth century. For the century as a whole the rates of growth of both total out-
put and output per capita were roughly the same in France and Britain, perhaps even
slightly higher in France, although France began (and ended) with a lower per capita
output. But the century ended with Britain undergoing an “industrial revolution” (in
cotton) while France was caught up in the throes of a great political upheaval, the
French Revolution. Therein lies an important difference that affected the relative per-
formances of the two economies for much of the nineteenth century. For a quarter of
acentury, from 1790 until 1815, except for the brief truce of Amiens (1802—3) France
was almost continually involved in what has been called the first “modern” war, in-
volving mass conscription of manpower. Under wartime demand the output of the
economy expanded, but mainly along established lines, with little technological
progress. Some spinning machinery was established in the cotton industry, and a few
steam engines were erected, but the important iron and chemical industries experi-
enced technological stasis. Britain also went to war in 1793, but it experienced much
less drain on its manpower, leaving most of the land warfare, except in the Iberian
 Patterns of Development: The Early Industrializers 233

peninsula, to its continental allies. With its control of the seas (and, by the same to-
ken, with France cut off from overseas markets), its exports expanded dramatically,
hastening the technological modernization of its principal industries.
After a rather severe postwar depression, which affected all of continental west-
ern Europe and even touched Great Britain, the French economy resumed its growth
at even higher rates than during the eighteenth century. For the century as a whole
gross national product probably grew at an average rate of between 1.5 and 2.0 per-
cent per year, although these figures are subject to some uncertainty, especially for
the first half of the century. For the period 1871—1914, for which statistics are both
more numerous and more reliable, the French gross national product grew at an av-
erage annual rate of approximately 1.6 percent, whereas that of the United Kingdom
grew at approximately 2.1 percent and that of Germany at 2.8 percent. These figures
appear to indicate that the German economy grew almost twice as fast as the French,
and the British a third again as fast. The figures can be misleading as a guide to the
overall performance of the economy, however, because when all growth rates are re-
duced to a per capita basis the comparable rates are 1.4 percent for France against 1.7
percent for Germany and only 1.2 percent for the United Kingdom. In other words,
the slow demographic growth of France accounts in large measure for the apparently
slow growth of the economy as a whole. Moreover, even the per capita growth rates
can be misleading because Germany, a relatively backward economy in the midnine-
teenth century, began with much lower per capita incomes and thus a smaller statis-
tical base. Furthermore, as a result of the outcome of the Franco-Prussian War, two
of France’s most economically dynamic provinces, Alsace and Lorraine, became part
of the new German Empire in 1871.
Industrial production, the leading edge of modern economic growth in France as
in most other industrializing nations, grew even more rapidly than total product. It
has been variously estimated at between 2.0 and 2.8 percent. The variations arise not
only with different methods of estimation (and different estimators), but also accord-
ing to the number of industries included in the estimates. Throughout the first half of
the century—even as late as the Second Empire—handicrafts, artisan, and domestic
industry accounted for three-quarters or more of total “industrial” production. The
output of these activities grew more slowly than that of modern factories and other
new industries, and in some cases declined absolutely; thus their exclusion from the
indexes shows apparently higher growth rates. Nevertheless, their importance should
not be underestimated, for in large measure they gave French industry its distinctive
characteristics.
Although the overall performance of the economy was quite respectable, it expe-
rienced variations in the rate of growth (quite apart from short-term fluctuations, to
which all industrializing economies were subject). Between 1820 and 1848 the econ-
omy grew at a moderate or even rapid rate, punctuated by occasional minor fluctua-
tions. Coal production, which averaged less than | million tons from 1816 to 1820,
exceeded 5 million tons in 1847, and coal consumption rose even more rapidly. The
iron industry adopted the puddling process and began the transition to coke smelting.
By midcentury more than one hundred coke furnaces produced more pig iron than
350 charcoal furnaces. The foundations of an important machinery and engineering
industry were laid; by midcentury the value of machinery exports exceeded that of
234 A CONCISE ECONOMIC HISTORY OF THE WORLD

imports by more than 3 to 1. Many of the new machines went to the domestic textile
industry, woolens and cottons in particular, which were the largest users of steam en-
gines and other mechanical equipment, as well as the most important industries in
terms of employment and value added. Consumption of raw cotton rose fivefold from
1815 to 1845, and imports of raw wool (in addition to domestic production) increased
sixfold from 1830. Beet sugar refineries grew from one in 1812 to more than one hun-
dred in 1827. The chemical, glass, porcelain, and paper industries, which also grew
rapidly, were unexcelled for the variety and quality of their products. A number of
new industries originated or were quickly domesticated in France in this period, in-
cluding gas lighting, matches, photography, electroplating and galvanization, and the
manufacture of vulcanized rubber. Improvements in transportation and communica-
tion, including extensive canal building, the introduction of steam navigation, the first
railways, and the electric telegraph, facilitated the growth of both domestic and for-
eign commerce. The latter, valued in current prices, increased by 4.5 percent per year
from 1815 to 1847, and, because prices were falling for most of that period, the real
value was even greater. Moreover, France‘had a sizable export surplus in commodity
trade throughout the period, by means of which it obtained the resources for sub-
stantial foreign investments.
The political and economic crises of 1848—51 inserted a hiatus in the rhythm of
economic development. The crisis in both public and private finance paralyzed rail-
way construction and other public works. Coal production dropped abruptly by 20
percent; iron output declined more slowly but in 1850 amounted to less than 70 per-
cent of the 1847 figure. Commodity imports fell by half in 1848 and did not fully re-
cover until 1851; exports dipped slightly in 1848, but recovered the following year.
With the coup d’état of 1851 and the proclamation of the Second Empire the fol-
lowing year, French economic growth resumed its former course at an accelerated
rate. The rate of growth slackened somewhat after the mild recession of 1857, but the
economic reforms of the 1860s, notably the free trade treaties (see Chapter 12) and
the liberalized incorporation laws of 1863 and 1867, provided fresh stimuli. The war
of 1870-71 brought economic as well as military disaster, but France recovered eco-
nomically in a manner that astounded the world. It suffered less from the depression
of 1873 than other industrializing nations, and recovered more quickly. A new boom
developed that carried through to the end of 1881. During this period the railway net-
work grew from about 3,000 kilometers to more than 27,000, the telegraph network
from 2,000 to 88,000. Railway construction provided a powerful stimulus to the re-
mainder of the economy, both directly and indirectly. The iron industry completed the
transition to coke smelting in the 1850s, and in the 1860s and 1870s adopted the
Bessemer and Martin processes for cheap steel. Both coal and iron production regis-
tered a fourfold increase during the period, coal production reaching 20 million tons
and iron 2 million. Foreign commerce, profiting from the continued improvements in
transportation and communication, increased by more than 5 percent annually, and
France, still the world’s second trading nation, increased its share of total world trade
slightly from 10 to 11 percent. Over the period 1851 to 1881 as a whole, French wealth
and income grew at their most rapid rates for the entire century, averaging 2 to 4 per-
cent annually.
The depression that began in 1882 lasted longer and probably cost France more
 Patterns of Development: The Early Industrializers 235

than any other in the nineteenth century. At its inception it resembled many other mi-
nor recessions, beginning with a financial panic, but a number of factors arose to com-
plicate and prolong it: disastrous diseases, which seriously affected the wine and silk
industries for almost two decades; large losses on foreign investments from default-
ing governments and bankrupt railways; the worldwide return to protectionism in
general and the new French tariffs in particular, and a bitter commercial war with Italy
from 1887 to 1898. Foreign trade as a whole fell off and remained virtually station-
ary for more than fifteen years, and with the loss of foreign markets, domestic indus-
try also stagnated. Capital accumulation fell to its lowest point in the second half of
the century.
Prosperity returned at last, just before the end of the century, with the extension
of the Lorraine ore fields and the advent of such new industries as electricity, alu-
minum, nickel, and automobiles. France once more enjoyed a rate of growth compa-
rable with that of 1815-48, if not with 1851—81. La belle époque, as the French call
the years immediately preceding World War I, was thus a period of material prosper-
ity as well as cultural efflorescence. Although precise comparisons are not possible,
it is likely that the average French person in 1913 enjoyed a material standard of liv-
ing as high as or higher than that of the citizens of any other continental nation.
Certain key features of the French pattern of growth remain to be analyzed: the
low rate of urbanization, the scale and structure of enterprise, and the sources of in-
dustrial power. All are interrelated, and closely related to two other features that have
already been emphasized, the low rate of demographic growth and the relative scarcity
of coal.
Of all major industrial nations, France had the lowest rate of urbanization. The
slow growth of its total population was mainly responsible, but the proportion of the
labor force in agriculture and the structure and location of industrial enterprise are
also implicated. France also had the largest proportion of its labor force in agriculture
among major industrial nations—about 40 percent in 1913. This fact has frequently
been pointed to as primary evidence of the “retardation” of the French economy, but
the correct interpretation is not so simple. A number of factors have been invoked to
account for the relatively high proportion of population in agriculture—including the
low rates of population growth and urbanization!—but it is less often observed that
at the beginning of this century France was the only industrial nation in Europe that
was self-sufficient in foodstuffs, and indeed had a surplus for export.
With respect to the scale and structure of enterprise, France was famous (or no-
torious) for the small scale of its firms. According to the census of 1906, fully 71 per-
cent of all industrial firms had no wage earners; their workers—owners and family
members—constituted 27 percent of the industrial labor force. At the other extreme,
574 large firms employed more than 500 workers each; their workers accounted for
about 10 percent of the industrial labor force, or 18.5 percent of industrial wage work-
ers. Significantly, these firms were concentrated in mining, metallurgy, and textiles,
the same industries in which large-scale, capital-intensive enterprises prevailed in
other major industrial countries, except that there were more of them. Between these
two extremes lay large numbers of small and medium-sized firms employing the vast
majority of wage earners. At the lower end of the scales, those employing fewer than
ten workers each were in the traditional artisanal industries, such as food processing,
236 A CONCISE ECONOMIC HISTORY OF THE WORLD

clothing, and woodworking, whereas those with more than 100 workers were mainly
in modern industries—chemicals, glass, paper, and rubber, as well as textiles, min-
ing, and metallurgy. Two other characteristics of the relatively small scale of French
enterprises should not pass notice: high value added (luxury articles) and geographi-
cal dispersion. Rather than having just a few conurbations of heavy industry, as
Britain and Germany had, France had widely dispersed, highly diverse industries in
small towns, villages, and even the countryside. In part, the dispersion was deter-
mined by the nature of the power sources available.
As previously pointed out, and as graphically depicted in Figure 9-4, France was
the least well endowed with coal of all early industrializers. At the beginning of the
twentieth century coal production per capita in France was about one-third that of Bel-
gium and Germany, and about one-seventh that of Great Britain, even though France
was exploiting its known reserves at a higher rate than the other countries. In the early
part of the nineteenth century the most important mines, with one exception, were lo-
cated in the hilly central and southern portions of the country, distant from markets
and difficult of access, especially before the coming of the railway. Nevertheless, it
was on the basis of these resources that France established its early coke-smelted iron
industry. From the 1840s on the great northern coalfield, an extension of those in Bel-
gium and Germany, came into use and served to fuel the growth of the modern steel

FiGurE 9—4. Per capita production of coal, 1820-1913. (Belgium—L’Annuaire Statistique

de la Belgique, 1871 and 1914 editions; France—Annuaire Statistique de la France, 1965
edition; Germany— Walther G. Hoffman, Das Wachstum der Deutschen Wirtschaft seit der
mitte des 19. Jahrhunderts, New York, 1965; United Kingdom—B. R. Mitchell and Phyllis
Deane, Abstract of British Historical Statistics, Cambridge, 1962.)

8 “

——-—-— Belgium production per capita

------- France production per capita
Te Germany production per capita A /
—-—-- United Kingdom production per capita /i
:

5 —_

may

Tons
capita
per
3 in .

WE
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13 site
Vie ee 7
i Se
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1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920
 Patterns of Development: The Early Industrializers 287,

8 —

———-— Belgium consumption per capita

ea een France consumption per capita
Germany consumption per capita
—-—-- United Kingdom consumption per capita
6 pets

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1820 1830 1840 1850 1860" 1870 188, 1890 1900" 1910 1920

FiGurE 9-5. Per capita consumption of coal, 1820-1913. (Belgium—L’Annuaire Statis-

tique de la Belgique, 1871 and 1914 editions; France—Annuaire Statistique de la France,
1965 edition; Germany—Walther G. Hoffmann, Das Wachstum der Deutschen Wirtschaft
seit der mitte des 19. Jahrhunderts, New York, 1961; United Kingdom—B. R. Mitchell and
Phyllis Deane, Abstract of British Historical Statistics, Cambridge, 1962.)

industry. Still, for the century as a whole France depended on imports for about one-
third of its coal consumption; and even with that French consumption per capita was
only a fraction of that of its neighbors (Fig. 9-5).
To offset the scarcity and high cost of coal France relied to a much greater extent
than its coal-rich neighbors on water power. It has already been pointed out that,
thanks in part to improved technology, including the introduction of the hydraulic tur-
bine, water power remained competitive with steam until near the middle of the cen-
tury, even in Great Britain. On the Continent, especially in France and other coal-poor
countries, it retained its importance for much longer. In France in the early 1860s
falling water supplied almost twice the horsepower of steam engines, and in terms of
total horsepower it continued to increase until the 1930s (quite apart from its use in
generating electricity, which became increasingly important from the 1890s). But the
characteristics of water as a source of power imposed restraints on its use. The best
locations were generally remote from the centers of population; the number of users
in any given location was limited to one or a very few, and the size of installations
was similarly limited. Thus, water power, important though it was for French indus-
trialization, helped impose a pattern: small firm size, geographical dispersion, and
low urbanization. As we will see, these characteristics came to be shared by other
coal-poor countries.
 A CONCISE ECONOMIC HISTORY OF THE WORLD
238

Germany

it
Germany was the last of the early industrializers. Indeed, a case can be made that
cen-
was something of a laggard. Poor and backward in the first half of the nineteenth
tury, the politically divided nation was also predominantly rural and agrarian. Small
of
concentrations of industry existed in the Rhineland, Saxony, Silesia, and the city
Berlin, but they were mostly of the handicraft or proto-industrial variety. Poor trans-
portation and communications facilities held back economic development, and the
numerous political divisions with their separate monetary systems, commercial poli-
cies, and other obstacles to commercial exchange further retarded progress.
On the eve of the First World War, in contrast, the unified German Empire was
the most powerful industrial nation in Europe. It had the largest and most modern in-
dustries for the production of iron and steel and their products (including munitions
and military hardware), electrical power and machinery, and chemicals. Its coal out-
put was second only to that of Great Britain, and it was a leading producer of glass,
optical instruments, nonferrous metals, textiles, and several other manufactured
goods. It had one of the densest railway networks, and a high degree of urbanization.
How did this remarkable transformation come about?
With only slight oversimplification, German economic history in the nineteenth
century can be divided into three fairly distinct, almost symmetrical periods. The first,
extending from the beginning of the century to the formation of the Zollverein in
1833, witnessed a gradual awakening to the economic changes taking place in Britain,
France, and Belgium, and the creation of the legal and intellectual conditions essen-
tial for transition to the modern industrial order. In the second, a period of conscious
imitation and borrowing that lasted until about 1870, the actual material foundations
of modern industry, transportation, and finance took shape. Finally, Germany rose
rapidly to the position of industrial supremacy in continental western Europe that it
continues to occupy. In each of these periods foreign influences played an important
role. In the beginning the influences, like the changes themselves, were primarily le-
gal and intellectual, emanating from the French Revolution and the Napoleonic reor-
ganization of Europe. A brisk inflow of foreign capital, technology, and enterprise,
reaching a crescendo in the 1850s, marked the second period. In the final period the
expansion of German industry into foreign markets dominated the picture.
The left bank of the Rhine, united politically and economically with France un-
der Napoleon, adopted the French legal system and economic institutions, most of
which were retained after 1815. Under Napoleon French influence was quite strong
in the Confederation of the Rhine (most of central Germany). Even Prussia adopted
in modified form many French legal and economic institutions. An edict of 1807 abol-
ished serfdom, permitted the nobility to engage in “bourgeois occupations [commerce
and industry] without derogation to their status,” and abolished the distinction be-
tween noble and non-noble property, thus effectively creating “free trade” in land.
Subsequent edicts abolished the guilds and removed other restrictions on commercial
and industrial activity, ameliorated the legal status of the Jews, reformed the fiscal
system, and streamlined the central administration. Still other reforms gave Germany
the first modern educational system (see Chapter 8, p. 217).
One of the most important economic reforms instigated by Prussian officials led
 Patterns of Development: The Early Industrializers 239

to the formation of the Zollverein (literally, toll or tariff union). They laid the foun-
dations in 1818 by enacting a common tariff for all of Prussia, primarily in the inter-
ests of administrative efficiency and a higher fiscal yield. Several small states, some
of them completely surrounded by Prussian territory, joined the Prussian tariff sys-
tem, and in 1833 a treaty with the larger states of South Germany, except for Austria,
resulted in the creation of the Zollverein itself. The Zollverein did two things: in the
first place, it abolished all internal tolls and customs barriers, creating a German
“common market”; second, it created a common external tariff determined by Prus-
sia. In general, the Zollverein followed a “liberal” (i.e., low-tariff )commercial pol-
icy, not on economic principle but because Prussian officials wanted to exclude pro-
tectionist Austria from participation.
If the Zollverein made a unified German economy possible, the railway made it
a reality. The rivalry among the various German states, which contributed to the
number and quality of German universities, also hastened railway construction. As
a result the German rail network expanded more rapidly than that of France, for ex-
ample, which had a unified government but was divided over the question of state
versus private enterprise. Railway construction also required the states to get to-
gether to agree on routes, rates, and other technical matters, resulting in greater inter-
state cooperation.
Important as they were for unifying the country and stimulating the growth of both
domestic and international commerce, the railways’ role in the growth of industry, by
means of both forward and backward linkages, was no less important. Until the 1840s
Germany produced less coal than France or even tiny Belgium. It also produced less
iron than France until the 1860s. Thereafter progress in both industries was extremely
rapid; this progress owed much (though not everything) to the extension of the rail-
way network, because of both the direct demand of railways for their output and the
lower cost of transportation that they provided to other users.
The key to the rapid industrialization of Germany was the rapid growth of the coal
industry, and the key to the rapid growth of the coal industry was the Ruhr coalfield.
(The Ruhr River and valley, from which the coalfield and the industrial region, the
largest in the world, get their name, actually form the southern boundary of the re-
gion. The larger part of the area lies to the north.) Just before World War I the Ruhr
produced about two-thirds of Germany’s coal. Prior to 1850, however, the region was
much less important than Silesia, the Saar, Saxony, and even the Aachen region. Com-
mercial production began in the Ruhr valley proper in the 1780s, under the direction
of the Prussian state mining administration (Fig. 9-6). The mines were shallow, the
techniques simple, and the output insignificant. In the late 1830s the “hidden” (deep)
seams north of the Ruhr valley were discovered. Their exploitation, although ex-
tremely profitable, required greater capital, more sophisticated techniques (use of
steam pumps, etc.), and greater freedom of enterprise. All of these were eventually
supplied, although not without bureaucratic delays, largely by foreign firms (French,
Belgian, British). From about 1850 coal production in the Ruhr rose very rapidly, and
with it the production of iron and steel, chemicals, and other coal-based industries
(Fig. 9-7).
The German iron industry as late as 1840 had a primitive aspect. The first pud-
dling furnace began production in 1824, but it was financed by foreign capital. Me-
240 A CONCISE ECONOMIC HISTORY OF THE WORLD

Sa

FiGurE 9—6. The Ruhr River and valley. This picture shows the Ruhr at the beginning of
the nineteenth century when it was still predominantly rural. (Note, however, the mine en-
trance on the left, the horses carrying bags of coal, and the ship awaiting coal at the pier.) A
century later the same area was the site of the greatest concentration of heavy industry in the
world. (From Sozialgeschichte der Bergarbeiterschaft an der Ruhr im 19. Jahrhundert, by
Klaus Tenfelde. Copyright 1981 by Verlag Neue Gesellschaft GmbH, Bonn, Germany.)

Coalfields exploited:

B=] before 1840 Oar 2 Miles 20

[ae] between 1840 and 1900 a 2 Manster

NN between 1900 and 1927

QA.
nave:
Rhine 2 \ x MS OS y

Recklinghausen pee) Ce
Cs
Gladbeck ae we
Dinslaken
ON Y ° GEE \
coves at
Wo
Q:
erne
Coes, Z ?y Be,
pig \)
erste Gelsenkirchen _ es eee

Sa" ROE eT moe BOCHUM

Ow /Oberhausen
Bure SO Milheim Ruhr R. OWitten” ~~

Krefeldg

FIGURE 9-7. The Ruhr industrial area. [Used with permission based on material published
in The Times Atlas of World History (1978, 1984).]
 Patterns of Development: The Early Industrializers 241

dieval bloomeries were still in use in the 1840s. Coke smelting began in Silesia, but
development of the West German industry is almost synonymous with development
of the Ruhr, and that came largely after 1850. By 1855 there were about twenty-five
coke furnaces in the Ruhr and a similar number in Silesia; these and a scattering of
other coke furnaces produced almost 50 percent of the total German output of pig
iron, although charcoal furnaces still outnumbered them 5 to 1.
Production of Bessemer steel began in 1863, and the Siemens-Martin process was
adopted soon afterward. But not until after the Gilchrist-Thomas process was intro-
duced, in 1881, permitting the use of the phosphoric iron ore of Lorraine, did German
steel production accelerate dramatically. For the period 1870—1913 as a whole steel
production increased at an average annual rate of more than 6 percent, but the most
rapid growth came after 1880. German steel production surpassed that of Great
Britain in 1895, and by 1914 it amounted to more than twice the British output. The
German industry was large not only in its total output, but also in its individual units
of production. In the early years of the twentieth century average output per firm was
almost twice as great as that in Britain. German firms quickly adopted the strategy of
vertical integration, acquiring their own coal and ore mines, coking plants, blast fur-
naces, foundries and rolling mills, machine shops, and so on.
The year 1870—71, so dramatic in political history with the Franco-Prussian War,
the overthrow of the second Empire in France, and the creation of anew Second Em-
pire in Germany, was less dramatic in economic history. Economic unification had
already been achieved, and a new cyclical upswing in investment, trade, and indus-
trial production had begun in 1869. But the successful outcome of the war, including
an unprecedented 5 billion franc indemnity, and the proclamation of the empire added
euphoria to the boom. In 1871 alone 207 new joint-stock companies came into exis-
tence (aided, to be sure, by the new free incorporation law of the North German Con-
federation of 1869), and an additional 479 in 1872. In the process German investors,
aided and encouraged by the banks, began buying back foreign holdings of German
firms, and even began investing abroad. This hyperactivity came to a sudden halt with
the financial crisis of June 1873 that heralded a severe depression. Nevertheless, af-
ter the depression had run its course growth resumed more strongly than before. From
1883 to 1913 net domestic product increased at an annual rate in excess of 3 percent;
in per capita terms, the increase was almost 2 percent annually.
The most dynamic sectors of German industry were those producing capital
goods or intermediate products for industrial consumption. Coal, iron, and steel pro-
duction were notable, as we have seen. Even more notable were two relatively new
industries, chemicals and electricity, as shown in Table 9-1. The table also shows
that consumer goods industries, such as textiles, clothing and leather, and food pro-
cessing, had growth rates substantially below average. The emphasis given to capi-
tal and intermediate goods in Germany, and the relative neglect of consumer goods,
contrasts markedly with the situation in France, and helps to explain their differing
patterns of growth.
Prior to 1860 the chemical industry scarcely existed in Germany, but the rapid
growth of other industries created a demand for industrial chemicals, especially al-
kalis and sulfuric acid. Stimulated by the new literature on agricultural chemistry, a
German invention, farmers also demanded artificial fertilizers. Unburdened by obso-
 A CONCISE ECONOMIC HISTORY OF THE WORLD

TABLE 9-1. Rates of Growth of Output and Labor Productivity

in Germany, 1870-1913

% Growth Rate % Growth Rate

of Output, of Labor Productivity,
Industrial Sector 1870-1913 1875-1913

Stones and earth Sel i

Metal producing : Dal 6.3
Iron manufacture ay) na
Steel manufacture 2.4 na
Metalworking 53 2
Chemicals 6.2 23
Textiles De. Dall
Clothing and leather working Paes 1.6
Foodstuffs and drinks Dif 0.9
Gas, water, and electricity 9:7 3.6
Average for all industry and handwork Bell 1.6

Source: Alan S. Milward and S. B. Saul, The Development of the Economies of Continental Europe,
1850-1914 (Cambridge, MA, 1977), p. 26; derived from W. G. Hoffmann, Das Wachstum der deutschen
Wirtschaft seit der Mitte des 19. Jahrhunderts (Berlin, 1965).

lete plants and equipment, chemical entrepreneurs could use the latest technology in
a rapidly changing industry. This was most strikingly exemplified by the advent of
organic chemicals. As previously noted (in Chapter 8, p. 206), the first synthetic dye
was discovered accidentally by an English chemist, Perkin; but Perkin had studied
under A. W. Hofmann, a German chemist brought to the new Royal College of Chem-
istry in 1845 at the suggestion of Prince Albert. In 1864 Hofmann returned to Ger-
many as a distinguished professor and consultant to the fledgling dyestuffs industry.
Within a few years the industry, drawing on the personnel and resources of the uni-
versities, established its dominance in Europe and the world. The organic chemical
industry was also the first in the world to establish its own research facilities and per-
sonnel. As a result it brought about the introduction of many new products, and also
dominated the production of pharmaceuticals.
The electrical industry grew even more rapidly than the chemical. Science-based,
it drew on the university system for personnel and ideas, as did the chemical indus-
try. On the side of demand, the extremely rapid urbanization of Germany that occurred
just as the industry was growing up gave it an extra fillip; the German industry did
not have to struggle against a well-entrenched gas light industry, as did the British in-
dustry. Illumination and urban transport were the two most important early uses for
electricity, but engineers and entrepreneurs soon developed other uses. By the begin-
ning of the twentieth century electric motors were competing with and displacing
steam engines as prime movers.
A notable characteristic of the chemical and electrical industries, as indeed of
coal, iron, and steel, was the large size of firms. Employees for most firms in these
 Patterns of Development: The Early Industrializers 243

industries numbered in the thousands; at the extreme, the electrical firm of Siemens
and Schuckert on the eve of World War I had more than 80,000 employees. To some
degree the large size of firms was dictated by technical economies of scale. Deep min-
ing, for example, required expensive pumps, hoists, and other equipment; it was more
economical, therefore, to employ the machinery with a large volume of output to
spread the cost. Not all instances of large firms can be explained by such logic, how-
ever. In some cases pecuniary economies of scale—arrangements that provided ex-
tra profits or rents to promoters or entrepreneurs without reducing the real cost to so-
ciety—furnish a better explanation of large-scale enterprise. The close connections
between the banking system and manufacturing industries in Germany are frequently
held responsible; this possibility is discussed in greater detail in Chapter 11.
Yet another notable characteristic of the German industrial structure was the
prevalence of cartels. A cartel is an agreement or contract among nominally inde-
pendent firms to fix prices, limit output, divide markets, or otherwise engage in mo-
nopolistic, anticompetitive practices. Such contracts or agreements were contrary to
the common law prohibition of combinations in restraint of trade in Britain and the
United States, and to the Sherman Anti-Trust Act in the United States, but they were
perfectly legal and indeed enforceable by law in Germany. Their number grew rapidly
from 4 in 1875 to more than 100 in 1890 and almost 1,000 by 1914. Elementary eco-
nomic theory teaches that cartel behavior restricts output in order to increase profits,
but such a prediction is scarcely compatible with Germany’s record of rapid growth
of output even—or especially—in cartelized industries. The resolution of this para-
dox is to be found in the combination of cartels with protective tariffs after Bismarck’s
conversion to protection in 1879. By means of protective tariffs, cartels could main-
tain artificially high prices in the domestic market (which also implied restrictions on
domestic sales or other market-sharing devices), while engaging in virtually unlim-
ited exports to foreign markets, even at prices below the average cost of production
if the markup on domestic sales could offset the nominal losses on exports. The prof-
itability of this type of activity was enhanced by the practice of the state-owned or
regulated railways of charging a lower rate for shipments to the country’s borders than
for intracountry shipment.
As a result of these various devices, German exports increased rapidly in the
world market—so much so that even free trade Britain adopted retaliatory measures,
as is recounted in Chapter 12.
 10
Patterns of Development:
Latecomers and No-Shows

Elsewhere in Europe, before 1850, scatterings of modern industry existed—and in

Bohemia more than that—but it could scarcely be said that a process of industrial-
ization was underway. Such a process did begin in the second half of the century,
markedly in Switzerland, the Netherlands, Scandinavia, and the Austro-Hungarian
Empire; much more weakly in Italy, the Iberian countries, and the Russian Empire;
and hardly at all in the new nations of the Balkans and the declining Ottoman Em-
pire. When and where it did take place, it did so under vastly different circumstances
than in the early industrializers, and consequently with different patterns.
To the extent that early industrialization was associated with coal—as it clearly
was in Britain, Belgium, and Germany—the association shows up in the figures on
per capita consumption (see Fig. 9-5). The late industrializers, on the other hand, had
little or no coal within their own borders. Production in Spain, Austria, and Hungary
barely sufficed to satisfy the meager domestic demand, if that. Russia had huge de-
posits (in the midtwentieth century the Soviet Union was the world’s most important
producer), but these had scarcely begun to be developed before 1914. The other coun-
tries in question had negligible coal resources, depending almost entirely on imports
for their consumption.
Figure 10-1 shows the per capita coal consumption of some of the late industri-
alizers. Two of its features should be stressed. First, as late as the beginning of the
twentieth century per capita consumption in even the most successful of the late in-
dustrializers amounted to less than one-fifth that of Great Britain and less than one-
third that of Belgium and Germany. Second, given the limited consumption in all of
the late industrializers, the consumption of the most successful rose much more
rapidly than that of the others. Since the principal use of coal in the coal-scarce coun-
tries was to fuel locomotives, steamships, and stationary steam engines, and since vir-
tually all of the coal of the most successful late industrializers had to be imported, it
appears that demand was the dominant force in promoting their greater relative con-
sumption. In other words, their greater consumption was a result, not a cause, of suc-
cessful industrialization.
To appreciate the significance of this proposition it is necessary to consider indi-
vidual cases.

244
 Patterns of Development: Latecomers and No-Shows 245

liga
Denmark consumption per capita
——-—-— Italy consumption per capita
1G (eee eeae Switzerland consumption per capita
—-—---— Sweden consumption per capita
—--— Spain consumption per capita

0.8
ig
a
1°}
oO

© 0.6
yn
Cc
le}
7

0.47

OZ =

O l (ee Let | | |
eee aes

RE ee eee
1820 1830 1840 1850 1860 1870 1880 ~~ 1890" = 1900 1910 1920

FiGurE 10—1. Coal consumption per capita, 1820—1913. (From European Historical Sta-
tistics, 1750-1970, by B. R. Mitchell, New York, 1975).

Switzerland

As Germany was the last of the early industrializers, Switzerland was the earliest of
the latecomers. Some scholars dispute this statement, claiming that Switzerland was
more highly industrialized than Germany, and at an earlier date—indeed, that
Switzerland had undergone an “industrial revolution” or “take-off” in the first half of
the nineteenth century. Such controversies are largely semantic and of little conse-
quence; when the facts are clearly stated and the patterns exposed, the question of pri-
ority becomes one of definition. Although Switzerland had already acquired, in the
first half of the century or earlier, some important assets that played an important role
in its rapid industrialization after 1850—notably a high level of adult literacy—its
economic structure was still largely preindustrial. In 1850 more than 57 percent of the
labor force was engaged primarily in agricultural pursuits; less than 4 percent worked
in factories. The great majority of industrial workers labored at home or in small
workshops without machinery. Switzerland had barely entered the railway age, hav-
ing fewer than thirty kilometers of recently opened track. Most important, the coun-
try lacked an appropriate institutional structure for economic development. Not until
1850 did it obtain a customs union (unlike Germany, which had a Zollverein but no
central government), an effective monetary union, a centralized postal system, or a
uniform standard of weights and measures.
A small country in both territory and population, Switzerland is also poor in con-
ventional natural resources other than water power and timber; it has virtually no coal.
Because of its mountains fully 25 percent of its land area is uncultivatable and, in fact,
246 A CONCISE ECONOMIC HISTORY OF THE WORLD

practically uninhabitable. In spite of these handicaps, the Swiss achieved one of the
highest living standards in Europe by the beginning of the twentieth century, and, by
the last quarter of that century, one of the highest in the world. How did they do it?
The population grew from just under 2 million in the early years of the nineteenth
century to just under 4 million in 1914. The average growth rate was thus slightly less
than those of Britain, Belgium, and Germany, but substantially higher than that of
France. The population density was below that of all four countries, but this is largely
explained by the nature of the tetrain. Because of the scarcity of arable land, the Swiss
had long practiced the combination of domestic industry with farming and dairying.
They did so largely with imported raw materials and, by the latter part of the nine-
teenth century, with imported foodstuffs as well. Thus Switzerland, like Belgium and
to an even greater extent than Britain, depended on international markets.
Swiss success in international markets resulted from an unusual, if not unique,
combination of advanced technology with labor-intensive industries. This combina-
tion produced high-quality, high-priced, and high value-added products, such as tra-
ditional Swiss clocks and watches, fancy textiles, intricate specialized machinery, and
exquisite cheese and chocolate candy. It is worth emphasizing that the labor-intensive
industries were primarily skilled labor intensive. If this appears paradoxical, the res-
olution lies in the high rate of literacy in most of the Swiss cantons (for noneconomic
reasons) and in the elaborate systems of apprenticeship that prevailed. This provided
a skilled, adaptable labor force willing to work for relatively low wages. To this was
added the justly famous Swiss Institute of Technology, founded in 1851, which pro-
vided trained brainpower and ingenious solutions for difficult technical problems that
arose in the late nineteenth century.
Switzerland had an important cotton textile industry in the eighteenth century—
the largest after England—but it was based on handicraft processes and part-time labor.
In the last decade of the eighteenth century the cotton spinning industry, in particular,
was virtually wiped out by competition from the more advanced British industry. After
ups and downs during and immediately after the Napoleonic period, the industry re-
vived and even prospered. It had an unusual combination of technologies: mechanized
spinning (using water power for the most part, not steam), employing the cheap labor
of women and children, but handloom weavers, who persisted long after their counter-
parts in Britain had disappeared from the scene (Fig. 10-2). This was possible because
they concentrated on high-quality fabrics, including embroidery, and improved the
handloom itself, incorporating elements of the Jacquard loom, invented earlier in the
century for the silk industry. Eventually the improvements included mechanization, but
still with special designs for high quality. By 1900 handlooms were rarities.
Although more traditional than the cotton industry, the silk industry actually con-
tributed more to Swiss economic growth in the nineteenth century, both in terms of
employment and exports, than the former. It also underwent technological modern-
ization. Switzerland had rather small woolen and linen industries, likewise concen-
trating on quality products, and manufactured some clothing, shoes, and other leather
goods. Overall, textiles and related products dominated Swiss exports throughout the
century. In current values they rose from about 150 million francs in the 1830s to more
than 600 million in 1912-13. As a proportion of total exports, however, they fell from
about three-quarters to slightly less than half during the same period.
 Patterns of Development: Latecomers and No-Shows 247

Ficure 10-2. Swiss handloom weaver. The Swiss specialized in high-quality, hand-pro-
duced fabrics. Here a weaver is at work in his basement workshop, assisted by his wife,
around 1850. (Swiss National Museum, Zurich.)

The industries that gained on textiles in supplying export markets included both
traditional industries and some that were the creations of the process of industrial-
ization itself. These were, in order of importance on the eve of World War I, machin-
ery and specialized metal products, foods and beverages, clocks and watches, and
chemicals and pharmaceuticals. In view of Switzerland’s lack of coal and small iron
ore deposits, it wisely did not attempt to nurture a primary iron industry (the small
charcoal iron industry of the Jura Mountains disappeared in the first half of the cen-
tury); but relying on imported raw materials, it did develop an important industry for
the transformation of metals. It began in the 1820s with the manufacture of machin-
ery for the cotton spinning industry and, given the importance of water power to the
economy, it is not surprising that it expanded to include the production of water-
wheels, turbines, gears, pumps, valves, and a host of other highly specialized, high-
value products. When the age of electricity dawned the industry quickly turned to the
manufacture of electrical machinery; in fact, Swiss engineers contributed many im-
portant innovations to the new industry, particularly in the area of hydroelectricity.
The decline in coal consumption per capita after 1900, primarily as a result of the
electrification of the railways (see Fig. 10-1), offers vivid testimony.
The dairy industry, renowned for its cheese, converted its production from a hand-
icraft to a factory process, thereby greatly expanding output and exports. The indus-
try also developed the production of condensed milk (based on an American patent)
and engendered two sibling industries, the production of chocolate and of prepared
baby foods. The other traditional industry, the manufacture of clocks and watches,
248 A CONCISE ECONOMIC HISTORY OF THE WORLD

continued to be characterized by handwork by highly skilled (though frequently part-

time) artisans and by a minute division of labor. Some specialized machinery was de-
veloped for the industry, particularly for the production of standardized, inter-
changeable parts; but the final assembly remained a hand process.
Finally, the chemical industry developed in response to the process of industrial-
ization itself. Lacking natural resources, Switzerland had no heavy, or inorganic,
chemical industry worth mentioning. In 1859 and 1860, after the discovery of artifi-
cial dyestuffs, two small firms began manufacturing them in Basel to supply the lo-
cal ribbon industry. Subsequently two other firms joined them. Significantly, although
all four began as suppliers to local industry, they soon discovered they could not com-
pete with German firms in supplying standard bulk dyes; as a result they began to spe-
cialize in exotic, high-priced items in which they soon had a virtual world monopoly.
Before the end of the century they sold more than 90 percent of their production out-
side Switzerland. They also developed through their own research various pharma-
ceutical specialties. In the early twentieth century the industry, employing fewer than
10,000 workers, accounted for 5 percent of total Swiss exports. Its exports amounted
to more than 7,500 francs per employee, more than twice as much as the watch in-
dustry and four times as much as the textile industry. In global terms, it was the
world’s second largest; although it produced only a fifth as much as Germany, that
was as much as the rest of the world combined.
Probably no other country in Europe was more radically transformed by the ad-
vent of railways than Switzerland, but, paradoxically, no other railways were, as a
whole, less profitable. Swiss investors apparently foresaw at least the latter possibil-
ity, for they proved extremely reluctant to invest in them, preferring those of the
United States, and left their own largely to foreign (mainly French) capitalists. Con-
struction began in earnest in the 1850s; 1882 saw completion of the first of the Alpine
tunnels, that of Gotthard. By the 1890s, as a result of high construction and operat-
ing costs and low traffic density, most of the railways were in or on the verge of bank-
ruptcy. In 1898 the Swiss government purchased the railways from their (largely for-
eign) Owners at a fraction of their actual cost. Shortly afterward it undertook their
electrification.
The trends established in the second half of the nineteenth century continued in
the twentieth: the decline in the relative importance of agriculture, the growth in that
of industry and (even more so) services, and the continued dependence on interna-
tional demand, especially tourism (from the 1870s) and financial services (from
World War I). In the 1960s the machinery and metallurgical industries accounted for
about 40 percent of export earnings, chemicals and pharmaceuticals for 20 percent,
clocks and watches for 15 percent, textiles for 12 percent, and food and beverages for
5 percent.

The Netherlands and Scandinavia

It may appear incongruous to include the Netherlands with the Scandinavian coun-
tries in a discussion of the pattern of industrialization; actually, it is quite logical. The
common features of the Scandinavian countries that frequently cause them to be
 Patterns of Development: Latecomers and No-Shows 249

lumped together in discussions are cultural, not economic. In terms of economic

structure, the Netherlands have more in common with Denmark than either do with
Norway and Sweden. The usual pairing of the Netherlands with Belgium reveals that
the latter was an early industrializer and the former was not; that Belgium had coal
and developed heavy industry, the Netherlands did not; beyond that, the comparison
is not very helpful. The comparison with other successful latecomers, on the other
hand, despite differences in resources, reveals more about the process of industrial-
ization, especially late industrialization.
All four of these countries, after lagging considerably behind the leaders in the
first half of the century, spurted rapidly in the second half, and especially in the last
two or three decades. For the period 1870-1913 per capita income in the Scandina-
vian countries grew at roughly the same annual rate as in France (1.45): Sweden
(1.46), Norway (1.30), and Denmark (1.57). Only the Netherlands (0.90) lagged be-
hind. But in terms of levels of per capita income, Denmark and the Netherlands had
achieved higher levels of per capita income than either France or Germany in both
1870 and 1913. Norway and Sweden had remained at lower average levels while
keeping pace with average growth rates for northern Europe. In view of their later
start, and their lack of coal, it is important to understand the sources of their success.
All of them, like Belgium and Switzerland, had small populations. At the begin-
ning of the nineteenth century Denmark and Norway had fewer than | million, while
Sweden and the Netherlands had fewer than 2.5 million inhabitants. All exhibited
moderate growth rates in the course of the century, Denmark the highest and Sweden
the lowest; but all more than doubled in population by 1900. Density varied greatly.
The Netherlands had one of the highest densities in Europe, whereas Norway and
Sweden had the lowest, even lower than Russia. Denmark was in between, but closer
to the Netherlands.
Considering human capital as a characteristic of the population, we can say that
all four countries were extremely well endowed. In both 1850 and 1914 the Scandi-
navian countries had the highest literacy rates in Europe, or in the world, and the
Netherlands was well above the European average. This fact was of inestimable value
in helping the national economies to find their niches in the evolving ever-changing
currents of the international economy.
With respect to resources, the most significant fact is that all four, like Switzer-
land but unlike Belgium, lacked coal. This is undoubtedly the main reason they were
not among the early industrializers, and why they did not develop an appreciable
heavy industrial sector. As for other natural resources, Sweden had the best endow-
ment with abundant iron ore deposits, both phosphoric and non-phosphoric (also non-
ferrous metal ores, but these were of lesser significance), vast tracts of virgin timber,
and water power. Norway also had timber, some metallic ores, and a huge water-
power potential. Water power in Sweden and Norway was a significant factor in their
development early in the nineteenth century—in 1820 Norway had between 20,000
and 30,000 watermills—but it became extremely important with the harnessing of
hydroelectric power after 1890. Denmark and the Netherlands were almost as devoid
of water power as of coal. They did have some wind power, which was not negligi-
ble, but it could scarcely serve as the basis of a major industrial development.
Location was an important factor for all four countries. Unlike landlocked
250 A CONCISE ECONOMIC HISTORY OF THE WORLD

Switzerland, all had immediate access to the sea. This had important implications for
a significant international natural resource, fish, as well as for cheap transport, mer-
chant marines, and the shipbuilding industry. Each took advantage of these opportu-
nities in its own way. The Dutch, with a long tradition of fisheries and mercantile ship-
ping, but lately somewhat moribund, had difficulty in developing good harbors
suitable for steamships; eventually they did so at Rotterdam and Amsterdam, with
spectacular results for transit trade with Germany and central Europe and for the pro-
cessing of overseas foodstuffs and raw materials (sugar, tobacco, chocolate, grain,
and eventually oil). Denmark also had a venerable commercial history, particularly
with respect to traffic through the Oresund. In 1857, in return for a payment of 63 mil-
lion kronor from other commercial nations, Denmark abolished the Sound Toll dues,
which it had collected since 1497, along with other policy shifts toward free trade.
This resulted in a significant increase in traffic through the Sound, and in the port of
Copenhagen. Norway became a major supplier of fish and timber in the European
market in the first half of the century, and boasted the second largest merchant ma-
rine (after Britain) in the latter half. Sweden, although slower to develop its own mer-
chant marine, benefited from the removal of restrictions on international trade in gen-
eral and from the reduced transport charges on its bulk exports of timber, iron, and
oats, especially after Britain repealed its Navigation Acts in 1849.
The political institutions of the four countries posed no significant barriers to in-
dustrialization or economic growth. The post-Napoleonic settlement detached Nor-
way from the crown of Denmark and attached it to that of Sweden, from which it se-
ceded peacefully in 1905, but Sweden lost Finland to Russia in 1809. The Congress
of Vienna created the kingdom of the United Netherlands, grouping the provinces of
the old Dutch Republic with those to the south, which seceded, not very peacefully,
to form modern Belgium in 1830. Prussia and Austria seized the duchies of Schleswig
and Holstein from Denmark in 1864. Otherwise, the century passed relatively peace-
ably, with a progressive democratization taking place in all the countries. They were
reasonably well governed, without notable corruption or grandiose state projects, al-
though in all the government gave some aid to the railways, and in Sweden, like Bel-
gium, the state built the main lines. As small countries dependent on foreign markets,
they followed a liberal trade policy in the main, although a protectionist movement
developed in Sweden. In Denmark and Sweden, the two countries whose agrarian
structure most resembled those of the Old Regime, agrarian reforms took place grad-
ually from the late eighteenth century through the first half of the nineteenth. The re-
forms resulted in the complete abolition of the last vestiges of serfdom and the cre-
ation of a new class of independent peasant proprietors with a pronounced market
orientation.
The key factor in the success of these countries (along with high literacy, which
contributed to it), as in Switzerland and in contrast to other late industrializers, was
their ability to adapt to the international division of labor determined by the early in-
dustrializers, and to stake out areas of specialization in international markets for
which they were especially well suited. This meant, of course, a great dependence on
international commerce, which had notorious fluctuations; but it also meant high re-
turns to those factors of production that were fortunate enough to be well placed in
times of prosperity. In Sweden exports accounted for 18 percent of national income
 Patterns of Development: Latecomers and No-Shows P3)I

in 1870, and in 1913, 22 percent of a much larger national income. In the early twen-
tieth century Denmark exported 63 percent of its agricultural production: butter, pork
products, and eggs. It exported 80 percent of its butter, almost all to Great Britain,
where it accounted for 40 percent of British butter imports. Norway’s exports of tim-
ber, fish, and shipping services accounted for 90 percent of total exports—about 25
percent of national income—as early as the 1870s; by the early twentieth century
those exports accounted for more than 30 percent of national income, with shipping
services alone being responsible for 40 percent of foreign earnings. The Netherlands
also depended heavily on the service occupations for foreign earnings. In 1909 11 per-
cent of the labor force was employed in commerce and 7 percent in transport. The
service sector as a whole employed 38 percent of the labor force and produced 57 per-
cent of the national income.
Although these countries entered the world market in a big way in the middle of
the nineteenth century, with exports of raw materials and lightly refined consumer
goods, they had all developed highly sophisticated industries by the beginning of the
twentieth century. This has been called “upstream industrialization;” that is, a coun-
try that once exported raw materials begins to process them and exports them in the
form of semimanufactures and finished goods. Sweden’s and Norway’s timber trade
is a prime example. In the beginning the timber was exported as logs, to be sawed
into boards in the importing country (Britain); in the 1840s Swedish entrepreneurs
built water-powered (later steam-powered) sawmills to convert the timber into lum-
ber in Sweden (Fig. 10-3). In the 1860s and 1870s processes for making paper from
wood pulp, at first by mechanical and subsequently by chemical means (the latter a
Swedish invention), were introduced; output of wood pulp grew rapidly for the re-
mainder of the century. Well over half of the output was exported, mainly to Britain
and Germany, but the Swedes consumed an increasing amount themselves, and ex-
ported the higher value-added paper. The iron industry followed a similar pattern. Al-

FiGuRE 10-3. Swedish sawmill. Timber was the leading Swedish export in the midnine-
teenth century. Swedish entrepreneurs built sawmills at river mouths, such as this one at
Skutskdr in the 1860s, to gain the higher-valued sawn timber. (From An Economic History of
Sweden, by E. F. Heckscher, Cambridge, MA, 1954. Drawing by Robert Haglund.)
252 A CONCISE ECONOMIC HISTORY OF THE WORLD

though Sweden’s charcoal-smelted iron could not compete in price with coke-smelted
iron or Bessemer steel, its higher quality made it especially valuable for such prod-
ucts as ball bearings, in the production of which Sweden specialized (and still does).
Scholars in each of the four countries have debated the timing of their respective
industrial revolutions or take-offs. The 1850s, the 1860s, the 1870s—and even ear-
lier and later decades—have their partisans, but what the debates show mainly is the
artificiality and irrelevance of those two concepts. In fact, all four countries experi-
enced very satisfactory rates of growth, cyclical fluctuations notwithstanding, from
at least the middle of the century until the 1890s. Then, in the two decades immedi-
ately preceding World War I, even those satisfactory growth rates accelerated, espe-
cially in the Scandinavian countries, quickly bringing their levels of per capita income
to the top rank on the Continent. No doubt the reasons for this acceleration are nu-
merous and complex, but three of them stand out immediately. First, the period was
one of general prosperity, with rising prices and buoyant demand. Second, it was
marked in Scandinavia by large-scale imports of capital (the Netherlands, on the other
hand, was an exporter of capital in this period); more will be said about this in Chap-
ter 12. Finally, the period coincided with the rapid spread of the electrical industry.
Electricity was a great boon to the economies of all four countries. Norway and
Sweden, with their vast hydroelectric potential, were especially favored; but even
Denmark and the Netherlands, who could import coal relatively cheaply from
Britain’s northeastern coalfield (and the Netherlands from the Ruhr, by way of the
Rhine), also benefited greatly from steam-generated electricity. The Dutch had the
highest per capita consumption of the coal-poor countries throughout the century,
whereas Denmark, with the second highest per capita consumption, spurted markedly
after 1890. All four countries quickly developed important industries for the manu-
facture of electrical machinery and products (e.g., light bulbs in the Netherlands).
Swedish and to a lesser extent Norwegian and Danish engineers became pioneers of
the electrical industry. (For example, Sweden was the first country to smelt iron on a
large scale by means of electricity, with no coal required; by 1918 it produced 100,000
tons by this method, about one-eighth of its total pig iron production.) No less im-
portant, electricity allowed the countries to develop metal-fabricating and machinery
and machine tool industries (including shipbuilding) without coal or primary metals
industries.
In short, the experience of the Scandinavian countries, like that of Switzerland,
shows that it was possible to develop sophisticated industries and a high standard of
living without indigenous coal supplies or heavy industries, and that there is no sin-
gle model for successful industrialization.

The Austro-Hungarian Empire

Austria-Hungary, or the lands ruled before 1918 by the Habsburg Monarchy, has suf-
fered from a somewhat unjustified reputation for economic backwardness in the nine-
teenth century. This stigma resulted in part from the fact that some portions of the em-
pire definitely were backward, and in part from the (mistaken) association of
economic performance with political failure—the break-up of the empire in the af-
 Patterns of Development: Latecomers and No-Shows 253

termath of World War I. But above all, the misperception of the actual economic per-
formance has been a result of the absence, until recent years, of informed research.
The recent efforts of a number of competent scholars of several nationalities have
made it possible to present with some confidence a more balanced and nuanced ac-
count of the progress of industrialization in the Habsburg domains.
Two points need to be stressed at the outset. First, to an even greater extent than
France or Germany, the Habsburg Empire was characterized by regional diversity and
disparity, with the western provinces (especially Bohemia, Moravia, and Austria
proper) far more advanced economically than those of the east. Second, within the
western provinces some stirrings of modern economic growth could be observed as
early as the second half of the eighteenth century. Two other factors, to be elaborated
subsequently, deserve brief mention here: the topography, which made both internal
and international transportation and communication difficult and expensive, and the
paucity and poor location of natural resources, especially coal.
The eighteenth-century beginnings of industrialization within the empire are now
well established. Textile, iron, glass, and paper industries grew up in both Austria
proper and the Czech lands. Collectively, the textile industries were by far the largest;
linens and woolens predominated, but a fledgling cotton industry existed from at least
1763. In the beginning the technology was traditional; although a few “proto-facto-
ries” —large workshops without mechanical power—existed in the woolen industry,
most production took place under the putting-out system. Mechanization began in the
cotton industry at the end of the century, spreading to the woolen industry in the early
decades of the next and more slowly to the linen industry. By the 1840s the empire
was second only to France on the Continent for production of cotton goods.
It used to be thought that the revolution of 1848 marked a great watershed in the
economic as well as the political history of the empire, but that notion has now been
discounted. As noted, modern industries were already well established in the western
provinces before the revolution; they continued to expand at a gradual but fairly
steady rate thereafter. To be sure, in Austria as elsewhere the business cycle produced
short-term fluctuations in the rate of growth, and much effort has been devoted to try-
ing to discern which of the several cyclical upturns in the nineteenth century repre-
sented the beginning of the industrial revolution (or take-off); but such efforts are
now seen to be fruitless.
Impressed by the gradual but cumulative character of Austrian industrialization
from the eighteenth century until World War I, one scholar characterized it as a case
of “leisurely” economic growth, but the word labored would seem to be more ap-
propriate. Whereas the former term evokes a picture of a man floating slowly down
a gentle stream in a boat, the latter suggests one climbing a steep hill on an ill-marked
road bestrewn with obstacles and impediments—surely a more apt metaphor. Some
of the obstacles—the difficult terrain and the lack of natural resources—were im-
posed by nature; others, such as social institutions inimical to growth, were the work
of men.
Among the latter the persistence of legalized serfdom until 1848 was the most
anachronistic. In fact, however, serfdom was less an impediment than might be
thought. The reforms of Joseph II in the 1780s allowed peasants to leave the estates
of their lords without penalty and to market their crops as they chose. As long as they
254 A CONCISE ECONOMIC HISTORY OF THE WORLD

remained on their holdings they paid rent and taxes to their feudal lords, but other-
wise the feudal system had little sway. The main consequence of the abolition of serf-
dom in 1848 was to grant the peasants freehold tenures, and to substitute taxes paid
to the state for those formerly paid to their feudal lords. Although some improvement
may have occurred in agricultural productivity as a result, improvements undertaken
by noble landowners were already working in that direction.
The abolition of the customs frontier between the Austrian and Hungarian halves
of the empire in 1850 (or, more positively, the creation of an empire-wide customs
union in that year) has been seen by some as a progressive achievement and by oth-
ers as a perpetuation of the “colonial” status of the eastern half. Although the customs
union probably did facilitate the territorial division of labor, the pattern of Austrian
exports of manufactures to Hungary, and Hungarian exports of agricultural products
to Austria, was already well established before 1850. The alleged deleterious effects
of the customs union for the eastern half of the empire are no longer viewed as such.
Another institutional obstacle to more rapid economic growth was the monarchy’s
foreign trade policy. Throughout the century it remained staunchly protectionist,
which facilitated Prussia’s goal of excluding it from the Zollverein. High tariffs lim-
ited not only imports but exports as well, because the high-cost protected industries
were unable to compete in world markets. At the beginning of the twentieth century
the foreign commerce of tiny Belgium exceeded that of Austria-Hungary in absolute
value; in per capita terms it exceeded it many times over. To be sure, the empire’s ge-
ographical position and topography contributed to its poor showing in international
commerce, and its internal customs union embracing both industrial and agricultural
areas offset its limited access to foreign markets and sources of supply to some ex-
tent; but commercial policy must be regarded as one reason, if a minor one, for the
empire’s relatively poor performance.
A major reason for both slow growth and uneven diffusion of modern industry was
the levels of education and literacy, major components of human capital. Although lit-
eracy levels for the Austrian half of the monarchy were about the same as for France
and Belgium in the midnineteenth century, they were extremely unevenly distributed.
In 1900 the percentage of adults classified as literate ranged from 99 in Vorarlberg to
27 in Dalmatia; literacy rates in the Hungarian half were even lower and displayed the
same west-—east gradient. Within the empire as a whole, a high correlation existed be-
tween literacy levels and levels of industrialization and per capita incomes.
In spite of the obstacles, both natural and institutional, industrialization and eco-
nomic growth did occur in Austria throughout the century, and also in Hungary in the
latter part of it. Estimates of the growth rate of industrial production per capita in Aus-
tria in the first half of the century range from 1.7 to 3.6 percent annually, and the rate
accelerated somewhat in the second half of the century. In Hungary, after that portion
of the monarchy obtained autonomy and a government of its own in the Compromise
of 1867, even higher rates of industrial production growth occurred. (One should bear
in mind, however, the small size of the statistical base to avoid overemphasizing the
rapidity of growth.)
Transportation played a crucial role in the economic development of the empire.
Since much of the country was mountainous, or surrounded by mountains, land trans-
port was expensive and water transport nonexistent in the mountainous areas. Unlike
 Patterns of Development: Latecomers and No-Shows 255

the early industrializers, Austria-Hungary had few canals. The Danube and a few
other large rivers flowed southward and eastward, away from markets and industrial
centers. Not until the 1830s, with the advent of river steamboats, could they be used
for upstream navigation.
As noted previously, the earliest railways were located largely in Austria proper
and the Czech lands. After midcentury, and especially after the Compromise of 1867,
Hungary obtained more. The effect consolidated the already established geographi-
cal division of labor within the empire. In the 1860s more than half the goods trans-
ported on Hungarian railways consisted of grain and flour. The traffic in flour, how-
ever, enabled Hungary to begin to industrialize. In the latter part of the century
Budapest became the largest milling center in Europe, second only to Minneapolis
worldwide. It also manufactured and even exported mill machinery, and at the end of
the century began to manufacture electrical machinery as well. For the most part,
however, Hungarian industrial production consisted of consumer goods, especially
food products. These included, in addition to flour, refined sugar (from beets), pre-
served fruits, beer, and spirits. These were Hungary’s counterpart to Austria’s and Bo-
hemia’s emphasis on textiles.
The empire did have some heavy industry. A charcoal-fired iron industry had ex-
isted in the Alpine regions for centuries, and Bohemia also had a long tradition of met-
alworking in both ferrous and nonferrous metals. With the advent of coke smelting of
iron ore the charcoal industries gradually declined, but in Bohemia and Austrian Sile-
sia, somewhat better endowed with coal than the remainder of the empire, modern
metallurgical industries developed from the 1830s onward. These industries included
not only the primary production of pig iron but refining and fabricating as well, along
with some machinery and machine-tool factories. Some heavy chemical industries
also came into existence. On the eve of World War I the Czech lands accounted for
more than half of “Austrian” industrial production, including about 85 percent of coal
and lignite, three-fourths of chemical output, and more than half of all iron produc-
tion. Some rather sophisticated industries also grew up in Lower Austria, especially
in Vienna and its suburbs. Wiener Neustadt was the site of a locomotive factory as
early as the 1840s.
Some of the problems attending Austrian heavy industry are illuminated by Fig-
ure 10-4, which shows the evolution of per capita coal production and consumption
of Germany, France, Austria, and Russia. From about 1880 on Austrian and French
production were roughly even—both far behind that of Germany but well ahead of
Russian production—but French consumption was somewhat higher because of im-
ports. (Austria actually had a small export surplus, across the border to neighboring
Germany, for a few decades at the end of the century.) What the figure does not re-
veal is the fact that about two-thirds of Austrian production was inferior lignite (or
brown coal), unsuitable for metallurgical uses. Nor does it reveal the location of the
deposits; mostly they were in the northern part of the country (the Czech lands), es-
pecially along the northern border with Germany, which accounts for the fact that
coal-rich Germany could import coal from coal-poor Austria along the Elbe water-
way. Hungarian coal production (not included in Fig. 10-4) was less than one-fourth
that of Austrian and even more heavily tilted to lignite. Even so, the kingdom sup-
ported a small (and subsidized) iron and steel industry from the late 1860s.
 256 A CONCISE ECONOMIC HISTORY OF THE WORLD

4.8
Austria production per capita
------ Austria consumption per capita
GO ae eae France production per capita
—-—-— France consumption per capita
Secs Germany production per capita
32 ie os — Germany consumption per capita
—---— Russia production per capita
—-—-— Russia consumption per capita

2.4

Tons
capita
per

. -—

1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920

FicurE 10—4. Production and consumption of coal, 1820-1913. (From European Histori-
cal Statistics, 1750-1970, by B. R. Mitchell, New York, 1975.)

In summary, the Habsburg Monarchy, which in industrial terms had been at par-
ity with or even in advance of the disunited German states in the first half of the nine-
teenth century, steadily fell behind the industrial growth of the united German Em-
pire after 1871. Nevertheless, the picture is not as bleak as it used to be painted.
Industry in the western (Austrian) half of the monarchy continued to grow, steadily
if not spectacularly, whereas that of the eastern (Hungarian) half spurted rapidly af-
ter about 1867. At the beginning of the twentieth century the western portion was at
about the same level of development as the average for western Europe; the eastern
portion, although lagging behind the western, was nevertheless well in advance of the
rest of eastern Europe.

Southern and Eastern Europe

The patterns of industrialization of the remaining countries of Europe—the Mediter-

ranean countries, southeastern Europe, and imperial Russia—can be dealt with more
summarily. One common characteristic is failure to industrialize significantly before
1914, with resulting low levels of per capita income and a high incidence of
poverty.
To be sure, if one looks not at national aggregates but at individual regions,
as we will
do briefly later, one discovers marked regional variation, as with France, Germany,
the Habsburg Monarchy, and even Great Britain. Nevertheless, the few “islands
of
modernity” remained surrounded by seas of backwardness.
One reason for this is a second common characteristic: abysmally
low levels of
 Patterns of Development: Latecomers and No-Shows Zh

human capital. Tables 8-3 and 8-4 illustrate this. Among the larger nations Italy,
Spain, and Russia ranked at the bottom in both adult literacy rates and primary school
enrollment rates, and the smaller countries of southeastern Europe fared no better. In
primary school enrollments Romania and Serbia came in above Russia but below
Spain and Italy.
The laggard countries shared a third common characteristic that had an important
bearing on their possibilities for economic development: the lack of any meaningful
agrarian reform, with consequent low levels of agricultural productivity. Discussions
of the patterns of industrialization of the other countries in this and the previous chap-
ter made scant reference to the agrarian sector, since all had achieved relatively high
levels of agricultural productivity. As Chapter 7 pointed out with reference to Great
Britain, high agricultural productivity is necessary for any extended process of in-
dustrialization, both to supply the urban, industrial portion of the population with food
and raw materials and, especially, to release labor for industrial (and other nonagri-
cultural) occupations. In the midnineteenth century the proportion of the labor force
engaged in agriculture ranged from a low of 20 percent in Great Britain through 50
to 60 percent in the other early industrializers to about 60 percent in Italy, more than
70 percent in Spain, and more than 80 percent in Russia and southeastern Europe. By
the beginning of the twentieth century the proportions had fallen to less than 10 per-
cent in Great Britain, about 20 percent in Belgium, Switzerland, and the Netherlands,
and 30 to 40 percent in France and Germany, but they remained above 50 percent in
Italy, at about 60 percent in the Iberian peninsula, and above 70 percent in Russia and
the Balkans.
Finally, one can even mention a fourth common characteristic of the laggard na-
tions: all suffered to varying degrees from autocratic, authoritarian, and corrupt, in-
efficient governments. Although the industrialized countries also experienced peri-
ods of authoritarian government from time to time, the relationship of this to the other
common characteristics, especially the low levels of human capital, bears further
investigation.
So much for the common characteristics. The countries also differed in significant
respects. We now turn to the distinctive features of their response, or non-response,
to the opportunity for industrialization and economic development.

The Iberian Peninsula

The economic histories of Spain and Portugal in the nineteenth century are suffi-
ciently similar that it is convenient to deal with them as one. Both emerged from the
Napoleonic Wars with primitive, even archaic, economic systems and reactionary po-
litical regimes. The latter feature sparked revolutionary outbursts in both countries in
1820; although the revolutions were ultimately unsuccessful, they led to endemic civil
wars that interfered with normal economic activity and rendered impossible any co-
herent economic policy. Deplorable public finances plagued both countries. During
the civil wars both sides (in both countries) borrowed abroad to support their military
efforts. The losers, of course, defaulted, but even the winners were hard-pressed to
pay their debts, and in the end they also defaulted in part. In Spain, following the dam-
age and destruction of the Napoleonic Wars, the loss of the American colonies (ex-
258 A CONCISE ECONOMIC HISTORY OF THE WORLD

cept for Cuba, Puerto Rico, and the Philippines, which were lost in the aftermath of
the Spanish-American War of 1898) resulted in a drastic reduction of the public rev-
enue from 1800 to 1830. Chronic government deficits led to manipulations of the
banking system, monetary inflation, and recourse to foreign borrowing, but the credit
rating of the government was so poor that the terms on which it could borrow were
extremely onerous. One loan of 1833 raised only 27 percent of the nominal capital.
Before the century was over both countries repudiated at least a portion of their debts
on more than one occasion.
Low agricultural productivity remained a fundamental weakness of both econo-
mies. As late as 1910 the primary sector, mainly agriculture, employed about 60 per-
cent of the labor force in Spain, and at least as much in Portugal. But it was not, for
the most part, commercial agriculture. One scholar has characterized the Spanish
economy of the nineteenth century as a “dual economy,” with a large subsistence agri-
cultural sector, on the one hand, and a small commercial agricultural sector interact-
ing with an even smaller urban industrial, commercial, and service sector, on the
other. In the 1840s a government decree requiring the payment of taxes in cash rather
than in kind sparked a peasant revolt, as no markets existed in which they could sell
their produce.
Spain attempted an agrarian reform in the first half of the century, but it was a
complete fiasco. Like the government of revolutionary France, it confiscated the
lands of the church, the municipalities, and the aristocrats who opposed it in the civil
wars, with the intention of selling them to the peasants; but the exigencies of public
finance were so great that the government ended up selling at auction to the highest
bidders (who could pay in depreciated government bonds at face value); the result
was that most of the land ended up in the possession of those already wealthy, both
aristocrats and the urban bourgeoisie. The peasants merely endured the replacement
of one set of absentee landlords by another, with no improvement of technology or
increase in capital equipment. Portugal attempted no land reform at all. Meanwhile
the increase in population in both countries resulted in more grain cultivation, the
means of subsistence, on inferior soils and less pasture for livestock, producing a fur-
ther fall in productivity.
Despite this generally depressing picture, a few bright spots existed—regional
variations on a theme of backwardness. A modern cotton industry developed in Cat-
alonia, in Barcelona and its environs, in the 1790s and, thanks to protective tariffs and
a protected colonial market in Cuba and Puerto Rico, flourished until the loss of the
latter colonies in 1900. Export-oriented wine industries existed in Andalusia (the re-
gion of Jerez, hence the English “sherry”), and in the province of Oporto (“The Port”)
in Portugal. In 1850 wines and brandy accounted for 28 percent of Spanish exports,
but the dreaded phylloxera, a disease of the vine that had already struck France, spread
into Spain in the last decades of the century with devastating effect. By 1913 wines
accounted for less than 12 percent of Spanish exports.
Meanwhile a new source of foreign exchange, minerals and metals, developed to
replace the lost earnings from wine. The famed mercury mines of Almadén had been
producing since the sixteenth century; mercury, although profitable, did not loom
large in the balance of payments. In the 1820s, however, the growing foreign demand
for lead for plumbing resulted in the opening of the extremely rich lead deposits of
 Patterns of Development: Latecomers and No-Shows 259

southern Spain. As early as 1827 exports of pig lead accounted for more than 8 per-
cent of total foreign earnings. From 1869 to 1898, when it was overtaken by the
United States, Spain was the leading lead producer in the world. A new mining law
in 1868 resulted in a great increase in the number of mineral concessions, for copper
and iron as well as lead, mainly to foreign concerns. By 1900 exports of minerals and
metals accounted for about one-third of total exports. Unfortunately for Spain, most
exports went out as crude metal (lead and copper) or as ore (iron), with few backward
linkages to the domestic economy.
Foreign capital also predominated in other modern sectors of the economy, espe-
cially in banking and railways. Prior to 1850 developments in both of these areas had
been negligible; banking was dominated by the Bank of Spain, primarily an instru-
ment of government finance, and only a few kilometers of railways had been built in
the late 1840s. In the 1850s, in one of the frequent changes of government, the new
regime gave special encouragement to foreign (mainly French) capitalists to create
banks and railways. This they did, with government guarantees of interest on the cap-
ital invested in the railways during the period of construction. Unfortunately, when
the main lines had been constructed and the guarantee of interest ceased, the railways
had not developed sufficient traffic to meet operating costs, and most of the railways
entered bankruptcy. The railways were built mostly with imported materials and
equipment by foreign engineers and thus, like the mines, had few backward linkages.
Not until near the end of the century did the railways become a paying proposition.
Meanwhile most of the banks had been liquidated with greater or lesser profits for
their foreign owners, leaving the field open for domestic entrepreneurs. Portugal ob-
tained its first railway, a short line from Lisbon, in 1856, and its rail history was even
sadder than that of Spain. Built with foreign (mainly French) capital, its railways en-
dured fraud and corruption as well as bankruptcy and did little to aid the development
of the economy.
Spain had some coal deposits (Portugal none), but they were not high quality and
were poorly located for industrial exploitation. Nevertheless, in the last two decades
of the nineteenth century a small iron and steel industry grew up along the north coast
in the vicinity of Bilbao. Using the rich iron ores of the region and some imported
coal and coke, the industry made slow headway against the imports of iron, steel,
hardware, and machinery, which it did not succeed in replacing. In the twentieth cen-
tury the region became one of the wealthiest and economically most progressive in
Spain. Nothing comparable occurred in Portugal.

Italy
Before 1860 Metternich’s phrase for Italy, “a geographic expression,” applied to the
economy as well as its politics. An “Italian economy” did not exist. Left in the back-
waters of economic change from the beginning of modern times, divided and domi-
nated by foreign powers, Italy had long since lost its leadership in economic affairs.
Wars and dynastic intrigues made it a battleground for foreign armies and looted it of
both priceless artistic treatures and more utilitarian forms of wealth, while repeated
monetary disturbances wiped out accumulated savings and shook the faith of investors.
The Congress of Vienna reimposed the bewildering mosaic of nominally inde-
260 A CONCISE ECONOMIC HISTORY OF THE WORLD

pendent principalities, but most, including the Papal States and Kingdom of the Two
Sicilies, were under the control or influence of the Habsburg Empire. Austria an-
nexed Lombardy and Venetia directly; two of the economically most progressive
provinces, and formerly the seats of famous industries and commerce, they were
separated from the rest of Italy by Austria’s high tariff barriers. The Kingdom of Sar-
dinia, the only genuinely independent state, was a curious melange, an artificial na-
tion composed of four major subdivisions with different climates, resources, insti-
tutions, and even languages. The island of Sardinia, from which the union took its
name, languished in the backwaters of feudalism; its absentee landlords took no in-
terest in improving their estates, with the result that its illiterate population lived un-
der the most primitive conditions. Savoy, which gave the kingdom and later Italy its
ruling dynasty, belonged culturally and economically to France. Genoa (and its hin-
terland Liguria), the commercial center, had for centuries before Napoleon main-
tained itself as an independent republic. Piedmont, surrounded on three sides by
mountain peaks, formed a geographic continuation of the Lombard plain, but its al-
titude and climate set it apart from Lombardy as well. It contained roughly four-fifths
of the kingdom’s total population of about 5 million. Before 1850 it had little in-
dustry other than silk-throwing and a few small metallurgical establishments, but
with the leadership of a few improving landowners its agriculture became the most
advanced and prosperous of the peninsula.
Regional economic differentials, important in almost all countries, were espe-
cially marked in Italy. There the north—south gradient, still evident today, had existed
since the Middle Ages. It may have been somewhat less noticeable in the nineteenth
century, because of the general backwardness of the peninsula, but it remained. Agri-
cultural productivity was higher in the north, especially in Piedmont and the Po val-
ley, and some industry existed as well. And it was in the economically more progres-
sive north that the movement for national unification began.
After the abortive revolutions and attempts at unification of the 1820s, 1830s, and
1848—49 had been suppressed by the Habsburgs, a remarkable individual came to the
fore in the Kingdom of Sardinia. He was Count Camillo Benso di Cavour, a progres-
sive landowner and agriculturist who had also promoted a railway, a newspaper, and
a bank, and who in 1850 became minister of marine, commerce, and agriculture in
his small country’s newly established constitutional monarchy. The following year he
added the portfolio of minister of finance, and in 1852 became prime minister. He
stressed repeatedly that financial order and economic progress were the two “indis-
pensable conditions” for Piedmont to assume, in the eyes of Europe, the leadership
of the Italian peninsula. To achieve these goals, he advocated foreign economic as-
sistance, including foreign capital investment. Immediately upon taking office in
1850 he negotiated trade treaties with all the more important commercial and indus-
trial nations of Europe. Between 1850 and 1855 exports increased by 50 percent while
imports almost tripled; French investments financed the resulting heavy adverse trade
balance. Throughout the remainder of the decade the French, with Cavour’s encour-
agement, built railways, established banks and other joint-stock companies, and in-
vested in the kingdom’s growing public debt.
A part of the public debt had been contracted to liquidate the unsuccessful wars
of 1848 and 1849, and more to prepare for the eventually successful war of 1859, in
 Patterns of Development: Latecomers and No-Shows 261

which the Kingdom of Sardinia, with the military and financial aid of France, defeated
the Austrian Empire and prepared the way for the united Kingdom of Italy in 1861.
The new nation, with a total population of approximately 22 million, had an average
density of eighty-five inhabitants per square kilometer—already one of the highest
in Europe. With the greater part of the labor force engaged in low-productivity agri-
culture, Italy had a long road to travel under the best of circumstances. Unification
alleviated one of the major obstacles to economic development, the fragmentation of
the market; but without the development of transportation and communications fa-
cilities, even this achievement would be illusory. The extension of Piedmont’s pro-
gressive legislation and administrative system to the enlarged kingdom could not im-
mediately alter the backward character of the institutions or the illiteracy and
ignorance of the population of the remainder of the peninsula. No laws could remedy
the poverty of natural resources, and only the wisest legislation and most judicious
administration could overcome the scarcity of capital. Unfortunately for Italy,
Cavour’s exertions in those frantic years led to his premature death only three months
after the proclamation of the kingdom, thus depriving the country of his wise and in-
spired leadership. His successors, though no less patriotic, lacked his experience, his
finesse, and above all his subtle understanding of economic and financial questions.
Italy remained dependent on foreign, especially French, investment and economic re-
lations, but actions of the government repeatedly alienated foreign investors and fi-
nally, in 1887, drove Italy into a dramatic ten-year tariff war with France, with disas-
trous consequences for both economies.
Near the end of the 1890s, after the tariff war with France and with a new injec-
tion of foreign capital, this time from Germany, Italy experienced a small industrial
growth spurt that lasted, with fluctuations, until after the beginning of World War I.
Italy was not yet an industrial nation, but it had made a belated beginning.
Also in the 1890s, and continuing until World War I, population pressure resulted
in large-scale emigration mainly to the United States, but also to Argentina and other
Latin American countries.

Southeastern Europe
The five small countries that occupied the southeastern corner of the European con-
tinent—Albania, Bulgaria, Greece, Romania, and Serbia—were, with the possible
exception of Portugal, the poorest in Europe west of Russia. All had won indepen-
dence from the Ottoman Empire at various dates after 1815, Albania as recently as
1913, and the heritage of Ottoman domination weighed heavily on their economies.
At the beginning of the twentieth century all were predominantly rural and agrarian,
with 70 or 80 percent of the labor force engaged in primary production and a similar
proportion of total output consisting of agricultural products. Moreover, technology
was primitive and productivity and per capita income correspondingly low. Although
precise data are not available, rough figures suggest that, on average, the per capita
income was less than that of neighboring Hungary, about half that of Bohemia, and
about one-third that of Germany. Some slight variation existed within the group as
well, with Romania slightly better off than the others, and Albania the most backward.
Despite their poverty, high birth rates combined with moderately declining death
262 A CONCISE ECONOMIC HISTORY OF THE WORLD

rates engendered a population explosion from about the middle of the nineteenth cen-
tury. In the half century before World War I the population grew at approximately 1.5
percent per year, among the highest rates for any European country or group of coun-
tries. The growing population pressure led to higher prices for farmland, land hunger,
migration to urban areas and to the more developed countries to the West, and to some
overseas migration, especially of Greeks to the United States.
No abundance of natural resources existed to ease the pressure of population.
Much of the land was mountainous and unsuitable for cultivation, especially in
Greece and to a lesser extent in Albania, Bulgaria, and Serbia. Romania was best sup-
plied with arable land, but with the primitive techniques of cultivation in use, even it
was not highly productive. A few small, scattered coal deposits existed, but not
enough to make any of the countries independent of imports, even considering the
very small demand. Small deposits of nonferrous metals also existed, but these had
scarcely begun to be exploited, by foreign capital, when World War I intervened. The
most significant mineral resource was petroleum in Romania. Several foreign firms,
mainly German, began to tap this in the last decade of the nineteenth century.
In keeping with their agrarian character, the foreign trade of all the countries con-
sisted of exports of agricultural products and imports of manufactured goods, mainly
consumer goods. Cereals, mainly wheat, accounted for about 70 percent of the ex-
ports of Romania and Bulgaria. Serbia, with less arable land, exported mainly live
pigs and, shortly before the war, processed pork products, fresh plums, dried prunes,
and its famous plum brandy, slivovica. Greece, with even less arable land and that not
well suited to grain cultivation, exported mainly grapes and raisins as well as some
wine and brandy.
In contrast with the slow diffusion of agricultural and industrial technology, the in-
stitutional technology of banks and foreign debts spread rapidly. By 1885 all four of
the then-existing Balkan states had established central banks with exclusive powers of
note issue. Joint-stock banks and other financial institutions developed rapidly, but
with little connections to industrial finance. The new governments borrowed abroad,
mainly in France and Germany, primarily to construct railways and other types of over-
head capital, but also to purchase military equipment, to pay bloated bureaucracies,
and increasingly to pay interest on previously acquired debt. In 1898 Greece became
so obligated for foreign loans that it had to acquiesce to an International Financial
Commission established by the great powers to oversee its finances. Eventually all
other Balkan states except Romania had to accept similar foreign control.
Much of the foreign borrowing was undertaken for railway construction, mainly
for the account of the state. In 1870 the total length of railways in southeastern Eu-
rope amounted to less than 500 kilometers, mainly in Romania and Bulgaria. By 1885
it came to 2,000, in 1900 to more than 6,000, and in 1912 to more than 8,000 kilo-
meters. Unfortunately, because of the lack of complementary industries, the railways
had few backward linkages.
A small industrial sector did emerge in each of the countries, chiefly in consumer
goods industries after about 1895, but nothing comparable to the industrial develop-
ments occurring in western Europe earlier in the nineteenth century. For practical pur-
poses, one could say that modern industry had not yet penetrated southeastern Europe
prior to World War I.
 Patterns of Development: Latecomers and No-Shows 263

Imperial Russia

The Russian Empire at the beginning of the twentieth century was generally regarded
as one of the great powers. Its territory and population, the largest by far of any Eu-
ropean nation, merited that status. In gross economic terms as well, Russia loomed
large: in total industrial production it ranked fifth in the world, after the United States,
Germany, Great Britain, and France. It had large textile industries, especially cotton
and linen, and heavy industries as well: coal, pig iron, and steel. It ranked second in
the world (after the United States) in petroleum production, and for a few years at the
end of the nineteenth century it held first place. Yet these large absolute amounts are
misleading as a guide to Russia’s economic strength. As Figure 10-4 shows, Russia’s
per capita production and consumption of coal were substantially below those of even
Austria. Such was the case with almost every other category of production.
Russia was still a predominantly agrarian nation, with more than two-thirds of its
labor force engaged in agriculture and producing more than half of the national in-
come. Per capita income was no more than half that of France and Germany and about
one-third that of the United States and Great Britain. Productivity, especially in agri-
culture, was abysmally low, hampered as it was by a primitive technology and scarcity
of capital. The institutional constraint of legalized serfdom, not removed until 1861,
weighed heavily against the possibilities of growth in productivity even after the
Emancipation (see Chapter 11, p. 275).
The beginnings of Russian industrialization have been traced back to the reign of
Peter the Great and even earlier but, except for the Ural iron industry of the eighteenth
century, these early industrial enterprises were hothouse undertakings connected with
the needs of the Russian state, and were not economically viable. In the first half of
the nineteenth century, especially from the 1830s onward, industrialization became
more visible; it has been estimated that the number of industrial workers grew from
less than 100,000 at the beginning of the century to more than half a million on the
eve of Emancipation. Most of these workers were nominal serfs who made cash pay-
ments to their lords from their money wages, instead of the customary labor services.
Paradoxically, there were also a number of serf entrepreneurs. The most dynamic,
rapidly growing industry was cotton textiles, mainly in the Moscow region, with beet
sugar refineries in the Ukraine a distant second. St. Petersburg boasted a number of
large, modern cotton mills and also some metallurgical and machinery works, as did
Russian Poland.
The Crimean War (1853-56) starkly revealed the backwardness of both Russian
industry and Russian agriculture, and thus indirectly prepared the way for a number
of reforms, the most notable of which was the emancipation of the serfs in 1861. Con-
currently, the government encouraged a program of railway construction on the ba-
sis of imported capital and technology, and reorganized the banking system to permit
the introduction of Western financial techniques. Signs of the effectiveness of the new
policies became evident in the mid-1880s and in the “great spurt” of industrial pro-
duction of the 1890s, when industrial output increased at an average rate of more than
8 percent, higher than even the best rates achieved in Western nations.
Much of the credit for this great spurt goes to the program of railway construc-
tion, especially that of the state-owned Trans-Siberian Railway, begun in 1891, and
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 Patterns of Development: Latecomers and No-Shows 265

to the associated expansion of the mining and metallurgical industries (Fig. 10-5). The
latter, in turn, owed much to foreign entrepreneurs and capital, who contributed de-
cisively to the development of the great mining and metallurgical center of the south-
eastern Ukraine in the vicinity of the Donetz Basin.
The Donbas, as it is known, had large deposits of coal, but it was also remote from
the main centers of population. Before the coming of the railway the coal was un-
economical to mine. Some 500 kilometers to the west, in the vicinity of Krivoi Rog,
very rich iron ore deposits occurred, but for the same reason could not be economi-
cally exploited. In the 1880s French entrepreneurs persuaded the tsarist government
to build a railway connecting the two areas and constructed blast furnaces at both
sites. Production of both coal and pig iron soared; whereas in the 1870s domestic pro-
duction of pig iron had satisfied only about 40 percent of demand, in the 1890s it ac-
counted for three-quarters of a much larger consumption.
The government sought to encourage industrialization by several means. It bor-
rowed abroad to finance the construction of the state-owned railways and guaranteed
the bonds of the railways belonging to companies. It placed orders for rails, locomo-
tives, and other equipment for the state-owned railways with companies located in
Russia (whether owned by Russians or foreigners) and instructed the private compa-
nies to do likewise. It placed high tariffs on imports of iron and steel products, but at
the same time facilitated the introduction of the most recent equipment for the man-
ufacture of iron and steel and engineering products. Producers in Polish Silesia and
St. Petersburg as well as the southeastern Ukraine benefited from these measures.
The boom of Russian industry in the 1890s was followed by a slump in the first
years of the twentieth century, which in turn was followed by the disastrous (for Rus-
sia) Russo-Japanese War of 1904—5, and then by the revolution of 1905—6. Although
the revolution was suppressed, it prompted a number of both political and economic
reforms. The most important of the latter was the Stolypin agrarian reform (see Chap-
ter 11, p. 272), which led to increased productivity in agriculture.
In the half century before World War I the Russian economy underwent substan-
tial change in the direction of a more modern, technologically proficient system; but
it was still far behind the more advanced Western economies, that of Germany in par-
ticular. Its economic weakness became acute during the war, contributing to Russian
defeat and setting the stage for the revolutions of 1917.

Japan

The last and most surprising entry in the list of industrializing nations in the nine-
teenth century—and the only one entirely outside the Western tradition—was Japan.
In the first half of the century Japan maintained its policy of exclusion of foreign, es-
pecially Western, influence more effectively than any other Oriental nation. From
early in the seventeenth century the Tokugawa government had forbidden foreign
trade (the Dutch were allowed to send one ship a year to a trading station that they
maintained on a small island in Nagasaki’s harbor, Japan’s “window on the West”)
and had forbidden Japanese from traveling abroad. Society was structured into rigid
social classes or castes, similar in some respects to the feudalism of medieval Europe.
266 A CONCISE ECONOMIC HISTORY OF THE WORLD

The level of technology was approximately that of Europe at the beginning of the sev-
enteenth century. In spite of these constraints, however, the organization of the econ-
omy was remarkably sophisticated, with active markets and a credit system. The lit-
eracy level was substantially higher than those of southern and eastern Europe.
In 1853 and again in 1854 Commodore Matthew Perry, a U.S. naval commander,
sailed into Tokyo Bay and, threatening to bombard the city, forced the Tokugawa
shogun to open diplomatic and commercial relations with the United States. Soon
other Western nations gained privileges similar to those granted to the United States.
A key feature of these “unequal treaties” prevented the Japanese government from
levying tariffs of more than 5 percent ad valorum; foreigners also gained rights of ex-
traterritoriality (i.e., they were not subject to Japanese law). The weakness of the
Tokugawa shogunate in the face of Western encroachments led to antiforeign riots
and a movement to restore the emperor, who for centuries had performed only cere-
monial functions, to a central position in the government. This movement, led by am-
bitious young samurai (members of the former warrior class), was fortuitously aided
in 1867 by the accession of a vigorous, intelligent young emperor, Mutsuhito; the fol-
lowing year the emperor’s party forced the shogun to abdicate and brought the em-
peror to Tokyo, the de facto capital. This event, marking the birth of modern Japan,
is called the Meiji Restoration (Meiji meaning “enlightened government,” which
Mutsuhito chose to designate his reign). The Meiji era lasted from 1868 to the death
of Mutsuhito in 1912.
Immediately upon coming to power the new government changed the tone of the
antiforeign movement. Instead of attempting to expel the foreigners Japan cooperated
with them but kept them at a polite distance. The old feudal system was abolished and
replaced by a highly centralized bureaucratic administration modeled on the French
system, with an army of the Prussian type and a navy like the British. Industrial and
financial methods were imported from many countries, but especially the United
States. Intelligent young men went abroad to study Western methods in politics and
government, military science, industrial technology, trade, and finance, with the aim
of adopting the most efficient methods. New schools were established in Japan on
Western models, and foreign experts were brought in to train their Japanese counter-
parts. The government was careful, however, to set strict limits on their tenure, and
to see that they left the country once their terms were over to prevent them from es-
tablishing positions of dominance.
One of the most vexing problems facing the new government was that of finance.
Financial problems had been one of the causes of dissatisfaction with the old Toku-
gawa regime, and the new Meiji government inherited a mass of inconvertible paper
money, which it was obliged to increase in the first years of the transition. In 1873 it
enacted a land tax, assessed on the basis of the potential productivity of agricultural
land regardless of the amount of actual produce. This had a doubly beneficial effect:
on the one hand, it assured the government of a steady revenue (at the expense of the
peasants, to be sure); second, it ensured that the land would be put to its best use, as
those who were unable to maximize returns on it would lose it or be forced to sell to
those who could.
Also in connection with its financial problems, the government set out to create
a new banking system to replace the informal credit network of the Tokugawa era. In
 Patterns of Development: Latecomers and No-Shows 267

keeping with its policy of seeking the best of everything (a Prussian-style army, a
British-style navy, etc.), it took as its model the National Banking System of the
United States, created by the Union government in the closing years of the Civil War
as a measure of war finance. Under this system banks could be established using gov-
ernment bonds as collateral for the issue of banknotes, which should be convertible
into specie. (Not coincidentally, the Meiji government had just issued a large quan-
tity of bonds to the former feudal lords and samurai as a replacement for their annual
pensions.) Under this system, by 1876, 153 national banks had been established. Un-
fortunately, the following year the Satsuma Rebellion, a rising against the govern-
ment by one of the largest western clans, broke out; although the government sup-
pressed the rebellion, it did so at great cost and more issues of both inconvertible
government money and national banknotes, resulting in rampant inflation.
Anew finance minister, Count Matsukata, decided the banking system was at fault
and, in addition to bringing about a drastic deflation of the currency in 1881, com-
pletely revamped the banking structure. He created a new central bank, the Bank of
Japan, on the model of the latest fashion in central banks, the Banque Nationale de
Belgique, which, although mainly privately owned, was under the close control of the
government. It obtained a monopoly of note issue, the national banks losing their is-
sue rights and being converted into ordinary commercial deposit banks on the English
model. The Bank of Japan also acted as fiscal agent of the treasury.
From the time of the Meiji Restoration the government intended to introduce and
domesticate virtually the full range of Western-style industries. To this end it built and
operated shipyards, arsenals, foundries, machine shops, and experimental or model
factories for the production of textiles, glass, chemicals, cement, sugar, beer, and a
variety of other goods; it also imported Western technicians to instruct the native la-
bor force and managerial hierarchy in the use of Western equipment. Such an under-
taking was clearly a long-term proposition, however. In the meantime resources had
to be found to pay for the imports of machinery and other equipment and the salaries
of the foreign experts. As a predominantly agrarian economy at the time of the
Restoration, and one with virtually no experience in foreign commerce, that was not
an easy task.
Moreover, Japan had few natural resources, Smaller than the state of California,
the island country is also quite mountainous, so that the proportion of arable land to
the total was also smaller than that of California. Rice was the staple crop and also
the staple of the diet, supplemented by fish and seafood from the teeming coastal wa-
ters. Japan did have some deposits of coal and copper ore, and before the 1920s these
contributed to exports as well as to domestic consumption. For the most part, how-
ever, the agrarian sector had to bear the burden of providing the export revenues to
finance the necessary imports.
Japan’s two traditional textile industries based on domestic raw materials, silk and
cotton, experienced very different fortunes. Soon after the opening of trade the cot-
ton industry was wiped out completely by the machine-produced goods from the
West, especially Great Britain. The silk industry, on the other hand, survived, and that
part of it closest to the agrarian sector, the production of raw silk yarn from cocoons,
actually flourished. Assisted by the introduction of modern equipment obtained from
France, production of raw silk rose from little more than 2 million pounds in 1868 to
268 A CONCISE ECONOMIC HISTORY OF THE WORLD

more than 10 million in 1893, and about 30 million on the eve of World War I. The
greater part of production was exported, and from the 1860s to the 1930s raw silk ac-
counted for between one-fifth and one-third of export revenues. Some trade also de-
veloped in silk fabrics, which in 1900 accounted for almost 10 percent of export rev-
enues; but high tariffs on fabrics in the countries that were the main markets for the
raw silk, especially the United States, hampered the development of that industry.
The other major agrarian export was tea, which in the early years of the Meiji era
was as important as silk; its relative importance, however, gradually declined with the
growth of domestic population and income. The same was true to an even greater de-
gree with rice; although small amounts were exported in the early years of the era,
the growth of population was such that before the end of the century Japan depended
partly on imports for its total consumption.
Although government initiative was responsible for introducing most elements of
Western technology, it was not the government’s intention to prohibit private enter-
prise. On the contrary, one of its slogans was “develop industry and promote enter-
prise.” As soon as the mines, model factories, and other modern establishments (ex-
cept for the arsenals and one steel mill, under military control) were operating
satisfactorily, the government sold them (frequently at a loss in strict accounting
terms) to private companies or corporations.
The cotton industry (mainly spinning, but with some mechanized weaving) made
the most rapid progress. The technology was relatively simple, and it employed
cheap, unskilled labor, mostly women and girls. It conquered the home market in the
1890s, and by 1900 exports of cotton yarn and cloth (mostly the former) accounted
for 13 percent of total exports. The largest markets were China and Korea, which im-
ported cheap, coarse yarn for hand weaving in peasant households.
The heavy industries—iron, steel, engineering, and chemicals—were slower to
develop, and did so with large subsidies and tariff protection (the unequal treaties ex-
pired in 1898), but by 1914 Japan was largely self-sufficient in their products. World
War I, of course, greatly increased the demand for them, and at the same time opened
new markets. In fact, the war was a great boon for the Japanese economy as a whole.
The deficit in the balance of trade of the last prewar years had been large, but the in-
creased wartime demand, together with the diversion of European production to war
uses, enabled Japanese producers to expand rapidly into foreign markets. By enter-
ing the war on the Allied side Japan was also able to take over German colonies in
the Pacific and concessions in China. Exports, which amounted to 6 or 7 percent of
gross national product in the 1880s and about 15 percent in the first decade of the
twentieth century, jumped to 22 percent as early as 1915.
Overall, the economic transition of Japan from a backward, traditional society in
the 1850s to a major industrial nation at the time of the First World War was a most
remarkable feat. The growth rate of gross national product from the 1870s to the eve
of the war averaged about 3 percent per year (estimates range from 2.4 to 3.6), as high
as or higher than that of any European nation. Moreover, the growth rate was rela-
tively stable; although it fluctuated somewhat, at no time did it fall below zero, as it
frequently did in Europe and America during severe recessions or depressions. The
rate of growth of mining and manufacturing output was still higher, about 5 percent
for the period as a whole.
 Patterns of Development: Latecomers and No-Shows 269

Japan’s economic transition had political consequences as well. In 1894—95 Ja-

pan quickly defeated China in a short war and joined the ranks of the imperialist na-
tions by annexing Chinese territory (notably Taiwan, which it renamed Formosa) and
staking out a sphere of influence in China itself. Even more surprisingly, just ten years
later Japan decisively defeated Russia on both land and sea. The rewards of this ex-
ploit were the southern half of the island of Sakhalin, the Russian leases on Port Arthur
and the Liaotung peninsula of China, and Russian acknowledgement of J apanese pre-
dominance in Korea, which Japan annexed in 1910. Thus the Japanese proved they
could play the white man’s game.
 11
Strategic Sectors

In our brief sketch of the patterns of development within individual countries in Chap-
ter 9 and 10, we either completely ignored or merely mentioned a number of features
of the development process that should be discussed more fully in a detailed treat-
ment of the history of industrialization. For even a summary treatment such as this
one, however, three areas of activity must be discussed in some detail for the process
of industrialization to be intelligible—agriculture, finance and banking, and the role
of the state in economic affairs.

Agriculture

It has already been pointed out that one of the major structural changes in the econ-
omy that occurred in the nineteenth century was a decline in the relative size of the
agricultural sector. That does not imply, however, that agriculture ceased to be im-
portant; quite the contrary. The prerequisite for a decline in the relative size was an
increase in agricultural productivity, with the size of the decline of the former being
proportional to the increase of the latter. In other words, the ability of a society to raise
its standards of consumption above a bare subsistence level and to shift a significant
portion of its labor force into other, potentially more productive activities depends on
a prior increase in agricultural productivity. (This statement ignores the possibility of
importing food supplies, which most industrializing countries, especially Great
Britain, did to some extent in the nineteenth century; but they also had highly pro-
ductive agrarian sectors.)
An increase in agricultural productivity can contribute to overall economic de-
velopment in five potential ways:

1. The agricultural sector can supply a surplus population (labor force) to engage
in nonagricultural occupations.
2. The agricultural sector can supply foodstuffs and raw materials for the support
of the nonagricultural population.
3. The agricultural population can serve as a market for the output of manufac-
turing industries and service trades.
4. By means of either voluntary investment or taxation, the agricultural sector can
furnish capital for investment outside agriculture.
5. By means of agricultural exports, the agricultural sector can furnish foreign ex-

270
 Strategic Sectors 271

change to enable the other sectors to obtain necessary inputs of either capital goods
or raw materials that are not available domestically.

It is not necessary for the agricultural sector to perform all five of these functions
for a society to develop economically, but it is difficult to imagine a situation in which
economic development could occur without the assistance of agriculture in at least
two or three of them. And for that to happen, agricultural productivity must increase.
At the beginning of the nineteenth century British agriculture was already the
most productive in Europe. This fact was intimately related to the early emergence of
British industrialism. Although the agricultural population continued to grow in ab-
solute numbers until the 1850s, it had long provided a surplus for nonagricultural ac-
tivities, a surplus that became marked in the latter half of the eighteenth and the first
half of the nineteenth centuries. (Generally, it was the sons and daughters of farmers,
not the farmers themselves, who left the countryside for urban occupations.)
Likewise, British agriculture met the majority of the nation’s needs for food and
some raw materials, such as wool, and barley and hops for the brewing industry. In
the first half of the eighteenth century it even provided a surplus of grain for export;
although that disappeared after 1760, British farmers continued to supply the greater
part of the national consumption of food, even after the repeal of the Corn Laws. In-
deed, the period from the midforties to the midseventies was the era of “high farm-
ing,” when British agriculture, like British industry, was at its relative peak. Techni-
cal improvements—light iron ploughs, steam threshers, mechanical harvesters, and
the widespread use of commercial fertilizers—increased productivity even more than
the earlier introduction of convertible husbandry and its associated techniques. After
about 1873, with the growing inundation of cheap American grain, British farmers
cut back on their plantings of wheat, but many of them switched to the production of
higher value-added meat and dairy products, frequently using imported grain as feed.
The prosperous agrarian sector also provided a ready market for British indus-
try. Indeed, before the midnineteenth century the nation’s rural population consti-
tuted a larger market for most industries than did foreign nations. Although there
were few instances of agricultural income being invested in industry (except the coal
industry, in which wealthy landowners frequently financed the development of
mines on their estates), landed wealth did contribute substantially to the creation of
social overhead capital: canals and turnpikes in the eighteenth century, and railways
in the nineteenth. All in all, therefore, British agriculture played a major role in the
rise of British industry.
The role of agriculture on the Continent differed from that in Great Britain, and
from one region to another as well. In general, as suggested in Chapters 9 and 10,
there was a rather close correlation between agricultural productivity and successful
industrialization, with a gradient running from the northwest to the south and east.
Agrarian reform was frequently a prerequisite for substantial improvement in pro-
ductivity. There are many types of agrarian reform, however, and not all produced the
intended result.
Basically, agrarian reform involves a change in the system of land tenure. The en-
closure movement in England, which resulted in the creation of relatively large com-
pact farms in place of the open field system, could be regarded as a kind of agrarian
PEI? A CONCISE ECONOMIC HISTORY OF THE WORLD

d
reform. The French Revolution, which abolished the Old Regime and confirme
their small farms, was
France’s independent peasant proprietors in the possession of
ter-
a different type of land reform. French-type reforms were imposed in some of the
the Rhine. The
ritories occupied by the French, notably Belgium and the left bank of
Prussian reforms of 1807 and afterwards (see Chapter 9), on the other hand, although
they emancipated the serfs, obliged the latter to cede much of their land to their for-
mer lords, resulting in the creation of even larger estates. Sweden and Denmark abol-
ished serfdom in the latter part of the eighteenth century and instituted enclosure
movements which, by the middle of the nineteenth century, had created a class of sub-
stantial peasant proprietors.
Elsewhere, agrarian reform had a less happy outcome. In the Habsburg Monar-
chy Joseph II attempted to alleviate the burdens on the peasantry in the 1780s, with
indifferent results; full emancipation had to await the revolution of 1848. In Spain and
Italy half-hearted attempted at agrarian reform ran afoul of the governments’ needs
for revenue and were effectively jettisoned. The Balkan states inherited their systems
of land tenure from the period of Turkish rule, but made no serious attempts to alter
them. Small peasant proprietorships—with population growth and no rule of primo-
geniture to prevent subdivision of properties—characterized Serbia and Bulgaria.
Greece and Romania, on the other hand, although they also had small peasant pro-
prietors, had large estates cultivated by tenant farmers as well. Neither system was
conducive to high agricultural productivity.
Imperial Russia had the distinction of undergoing two very different types of
agrarian reform within two successive generations. The emancipation of the serfs,
carried out reluctantly in 1861 following defeat in the Crimean War, did not funda-
mentally alter the structure of Russian agriculture. The former serfs, although freed
from their lords, now belonged compulsorily to the peasant commune, the mir; to
leave, they had to obtain a special passport, but even if they left they were still ob-
ligated to pay their share of taxes and redemption payments. Techniques remained
unchanged, and the cultivable strips were periodically redistributed among families
to compensate for changes in family size. Under the circumstances it is small won-
der that productivity remained low and peasant unrest increased. In the wake of the
revolution of 1905—6, the government abolished further redemption payments and
decreed the so-called Stolypin Reform (named for the minister who devised it), which
provided for private ownership of land and the consolidation of strips into compact
farms. As a result of this “wager on the strong,” productivity in Russian agriculture
began to rise, but the entire country was soon overwhelmed by war and revolution.
The performance of French agriculture is, at first sight, as contradictory and para-
doxical as that of French industry. Although the classic home of the small peasant pro-
prietor, frequently accused of being subsistence-oriented and technically backward,
France also had many progressive farmers. In 1882, when morcellement (subdivision
of property) was at its peak, there were some 4.5 million parcels of ten hectares
(twenty-five acres) or less, but these accounted for only 27 percent of the land. They
were located mainly in the less fertile south and west. On the other hand, over 45 per-
cent of the land was in holdings of forty hectares or more, mainly in the more fertile
north and east. These prosperous farms produced a marketable surplus to feed the
growing urban population at steadily rising levels of nutrition. Moreover, in spite of
 Strategic Sectors 273

the French peasants’ legendary attachment to the soil, more than 5 million persons
left agriculture for other employment (as in Britain, mostly the sons and daughters of
farmers rather than the farmers themselves). There is also some evidence that savings
originating in agriculture were applied to industrial investment, or at least to over-
head capital. Finally, the wine industry, which is, after all, a part of agriculture, served
as a major source of export earnings.
In Belgium, the Netherlands, and Switzerland agriculture had long been market-
oriented. Productivity in all three countries was among the highest on the Continent.
In Switzerland agriculture employed an average of 500,000, rising to a maximum of
about 650,000 in 1850, and then falling to about 450,000 in 1915; but the relative de-
cline was from over 60 percent of the labor force at the beginning of the nineteenth
century to about 25 percent in 1915. Similar stories could be told for Belgium and the
Netherlands.
Great variety characterized the performance of agriculture in the various German
states, and later in the new German Empire. In the southwest, Baden and Wiirtem-
berg had large numbers of small peasant proprietors like those in France; these were
not necessarily inefficient. In the north and east, in Mecklenburg and the Prussian
provinces of Pomerania and East and West Prussia, great estates worked by hired la-
bor were the rule; these were not necessarily highly efficient. Traditionally, these large
estates had been exporters of grain to western Europe since at least the fifteenth cen-
tury (see Chapter 5). They continued this role in the nineteenth century, until the large-
scale imports of American and Russian grain forced prices down and brought about
the return to protection, as will be recounted in Chapter 12. By that time the German
population had grown so large that a surplus for export no longer existed, even if
prices had been competitive. Indeed, by the 1890s Germany imported about 10 per-
cent of its cereal consumption.
The emancipation of the serfs in Prussia following the Edict of 1807 did not im-
mediately bring about any great changes. As long as the peasants remained on their
holdings they continued to perform their customary obligations and enjoy their cus-
tomary rights. But with the gradual growth of population and the more rapid increase
in the demand for labor in the Rhineland from the midcentury on, the population was
substantially redistributed from east to west. The absolute numbers in the agricultural
labor force continued to grow until 1914, reaching 10 million in 1908; but as a pro-
portion of the total labor force it fell from 56 percent at midcentury to under 35 per-
cent by 1914.
Agriculture contributed importantly to the economic development of both Den-
mark and Sweden, though not that of Norway. If, however, one looks at the entire pri-
mary sector, which includes forestry and fishing as well as agriculture, the picture is
quite different. In all countries the primary sector provided the bulk of the food sup-
ply as well as the increased labor force for the other sectors (and, in the cases of Nor-
way and Sweden especially, an increase in the labor force for American agriculture
through migration). The primary sector also provided a market for domestic industry
and, at least in Sweden where the state built the railways, contributed to capital for-
mation by means of taxation. The most spectacular way in which the primary sectors
of the Scandinavian countries contributed to their economic development, however,
was by means of exports. As noted in Chapter 10, timber and timber products con-
274 A CONCISE ECONOMIC HISTORY OF THE WORLD

stituted the greater part of Swedish exports before 1900, and oats were also impor-
tant in the middle decades of the century. After the decline of the oat trade Sweden
exported some meat and dairy products. Timber was also an important component of
Norway’s exports, but the fisheries were even more so; in 1860 they accounted for 45
percent of commodity exports, and still over 30 percent just before World War I. As
already mentioned, virtually all of Denmark’s exports consisted of high value-added
agricultural products.
Finland, which was ruled by the tsar of Russia as a grand duchy, is sometimes in-
cluded with the Scandinavian countries. Unlike them, however, it did not experience
any substantial structural change until late in the nineteenth century. It remained pre-
dominantly agrarian, with low-productivity agriculture and low average incomes. Its
major export was timber, with some woodpulp late in the century, which induced a
gradual structural change.
The Habsburg Monarchy, like Germany, was marked by regional variations. At
the beginning of the nineteenth century about three-fourths of the labor force in the
Austrian half of the empire (including Bohemia and Moravia) was engaged in agri-
culture, and a still higher proportion in the Hungarian half. By 1870, when the figure
for Austria had fallen to around 60 percent, Hungary had just reached the position that
Austria held at the beginning of the century. On the eve of the First World War the
proportion in Austria proper and Bohemia had fallen below 40 percent, but it was still
above 60 in Hungary.
The growth of agricultural output, both total and per worker, seems to have been
reasonably satisfactory throughout the century in both halves of the empire. The peas-
ant population constituted an adequate if not a dynamic market for textiles and other
consumer goods. The Hungarian half of the monarchy “exported” agricultural pro-
duce, especially wheat and flour, to the Austrian half in exchange for manufactures
and also capital investments. The failure of the empire as a whole to develop sub-
stantial agricultural exports can be attributed mainly to two factors: the difficulties of
transportation, and the fact that the domestic market absorbed the bulk of production.
Austro-Hungarian agriculture, like Austro-Hungarian industry, faithfully reflected
the empire’s location between west and east.
As previously indicated, Spain, Portugal, and Italy—to which we may now add
Greece, similar in many respects—underwent no meaningful agrarian reform in the
nineteenth century. With well over half the population involved in agriculture, even
in the early years of the twentieth century, productivity and incomes remained among
the lowest in Europe. Such populations could not serve as thriving markets for in-
dustry, let alone provide capital to the latter. Although all four countries exported
some fruits and wine, for which their climates suited them, they all remained party
dependent on imports for their supplies of bread grain.
The small countries of southeastern Europe, to an even greater extent than those
of the Mediterranean, remained mired in backward and unproductive agriculture,
which provided neither markets for industry nor much of a surplus of food, raw ma-
terials, or labor for urban markets. It did, however, supply a small surplus for export,
as described in Chapter 10.
Imperial Russia also remained overwhelmingly rural and agrarian on the eve of the
Great War. Nevertheless, agriculture played a somewhat different role in Russia than
 Strategic Sectors PLP)

in southeastern Europe or the Mediterranean. Backward as it was, Russian agriculture

managed to feed the Russian people and provide a surplus for export, which proved to
be critical for Russia’s drive to industrialize in the late nineteenth and early twentieth
centuries. It was formerly believed that the export surplus came at the expense of the
peasants through heavy taxation (“hunger exports”); but the results of recent research
suggest that agricultural productivity and rural living standards were rising, at least af-
ter 1885. If this is true, then Russia was on a path of economic development similar to
that taken by the nations of western Europe and the United States.
Agriculture played a dynamic role in the process of American industrialization
and in the rise of the United States to the position of the world’s leading economic
power. From the colonial period agriculture supplied in abundance not only the food
and raw materials for the nonfarm population, but also the greater part of American
exports. The southern colonies sent tobacco, rice, and indigo to Europe in exchange
for the manufactured goods needed by the growing colonial economy. New England
and the middle colonies exchanged fish, flour, and other foodstuffs with the West In-
dies for sugar, molasses, and the Spanish silver dollars that ultimately became the ba-
sis of the American monetary system. In the first half of the nineteenth century cot-
ton became “king” of exports, with more than 80 percent of total production going
abroad, mainly to Lancashire. After the Civil War, with the opening of the trans-Mis-
sissippi West by railways and the decline of ocean freight rates, corn and wheat be-
came major export commodities. In that era between 20 and 25 percent of total agri-
cultural production went to foreign markets, compared with only 4 to 5 percent of
manufacturing output.
American agriculture was market-oriented from its beginnings; although there
were instances of domestic production of household goods and “homespun” clothing,
for example, American farmers early relied on dispersed rural craftsmen and small-
scale industries for their tools and other manufactured goods. It has been estimated
that in the 1830s rural households (farm and village) accounted for more than three-
fourths of total consumer expenditure. Although the proportion fell with the growth
of the urban population, the absolute amount continued to rise. Before the end of the
century such mail-order firms as Sears Roebuck and Montgomery Ward found it prof-
itable to supply the rural population with standardized, mass-produced consumer goods.
The rapid natural increase of the rural population, in particular, also provided a
labor force for nonagricultural occupations. This source of labor was supplemented,
ori-
especially from the 1880s, by emigrants from Europe (most of them also of rural
gin), but most of the nonagricult ural labor force was still native-born . The rural ori-
gins of many notable business leaders (¢.g., Henry Ford), politicians, and statesmen
(e.g., Abraham Lincoln) are symptomatic in that respect.
Data are not adequate to determine, with any certainty, whether or not American
agriculture contributed significantly to the formation of nonagricultural capital; prob-
ably it did not. (On the other hand, the large amount of capital embodied by agricul-
tural structures and equipment was almost wholly of agricultural origin.) In any case,
it is clear that the agricultural sector of the American economy contributed very pos-
itively to the industrial transformation of the United States.
Eu-
The United States neither experienced nor needed an agrarian reform of the
to the agricultur al econ-
ropean style, but it did experience an extraordinary stimulus
276 A CONCISE ECONOMIC HISTORY OF THE WORLD

omy in the disposition of the public domain. After the Revolutionary War the federal
government acquired title to most of the trans-Appalachian West, and after the
Louisiana Purchase and subsequent territorial acquisitions, to most of the trans-Mis-
sissippi West. From the beginning the government followed a policy of sales to pri-
vate individuals (and some companies) in fee simple—in other words, a free market
in land. At first, however, the minimum parcel was so large (640 acres) it discouraged
individuals of modest means, especially when the sales were for cash or short-term
credit. The policy gradually evolved, however, toward smaller parcels and lower
prices, a tendency that culminated in the Homestead Act of 1862, which granted set-
tlers 160 acres free, provided they lived on and cultivated the land for five years. Af-
ter the General Revision Act (of land law) of 1891, however, most of the remaining
land in the Far West was retained by the federal government as national forests.
In perhaps no other country did agriculture play so vital a role in the process of
industrialization as in Japan. At the time of the Meiji Restoration the population was
approximately 30 million—a high-density population by Western standards. By the
time of World War I the population had grown to more than 50 million, giving it a
very high density indeed. In spite of this, and of the scarcity of arable land, Japanese
agriculture sufficed to feed the population for most of the prewar period (some rice
was imported from the colonies after 1900) and to furnish the greater part of Japanese
exports, as indicated in Chapter 10. By means of the land tax of 1873, agriculture also
financed the greater part of government expenditure (94 percent in the 1870s, still al-
most half in 1900) and thus, indirectly, a part of capital formation. In spite of their
poverty Japanese peasants constituted the largest market for Japanese industry. Fi-
nally, they also furnished labor for that industry; the labor force in agriculture fell
from 73 percent in 1870 to 63 in 1914, while the proportion in industry rose from less
than 10 to almost 20.

Finance and Banking

The process of industrialization in the nineteenth century was accompanied by a pro-

liferation in the number and variety of banks and other financial institutions neces-
sary to provide the financial services required by the greatly enlarged and increas-
ingly complex economic mechanism. Although all banking systems have certain
common features, determined by the functions they perform, systems also differ in
structure by nationality, since structure is determined primarily by legislation and by
historical evolution unique to each nation. From a broad spectrum of possible forms
of interaction between the financial sector and the other sectors of the economy that
require its services, one can isolate three type-cases: (1) that in which the financial
sector plays a positive, growth-inducing role; (2) that in which the financial sector is
essentially neutral or merely permissive; and (3) that in which inadequate finance re-
stricts or hinders industrial and commercial development.
The origins of Britain’s banking systems have already been sketched in Chapter
7. (It must be stressed that the English and Scottish banking systems were distinct un-
til the second half of the nineteenth century; the Irish system was also distinct,
whereas that of Wales was an adjunct of the English system.) At the beginning of
the
 Strategic Sectors 277

nineteenth century the Bank of England—in reality, the Bank of London—was still
secure in its monopoly of joint-stock banking; the numerous small “country banks”
in the provinces were all obliged to use the partnership form of organization, which
made them susceptible to financial panics and crises. After an especially severe cri-
sis at the end of 1825 Parliament amended the law to permit other banks to adopt the
joint-stock form as long as they did not issue banknotes; and a few years later Par-
liament passed the Bank Act of 1844, which shaped the structure of British banking
until World War I and afterward.
Under the Bank Act of 1844 the Bank of England traded its monopoly of joint-
stock banking for a monopoly of note issue. It remained primarily a government bank
(although privately owned), providing financial services to the government; increas-
ingly, however, it also became a bankers’ bank, and by the end of the century it had
consciously accepted the functions of a central bank. Along with the Bank of England,
the British banking system (the Bank Act of 1845 extended the provisions of the act
of 1844 to Scotland and effectively amalgamated the two systems) featured a num-
ber of joint-stock commercial banks that accepted deposits from the public and lent
to business enterprises, generally at short term. The number of these banks, both in
London and the country, grew rapidly to the 1870s; thereafter, by merger and amal-
gamation, the number shrank until by 1914 only about forty remained, five of them
headquartered in London but with branches throughout the nation, controlling almost
two-thirds of the total assets of the system.
Another feature of the British banking system, the private merchant bankers of
London, was much less visible than the other two features. Maintaining a low profile,
these private firms, such as N. M. Rothschild & Sons, Baring Brothers, and J. S. Mor-
gan & Co. (Morgan was an American, the father of J. Pierpont Morgan, Sr.), engaged
primarily in financing international trade and dealing in foreign exchange, but they
also participated in underwriting issues of foreign securities (see Chapter 12), which
they listed on the London Stock Exchange. That institution specialized almost entirely
in foreign investments, leaving to the provincial stock exchanges the function of rais-
ing capital for domestic enterprise.
In addition to the institutions just discussed, Britain had a number of other spe-
cialized financial institutions: savings banks, building and loan societies, and so on.
Although the resources at their command were not insignificant, they did not play a
prominent role in the process of industrialization. Overall, the British banking sys-
tem responded rather passively to the demands placed on it, neither hastening nor re-
tarding the process of economic development.
The French banking system, like that of England, was dominated by a politically
inspired bank doing most of its business with the government, the Bank of France.
Created by Napoleon in 1800, it quickly acquired a monopoly of note issue and other
special privileges. For a time under Napoleon, and at his insistence, it operated a few
branches in provincial cities, but gave them up as unprofitable after Napoleon’s fall.
Like the Bank of England, it became in effect the Bank of Paris, allowing a few banks
of issue on its model to operate in major provincial cities. It successfully blocked all
other requests for joint-stock banks presented to the government before 1848, and in
the revolutionary upheaval of that year took over the departmental banks of issue as
its own branches.
278 A CONCISE ECONOMIC HISTORY OF THE WORLD

Before 1848 France had no other joint-stock banks and no counterparts to the En-
glish country banks. It was, in effect, underbanked, because the provincial notaries
who provided some brokerage functions could not possibly fill the role of the miss-
ing banks. In an effort to do so, several entrepreneurs formed commandite banks in
Paris in the 1830s and 1840s. Even these could not fulfill the demand for banking ser-
vices, and in any case they all succumbed in the financial crisis that accompanied the
revolution of 1848.
France did have one other important type of financial institution in the first half
of the nineteenth century, however. This was /a haute banque parisienne, private mer-
chant bankers similar to those of London, whose leading member was De Rothschild
fréres, founded by James (Jacques) de Rothschild, brother of London’s Nathan. (They
and their three brothers, sons of an eighteenth-century German court Jew, Meyer Am-
schel Rothschild, established branches of the family bank in Frankfurt, Vienna, and
Naples as well as in London and Paris during the Napoleonic era.) As in London, the
principal activities of these private banks (they referred to themselves as “mer-
chants’’) were the finance of international trade and dealings in foreign exchange and
bullion, but following the Napoleonic Wars they began to underwrite government
loans and other securities, such as those of canal and railway companies.
Following the coup d’état of 1851 and the proclamation of the Second Empire the
next year, Napoleon III sought to lessen the dependence of the government on Roth-
schild and other members of la haute banque by creating new financial institutions.
He found eager collaborators in the persons of the brothers Emile and Isaac Pereire,
former employees of Rothschild who had decided to go their own way. With the bless-
ings of the emperor, in 1852 they founded both the Société Générale de Crédit
Foncier, a mortgage bank, and the Société Générale de Crédit Mobilier, an investment
bank that specialized in railway finance. Subsequently the government allowed the
formation of other joint-stock banks, some of which followed the examples of the
Crédit Mobilier (whose operations were patterned, in part, on those of the Société
Générale de Belgique; see Chapter 9), and others the example of the English joint-
stock commercial banks. The French banks, both private and joint stock, also led the
way in promoting French foreign investment. Overall, the French banking system in
the first half of the nineteenth century, hobbled by government conservatism and the
restrictive policies of the Bank of France, failed to live up to its full potential in pro-
moting the development of the economy; in the second half of the century it was
somewhat more expansive, but less so than those of Belgium and Germany.
The origins of the Belgian banking system were briefly sketched in Chapter 9. The
Société Générale de Belgique and the Banque de Belgique performed wonders in pro-
moting the industrialization of their small country, but the very latitude of their pow-
ers, together with the intensive rivalry, led them into difficulty. In 1850 the govern-
ment created the Banque Nationale de Belgique as a central bank with a monopoly of
note issue, freeing the others and those subsequently authorized to get on with ordi-
nary commercial and investment banking functions. Overall, the Belgian banking sys-
tem gets very high marks for its role in promoting the development of its economy.
The Dutch had fallen far from the commanding position in European finance and
commerce that they had occupied in the seventeenth century, but they still had re-
 Strategic Sectors 279

serves of financial power. When the kingdom of the United Netherlands took the place
of the defunct Dutch Republic in 1814, the Nederlandsche Bank took the place of the
Bank of Amsterdam, which had been liquidated during the French occupation. In ad-
dition, the Dutch financial system included several old established private bankers,
led by Hope and Company, whose business consisted mainly of underwriting gov-
ernment loans, and the kassiers, money changers and bill brokers.
In the 1850s, after the successes of the Société Générale de Belgique and, more
recently, the Crédit Mobilier, Dutch businessmen became convinced they could fos-
ter the industrialization of their country with similar institutions. They made four sep-
arate proposals for mobilier banks in 1856, but the government, relying on advice
from the Nederlandsche Bank, rejected them all. In 1863, when four new proposals
came in, two from Amsterdam and two from Rotterdam, the government relented and
authorized all four. They met with varied fortunes. One of them, an affiliate of the
French Crédit Mobilier, quickly overextended itself and had to be liquidated in 1868.
The others fared somewhat better and participated in the Dutch industrial build-up
that occurred in the last decades of the century.
Switzerland, which developed as a major world financial center in the twentieth
century, was much less important before 1914. To be sure, Geneva was one of Eu-
rope’s key financial centers in the Renaissance, and Swiss private bankers were still
important in the eighteenth century. Nevertheless, the bases of Switzerland’s subse-
quent prominence were laid in the nineteenth century. In the 1850s, 1860s, and 1870s
numerous new banks were founded on the model of the French Crédit Mobilier, in-
cluding several of those subsequently famous: the Schweizerische Kreditanstalt
(1856), the Eidgenossischen Bank in Bern (Banque Federale Suisse, 1864), and the
Schweizerische Bankgesellschaft (Swiss Bank Corporation, 1872, which had roots in
a local bank in Winterthur dating from 1862). Two other major banks, the Schweiz-
erische Bankverein and the Schweizerische Volksbank, came about through mergers
of banks dating from 1856 and 1868, respectively.
In the first half of the nineteenth century it could not be said that a German bank-
ing system existed. The several sovereign states, with their separate monetary and
coinage systems, prevented the emergence of a unified financial system. Prussia,
Saxony, and Bavaria had monopolistic note-issue banks (the earliest of them, that of
Bavaria, founded in 1835), but these were closely regulated by their governments
and catered mainly to government finance. Numerous private banks existed, espe-
cially in important commercial centers like Hamburg, Frankfurt, Cologne, Dussel-
dorf, and Leipzig, and in the Prussian capital, Berlin; but they were concerned pri-
marily with the finance of local and international commerce or, in some instances,
with the placement of private fortunes. From the 1840s onward, however, a number
of them began to engage in promotional finance, founding and underwriting new in-
dustrial enterprises and, especially, railways. This was the harbinger of a new era in
German banking.
The distinguishing feature of the German financial system, as it developed in the
second half of the century, was the joint-stock “universal” or “mixed” bank, engaged
in both short-term commercial credit and long-term investment or promotional bank-
ing. Called Kreditbanken (misleadingly, as all banking operations involve the use of
280 A CONCISE ECONOMIC HISTORY OF THE WORLD

credit), they took over and extended the promotional operations of the private bankers
just mentioned. (In fact, in several instances the Kreditbanken were mere extensions
of the private bankers themselves.)
The first of these new institutions was the Schaaffhausen’scher Bankverein of
Cologne, founded in the revolutionary year 1848. It was something of an anomaly as
well as a novelty, however, inasmuch as it was erected on the bankrupt remains of a
private bank, Abraham Schaaffhausen and Company; the panic-stricken government
in Berlin had been persuaded to depart from its usual practice of forbidding joint-
stock charters to banks in order to stem the financial crisis. It required several years
to get its affairs in order, and only later did it function as a true Kreditbank. Mean-
while the Prussian government reverted to its former policy, and authorized no more
joint-stock banks until 1870.
The first conscious example of the new type of bank was the Bank fiir Handel und
Industrie zu Darmstadt, popularly known as the Darmstadter, established in the cap-
ital of the Grand Duchy of Hesse-Darmstadt in 1853. Its promoters, private bankers
in Cologne, had intended to establish it in that city, but encountered the refusal of the
government. They next tried the important financial center of Frankfurt, but the Sen-
ate of that free city, dominated by its own powerful private bankers, also rebuffed
them. The government of the grand duke, whose capital city was located only a few
miles south of Frankfurt, proved more cooperative. The new bank was modeled on,
and received both financial and technical assistance from, the French Crédit Mobilier,
founded the previous year. From the beginning it operated throughout Germany.
Faced with the refusal of the Prussian government to authorize joint-stock char-
ters for banks, ambitious promoters used the device of the Kommanditgessellschaft
(similar to the French société en commandite), which did not require government au-
thorization. A number of these were established in the 1850s and 1860s, of which the
most notable were the Diskonto-Gesellschaft of Berlin and the Berliner Handelge-
sellschaft. Meanwhile, some of the smaller German states did not have the Prussian
government's antipathy to joint-stock banks, and allowed them to be formed. Finally,
in 1869 the North German Confederation, which was the euphemistic name given to
the greatly enlarged Prussia after the Austro-Prussian War, adopted a law modeled on
those of Britain and France that permitted free incorporation.
With that law, and in the euphoria induced by the Prussian victory over France in
1870, more than one hundred new Kreditbanken were created before the crisis of June
1873. The depression that followed winnowed out most of them, the weaker and more
speculative ones; then a process of concentration and amalgamation, similar to that
in Britain, led to the domination of the financial scene by about a dozen huge banks,
with networks of branches and affiliates throughout Germany and abroad. The most
famous of these were the ““D-banks”—the Deutsche Bank, Diskonto-Gesellschaft,
Dresdner, and Darmstidter—all with capitals of more than 100 million marks and
headquartered in Berlin. They not only catered to the needs of German industry (it
was said that they accompanied enterprises “from the cradle to the grave”) but also
facilitated the extension of Germany’s foreign commerce by providing credit to ex-
porters and foreign merchants.
One further major institutional innovation, the Reichsbank, created in 1875,
capped Germany’s financial structure. It, too, was in part a consequence of Prussia’s
 Strategic Sectors 281

victory over France, and the huge indemnity it brought. In name, it was merely a trans-
formation of the Prussian State Bank, but its resources and powers were greatly en-
larged. It had a monopoly of the note issue and acted as a central bank. As such, it
was able to support the Kreditbanken in difficult times, and thus made it possible for
them to take greater risks than they normally would have.
The development of German banking in the second half of the nineteenth cen-
tury was one of the most striking accompaniments—indeed, as some would have it,
a cause—of the equally rapid process of industrialization. Too much stress has prob-
ably been put on the role of the banks; naturally, many other elements contributed
to the success of German industry, and that very success in turn contributed to the
success and prosperity of the banking system. The fact remains, however, that the
banks did play a prominent role in industrial development; altogether, the German
banking system at the beginning of the twentieth century was probably the most po-
tent in the world.
Austria (or the Habsburg Monarchy) acquired its modern banking system at about
the same time as Germany did. True, it had created the Austrian National Bank in
1817, but that was a privileged enterprise, like the Banks of England and France, for
dealing with the disordered state of public finances after the Napoleonic Wars. It also
had some private banks, of which the House of Rothschild was by far the most promi-
nent. (All five Rothschild brothers had been made barons of the Austrian Empire in
the 1820s in partial recompense for their role in restoring Austrian state finances.) But
the first modern joint-stock bank was the Austrian Creditanstalt, created in Decem-
ber 1855. Its creation was a direct result of the rivalry of the Pereire brothers and the
Rothschilds. The Pereires made a bid for it at the same time that they successfully
purchased the Austrian State Railways for the Crédit Mobilier, but the Rothschilds,
who had been the Habsburgs’ “court Jews” since the time of Napoleon, wrested it
away from them. It remains today, after numerous transformations, one of the most
powerful financial institutions in central Europe.
In addition to the Creditanstalt, a number of other important joint-stock banks
were created in Vienna, Prague, and Budapest, as well as smaller banks in provincial
towns, but largely for reasons of natural endowment and institutional constraints, they
did not exhibit the dynamism of the German banking system.
Although the economy of Sweden was relatively backward in the first half of the
nineteenth century, it had a long banking tradition. The Sveriges Riksbank (the fore-
runner of the National Bank of Sweden), founded in 1656, was in fact the first bank
to issue true banknotes. Some private note-issuing banks also dated from the first half
of the nineteenth century. Nevertheless, the modern history of banking in Sweden,
1860s, and
like that of so many other European countries, dates from the 1850s and
En-
derived its inspiration from the example of the Crédit Mobilier. The Stockholms
it was fol-
skilda Bank, founded in 1856, was the first of the new type in Sweden;
lowed by the Skandinaviska Banken in 1864 and the Stockholms Handelsbank (sub-
sequently the Svenska Handelsbank) in 1871. All three, as well as some smaller
provincial banks, engaged in mixed banking (commercial and investment) operations
ion
with considerable success. It could be debated whether the successful transformat
to the prosperity of the banks, or vice versa; but
of the Swedish economy contributed
it is clear that the two progressed together.
 i)oOii) A CONCISE ECONOMIC HISTORY OF THE WORLD

In the first half of the nineteenth century Denmark had a central bank, the Na-
tionalbank, which was privately owned but government-controlled, and a number of
small savings banks. Like Sweden, its modern banking history dates from the 1850s,
and like Sweden, it was dominated by three large joint-stock banks, all based in
Copenhagen: the Privatbank (1857), the Landsmanbanken (1871), and the Handels-
banken (1873). Norway and Finland were less advanced financially than Denmark
and Sweden, but in all four countries the general levels of literacy made the popula-
tion better able to take advantage of banking facilities.
The Latin nations of the Mediterranean also obtained modern financial institu-
tions in the 1850s and 1860s, but mainly at French initiative and employing French
capital. Spain had a bank of issue, the Banco de San Carlos (later renamed the Banco
de Espafia), dating from 1782 (and founded by a Frenchman), but like other banks of
its type it was concerned primarily with government finance. The important com-
mercial and industrial city of Barcelona also had a bank of issue dating from the
1840s, but it did not engage in promotional activities. The Pereires attempted to es-
tablish a Spanish affiliate in 1853, at the time of the Darmstidter promotion, but failed
to secure authorization from the reactionary Spanish government of the moment. In
1855, however, after a change of government brought in a “moderate” faction, they
persuaded the finance minister to introduce a bill in the Cortes authorizing the gov-
ernment to charter banking enterprises on the model of the Crédit Mobilier. Early the
following year they organized the Sociedad General de Crédito Mobiliario Espanol.
The law authorizing the Crédito Mobiliario Espafiol permitted the government to
charter similar institutions without further authorization from the Cortes. Other
French entrepreneurs lost no time in presenting themselves; almost simultaneously
four institutions modeled on the Crédit Mobilier sprouted on Spanish soil—three of
them relying on French capital, including one sponsored by the Rothschilds. All of
them participated in the feverish outburst of railway promotion and construction that
ensued, and several, especially the Crédito Mobiliario, engaged in other industrial and
financial enterprises, including Spain’s first modern insurance company. Indeed, what
little economic development Spain achieved in the nineteenth century was largely a
result of the activities of these French-inspired credit companies.
Shortly after obtaining the charter for the Crédito Mobiliario Espaniol the Pereires
contracted with the Portuguese government for a similar company in Lisbon. The
up-
per chamber of the Portuguese parliament refused to ratify the agreement, however.
Later that year another French financial adventurer, who had assisted the governme
nt
in raising a loan, obtained a charter for a Portuguese Crédit Mobilier, but it was
short-
lived. The promoter went bankrupt in the crisis of 1857, and the company went
down
with him. Subsequently French entrepreneurs contributed to the formation
of two
mortgage banks on the lines of the Crédit Foncier, but no other promoters
considered
Portugal a suitable area for investment banking.
The Pereires also wished to establish a filial in the rapidly developi
ng state of
Piedmont. Cavour, the guiding genius of that development, welcome
d their interest
as a counterweight to the influence that Rothschild exercised over all
of the little king-
dom’s financial relations; but in the end he decided against alienatin
g that financial
power, and granted to the latter’s Cassa del Commercio e delle Industrie
the sole char-
ter for a joint-stock investment bank in Piedmont. It participated
in a number of Roth-
 Strategic Sectors 283

schild enterprises in Italy, Switzerland, and Austria as well as in Piedmont proper, but
bad management and “irresponsibility on the part of important financiers connected
with it” (in the words of a financial journal) resulted in large losses. The Rothschilds
withdrew in 1860, and the bank stagnated until 1863 when the Pereires bought a con-
trolling interest, increased its capital, and renamed it the Societa Generale de Credito
Mobiliare Italiano. In subsequent years it became identified with virtually every new
enterprise in Italy, including railways, ironworks, and steel mills. It had close con-
nections in high government circles and ranked after the Banca Nazionale as the most
important bank in Italy. In the midst of the crisis of 1893, however, the revelation of
serious scandals in its internal organization and in its relations with the government
forced it into liquidation.
Most other Italian banks founded in the 1860s also used French capital, but only
one other, the Banca di Credito Italiano, owed as much to French initiative as the
Credito Mobiliare. It, too, fell prey to the crisis of 1893. In the following year, to fill
the void, two new large banks were established, this time on German initiative and
with German capital: the Banca Commerciale Italiana in Milan and the Credito Ital-
iano in Genoa. Although the German capital withdrew around 1900 (replaced in part
by French capital), these two institutions played major roles in Italy’s industrial spurt
in the years before World War I.
French bank promoters carried on the search for concessions in southeastern Eu-
rope in the 1850s, but the time was not yet ripe there. Both Serbia and Romania re-
jected offers to establish mobilier-type banks then, but in 1863 the Crédit Mobilier ob-
tained an agreement with the Romanian government, only to have ratification blocked
by the parliament. Two years later, after a coup d’ état, the ruling Prince Cuza conceded
a charter to French and British capitalists for the Banca Romaniei. Finally, in 1881, the
Romanians obtained a Societate de Credit Mobiliar under French sponsorship.
The Crimean War dramatically revealed the economic backwardness of Russia
vis-a-vis the West and led the government of the tsar to a campaign of railway con-
struction and the emancipation of the serfs. It also led it to an overhaul of the finan-
cial and banking systems. The major financial institution was the State Bank, founded
in 1860. It was wholly owned by the government and under the immediate supervi-
sion of the finance ministry. In the beginning it did not issue banknotes—fiat paper
on the
money was issued directly by the state printing office—but when Russia went
gold standard in 1897 it obtained a monopoly of note issue. The State Bank controlled
Bank
the state savings banks and created the Peasants’ Land Bank (1882), the Land
Urban Bank (1912). It owned shares in
for the Nobility (1885), and the Zemstvo and
and in the Russo-Chi nese Bank (1895),
the Loan and Discount Bank of Persia (1890)
created to facilitate Russian penetration of those countries.
perative,
The banking system also contained a variety of small institutions—coo
the most important , after the State
communal, mortgage, and other types of banks—but
of these was the St. Petersbur g
Bank, were the joint-stock commercial banks. The first
they numbered fifty, mostly
Private Commercial Bank, founded in 1864. By 1914
of branches
headquartered in St. Petersburg and Moscow, with nationwide networks
eight of them based in
totaling more than 800 bank offices. The twelve largest banks,
distinctiv e feature
St. Petersburg, controlled about 80 percent of total assets. Another
been founded or
of these banks was the extent of foreign influence. Many of them had
 284 A CONCISE ECONOMIC HISTORY OF THE WORLD

were managed by French, German, British, and other bankers. Foreign banks, espe-
cially French ones, owned much of their stock. In 1916 foreign banks owned 45 per-
cent of the capital of the ten largest banks; more than 50 percent of that belonged to
the French. The Russian joint-stock banks, in cooperation with their foreign partners,
contributed greatly to Russian industrialization after 1885, which was also carried out
in large part by foreign entrepreneurs and technicians (see Chapter 10).
European financiers also contributed their expertise to their neighbors in the Near
and Middle East. The first joint-stock bank to be established in the area (and the first
British joint-stock bank in any foreign country), the Bank of Egypt, commenced op-
eration in 1855. It aroused the opposition of the numerous French private bankers in
Alexandria, who protested to their consul, but in vain. In time the French set up
joint-
stock banks of their own.
A similar development occurred in the venerable, and decrepit, Ottoman Empire.
In 1856 a group of British capitalists organized the Ottoman Bank in Constantinople
as an ordinary commercial bank. Some years later it solicited a charter as the exclu-
sive bank of issue, but French-educated reform ministers at the time desired a con-
nection with the French financial market. In 1863 they forced the Ottoman Bank to
amalgamate with a French group led by the Crédit Mobilier in a new institution, the
Banque Impériale Ottomane. It was a most unusual institution, combining the func-
tions of a central bank with a monopoly of note issue with those of ordinary com-
mercial and investment banking. In addition, the bank was charged with withdraw-
ing the paper money and money ofbad alloy, collecting and transmitting taxes in areas
served by its branches, and servicing the public debt. Profits on the first seven months
of operation amounted to almost 20 percent of paid-in capital. The bank prospered
throughout the prewar decades, and even came to terms with the nationalistic
Mustapha Kemal (Ataturk) after World War I.
Persia (modern Iran) had a similar institution, the Imperial Bank of Persia, founded
by British interests in 1889. The promoters had intended to use the bank to finance rail-
way construction, but the Russian government, fearful of British penetration of its
southern flank, exerted diplomatic pressure on the shah to prevent the railways from
being built. The bank, thus founded “by mistake” and operated by nonprofessionals
in the financial area, contributed little to Persian economic development.
This was not the case with many other British overseas banks. Beginning in the
1850s, a number of banks with British charters and British capital were establishe
d
overseas, especially in India and Latin America. They were not branches of
British
domestic banks, but were generally founded by British merchants operating
abroad.
One of the most famous was the Hongkong and Shanghai Bank, which
played a
prominent role in Chinese finance and is today a major multinational corporatio
n. The
main function of these banks was to finance international trade,
but they also took
part in issuing securities of foreign governments and corporations. In time
they faced
competition from both local banks and branches of other European banks.
(See Chap-
ter 10 for the important role of the Japanese banking system.)
Banking in the United States had a checkered career in the nineteen
th century. In
the early years of the republic the struggle between the Hamiltonians,
who favored a
strong role for the federal government, and the J effersonians, who
preferred to leave
policy to the individual states, was clearly reflected in the history
of banking. The
 Strategic Sectors 285

Hamiltonians succeeded at first, getting the congressionally chartered first Bank of

the United States (1791-1811), but when its charter expired the proponents of states’
rights and of state-chartered banks, which were already numerous and were jealous
of the larger institution, prevented its renewal. A second Bank of the United States
(1816-36) met the same fate at the hands of the Jacksonian Democrats. Thereafter,
a variety of institutional experiments were made until the Civil War. Some states al-
lowed “free banking” (anyone could start a bank), others operated state-owned banks,
and still others tried to prohibit banks altogether. In spite of this seeming confusion,
the economy obtained the banking services it needed and continued to grow rapidly.
During the Civil War, and partly as a measure of war finance, Congress created
the National Banking System, which allowed federally chartered banks to compete
with the state-chartered banks. The competition was unfair, because Congress also
imposed a discriminatory tax on the note issues of the state banks, which forced many
of them to convert to national banks. In time, however, they discovered that it was
possible to carry on a banking business by means of deposits subject to checks, and
state banks staged a strong comeback in the closing decades of the century.
Both the state and the national banking systems suffered from excessively re-
strictive rules and regulations. For example, branch banking was generally prohib-
ited. Banks could not deal in international finance, which meant that the country’s
large volume of imports and exports was financed from Europe and by the relatively
small number of private merchant banks, such as J. P. Morgan & Co., which were
not hampered by the restrictions that applied to corporate banks. Some believed that
the absence of a central bank also made the country more susceptible to the periodic
financial panics and depressions that occurred. To remedy this defect, Congress in
the
1913 created the Federal Reserve System which, among other things, relieved
national banks of their note-issuing function, but also freed them to engage in inter-
national finance.
In sum, the experience of the United States with both rapid economic growth and
are
a changing, somewhat chaotic banking system seems to show that, though banks
necessary for economic growth in complex industrial societies, a rational banking
system is not.

The Role of the State

mis-
Few topics in the economic history of the nineteenth century are more widely
the state, or governme nt, in the economy. On the one
understood than the role of
mely, that apart from enacting and (more or
hand is the myth of laissez faire—na
the state strictly abstained from any interferen ce
less) enforcing the criminal laws,
nts acted as
in the economy. On the other hand is the Marxist notion that governme
ruling class, the bourgeois ie. The historical real-
the “executive committees” of the
was far different from either of these simplis-
ity, however variegated and complex,
tic formulations.
the economy.
The government can play a variety of possible roles with respect to
in the economi c sphere, one that can-
The most fundamental function of government
legal environ ment for economi c en-
not be avoided or abdicated, is the creation of the
 286 A CONCISE ECONOMIC HISTORY OF THE WORLD

deavor. This can range from a pure “hands-off” policy to one of total state control.
The cardinal sin in this area is neither intervention nor nonintervention, but ambigu-
ity. The “rules of the game” should be clear, unequivocal, and enforceable. They in-
clude, as a minimum, the definition of rights (property and other) and responsibilities
(contractual, legal, etc.). Theft is a crime in both free enterprise and socialist societies.
The second broad category of ways in which government participates in the
economy includes promotional activities short of directly productive ones. These in-
clude tariffs, tax exemptions, rebates, and subsidies, as well as measures such as es-
tablishing tourist or immigration bureaus. Not all activities in this category are nec-
essarily conducive to growth; for example, a protective tariff may perpetuate an
inefficient industry.
Similar in some respects to promotional activities, but usually with a different
goal in mind, are the regulatory functions of government. These range from mea-
sures to protect the health and safety of specific groups of workers to detailed con-
trols of prices, wages, and output. The purpose of such regulations may be to foster
growth—for example, by prohibiting or regulating private monopolies—but more
often the purpose is not growth-related; it is intended rather to eliminate inequity or
exploitation. In the latter case the unintended side effects of the regulation may be
to retard growth.
Finally, governments can engage in directly productive activities. These range
from such benign devices as providing educational facilities to total government own-
ership and control of all productive assets, as in the former Soviet Union. Such gov-
ernment participation may be essentially entrepreneurial or innovational, such as New
York State’s Erie Canal and Japan’s model factories, and hence favorable to private
enterprise; or it may compete with or supplant private enterprise, as with government
ownership of public utilities or telegraph facilities.
With these manifold possibilities before us, let us look at the actual historical
record to see what role governments actually played in the nineteenth century. Since
some of the functions of government, especially the first one, have already been dealt
with in Chapter 8, and commercial policy will be discussed in Chapter 12, this brief
survey focuses on the other functions.
Great Britain is generally regarded as the home of laissez faire, or minimal gov-
ernment. How large or small was that government? Throughout the century, after
the
Napoleonic Wars, the proportion of central government expenditure of the United
Kingdom to gross national product was generally less than 10 percent—in peacetime
,
about 6 to 8 percent. (To measure the actual size of government, one would
have to
add local government expenditures, probably no more than 2 to 3 percent.)
Is that a
large or small proportion? Compared with twentieth-century proportion
s, ranging
from 30 to 50 percent or more, it is certainly small. On the other hand, one-tenth
. . . ?
In spite of its reputation as the home of minimal government, the size
of the gov-
ernment in the United Kingdom (or Great Britain) was probably
typical for that of
Europe as a whole; if anything, it was slightly larger, in relative terms,
than that of
most continental nations. In both the German Empire and the United
States the ratio
of central government expenditures to national income was generall
y less than 5 per-
cent, but of course these were both federal nations; state
and local government ex-
penditures combined exceeded those of the central government.
Ironically, the na-
 Strategic Sectors 287

tions in which the ratio generally exceeded that of Great Britain were the poorer coun-
tries of southern and eastern Europe, such as Spain, Italy, and Russia. The ratio in the
Balkan nations in the early 1900s ranged from 20 to 30 percent.
So much for the size of government, insofar as it can be measured in pecuniary
terms. What of the activities of government, both those that promoted and those that
retarded economic development? Again, let us begin with Great Britain. Most people
take it for granted that one of the functions of government is to deliver the mail (al-
though in recent years the gross inefficiency of the postal service, and the rise of al-
ternative private courier services, is bringing that assumption into question). Before
the nineteenth century private courier services coexisted with bumbling, inefficient
government postal services, which were maintained more for the purposes of cen-
sorship, espionage, and revenue than for service. Modern postal service began in 1840
when Sir Rowland Hill, the postmaster-general of the United Kingdom, introduced
the prepaid, flat-rate penny post. Within a few years most Western nations adopted
similar systems. When the electric telegraph became operational a few years later it
seemed logical to add it to the government’s postal monopoly. The same policy was
followed later in the century after the invention of the telephone. Most continental
and
countries followed Britain’s example, but in the United States both the telegraph
telephone were left to private enterprise.
A most unusual example of a private enterprise was the East India Company. Al-
the
though founded in the seventeenth century as a strictly commercial enterprise, by
“a state within
beginning of the nineteenth century it had become the ruler of India,
militia
a state.” In the aftermath of the Sepoy Rebellion of 1857, in which the native
anomaly and
revolted against their officers, public opinion became conscious of the
taken over by
forced the dissolution of the company, with its governmental functions
in 1875, the
the India Office. That seemed right and normal, but a few years later,
in one
Tory prime minister, Benjamin Disraeli, made the government a stockholder
khedive of
of the largest private enterprises of the day by buying the shares of the
on
Egypt in the Suez Canal Company, chartered in France. That action was justified
purchase of
the grounds of national defense. Similar reasons were advanced for the
I. The reasoning
the Anglo-Persian Oil Company in 1914, on the eve of World War
times, but the ac-
may have been valid, given the conditions and assumptions of the
later) as a mini-
tions were scarcely in keeping with Britain’s reputation (then and
malist state.
lag fur-
In one area Britain really did live up to its reputation. Nowhere did Britain
n. Until 1870 the
ther behind other Western nations than in public support of educatio
those operated by private or religious foundati ons, most
only schools available were
for the parish schools in Scotland . As a result, fully half
of which charged fees, except
do received more
the population received no formal education at all. Only the well-to-
more than any other served to preserve Britain’s ar-
than the rudiments. That factor
otherwis e rapid social change, and contribu ted to the
chaic class structure in an age of
l leadershi p. The Educatio n Bill of 1870 pro-
relative decline of Britain’s industria
and church- connect ed schools that met certain
vided state support for existing private
did educatio n become, even in princi-
minimum standards. Not until 1891, however,
age of twelve. As late as the 1920s only one in
ple, both free and universal up to the
eight of the eligible population attended a secondar y school.
 288 A CONCISE ECONOMIC HISTORY OF THE WORLD

In higher education England also lagged behind the Continent and the United
States. Until state scholarships were instituted in the twentieth century, Oxford and
Cambridge were open only to the sons of the wealthy, mainly the aristocracy. By con-
trast, Scotland, with a much smaller population, had four ancient and flourishing uni-
versities open to all qualified applicants. London’s University College, in existence
from 1825, became the University of London in 1898 with the addition of more col-
leges. In 1880 Manchester became the first provincial city to acquire a new univer-
sity. By the beginning of the twentieth century several others were established, but
even after World War I only four persons per thousand in the appropriate age group
were enrolled in a university.
Most continental countries had long traditions of state paternalism or étatisme,
in the French term. In several of them the state owned forests, mines, and even in-
dustrial enterprises. The latter produced military and naval equipment, but not only
that; the French had their manufactures royales for the production of porcelain, crys-
tal, tapestries, and so on, as did other governments. In the eighteenth century, as the
superiority of British technology in certain industries became apparent, governments
sponsored efforts to obtain access to that technology, by espionage or otherwise.
Both France and Prussia, for example, undertook to produce coke-smelted pig iron
in state-owned furnaces; neither experiment was commercially successful, however,
and it remained for private entrepreneurs to reintroduce the process long after the
Napoleonic Wars.
This example suggests how the states were obliged to modify their traditions of
paternalism in the course of industrialization. A more vivid example comes from the
Ruhr mining industry. In Prussia, as in France and several other countries, mining,
even in privately owned mines, had to be carried out under the supervision of engi-
neers of the royal mining corps. This was called the Direktionsprinzip (direction prin-
ciple). That sufficed in the Ruhr as long as mining was confined to the relatively shal-
low deposits in the Ruhr valley proper, but when the riches of the “hidden” coalfield
north of the Ruhr were discovered in the late 1830s and 1840s, the conservatism
of
the royal mining corps became a hindrance. The new mines required greater
capital-
ization for the deeper shafts, steam pumps, and other mining equipment. The
mining
companies, several of them operated by French, Belgian, and British entrepreneu
rs,
began a long drawn-out struggle with the Prussian authorities, which finally
ended in
1865 with the replacement of the Direktionsprinzip by the Inspektionsprinzip
(in-
spection principle), under which the government engineers merely
inspected the
mines for safety.
The rapidly developing technology of transportation—specifically,
that of the
railways—obliged all governments to become involved. The British,
true to their
minimalist tradition, did the least, leaving promotion, construction,
and most operat-
ing details to private initiative; but even in Britain Parliament had
to pass the enabling
legislation to allow the companies to buy the land for rights of
way, and the Railway
Act of 1844 laid down a number of rules and regulatio
ns, including a maximum fare
for third-class passengers. (The act also provided that the governm
ent might purchase
the railways when their charters expired, but that provision was
not acted on until af-
ter world War II.)
Elsewhere governments took a much greater interest in railway
s. As we have seen,
 Strategic Sectors 289

the new Belgian state in the 1830s undertook to build and operate a basic railway net-
work for its own account. After it was completed it allowed private companies to build
branch lines, but when these encountered financial difficulties in the 1870s the gov-
ernment bailed them out. France endured a prolonged debate on the question of state
versus private ownership; in the end the proponents of private ownership won out,
but with numerous provisos that allowed the government a large role. And when one
important company went bankrupt the government took it over to continue the ser-
vice. As noted in Chapter 9, the German states followed different policies at the be-
ginning of the railway era, some building for the account of the state, others leaving
the job to private enterprise. Subsequently, after the creation of the empire, Bismarck
established the Imperial Railway Office, whose function was to buy up private com-
panies and use the railways consciously as instruments of economic policy, for ex-
ample, by giving favorable rates on goods destined for export. (Earlier, however, in
1865, Bismarck sold the Prussian government’s shares in the Cologne-Minden Rail-
way to raise money for the war with Austria when the Prussian Diet refused to grant
taxes for the purpose.)
The Austro-Hungarian Empire’s policy on railways fluctuated, as did the Rus-
sian’s, first favoring state ownership and operation, then private companies, and fi-
nally veering back to the state. In other countries, if they did not begin with state-
owned networks, as Sweden did in 1855, they sooner or later came around to the
principle of state ownership. Even where they did not, as in France before World War
I, the state exercised considerable regulatory powers. In the United States the federal
government left railway policy to the states before the Civil War, but shortly there-
after gave large land grants to private companies to stimulate the construction of the
transcontinentals. In 1887, in response to complaints from farmers and others, Con-
gress created the Interstate Commerce Commission to regulate the railways.
These few examples do not exhaust the instances in which the state took an ac-
tive part in the economy—far from it. But they do illustrate the varied and sometimes
contradictory roles of government. If, in retrospect, the nineteenth century appears to
be one in which government was less pervasive than in previous centuries, or the one
that followed, this does not mean the government played no role at all.
 Loe
The Growth. of the World Economy

Although long-distance trade has existed from at least the beginnings of civilization,
its importance grew enormously and rapidly in the nineteenth century. For the world
as a whole the volume of foreign trade per capita in 1913 was more than twenty-five
times greater than it had been in 1800. Throughout the century Europe accounted for
60 percent or more (as much as two-thirds) of the total of both imports and exports.
The period of most rapid growth occurred between the early 1840s and 1873, when
total trade increased at more than 6 percent annually—five times as fast as the pop-
ulation growth and three times as fast as the increase in production.
The international movement of people and capital—migration and foreign in-
vestment—also accelerated rapidly. By the beginning of the twentieth century it was
possible to speak meaningfully of a world economy, in which virtually every inhab-
ited portion participated at least minimally, though Europe was by far the most im-
portant. It was, in fact, the dynamic center that stimulated the whole.
At the beginning of the century two main types of obstacles, natural and artificial,
hindered the flow of international commerce. The incidence of both fell significantly
as the century progressed. The natural obstacle—the high cost of transportation, es-
pecially of land transportation—yielded to the railway and the improvements in nav-
igation, culminating in the ocean-going steamship. The artificial obstacles—tariffs
on imports and exports and also some outright prohibitions on the importation of cer-
tain commodities—likewise came down and even disappeared, although at the cen-
tury’s end a “return to protection” resulted in the imposition of higher import tariffs
in a number of countries.

Britain Opts for Free Trade

Intellectual arguments for free international trade had been made even before Adam
Smith’s eloquent treatise, The Wealth of Nations; the latter elevated them to a new
plane of respectability. Moreover, practical considerations forced governments
to re-
consider their prohibitions and high tariffs; smuggling was a lucrative occupatio
n in
the eighteenth century, and reduced both government revenue and legitimate
entre-
preneurial profits. The British government had begun to alter its protectionist
stance
in the late eighteenth century, but the outbreak of the French Revolutio
n and the
Napoleonic Wars deferred its efforts. Indeed, the British blockade
and the Continen-
tal System represented extreme forms of interference with international trade.

290
 The Growth of the World Economy 291

Adam Smith’s case for free international trade derived from his analysis of the
gains from specialization and the division of labor among nations as well as individ-
uals. It rested on differences in the absolute costs of production, such as the cost of
producing wine in Scotland as opposed to France. David Ricardo, in his Principles of
Political Economy (1819), supposed (incorrectly) that Portugal had an absolute ad-
vantage in the production of both cloth and wine, compared with England, but that
the relative cost of producing wine was cheaper; under those circumstances, he
showed it would be to Portugal’s advantage to specialize in the production of wine
and to purchase its cloth from England. This was the principle of comparative ad-
vantage, the foundation of modern international trade theory.
Both Smith’s and Ricardo’s arguments for free trade rested on purely logical
grounds. To have any practical effects on policy, these arguments had to persuade
large groups of influential people that free trade would benefit them. One such group
consisted of merchants involved in international trade. In 1820 a group of London
merchants petitioned Parliament to permit free international trade. Although the pe-
tition had no immediate effect, it indicated a new trend of public opinion. Coinci-
dently, at about the same time several relatively young men intent on modernizing
and simplifying the archaic procedures of government rose to positions of influence
in the governing Tory party. Among them was Robert Peel, the son of a wealthy tex-
tile manufacturer, who as home secretary reduced the number of capital offenses from
more than 200 to about 100. (He also created the Metropolitan Police Force, the first
of its kind, whose members were called “bobbies” or “peelers,” at first in derision,
but later with affection.) Another of the so-called Tory Liberals was William
Huskisson, who, as president of the Board of Trade, greatly simplified and reduced
the maze of restrictions and taxes that hampered the development of international
commerce. The parliamentary reform of 1832 extended the franchise to the urban
middle class, most of whom were favorably inclined toward freer trade.
The centerpiece and symbol of the protectionist system of the United Kingdom
(which included Ireland from 1801) were the so-called Corn Laws, tariffs on imported
bread grains. The Corn Laws had a long history, but they were strengthened appre-
ciably at the end of the Napoleonic Wars at the behest of the landed interests, who
were strongly represented in Parliament. The growth of population and increasing ur-
banization made self-sufficiency in foodstuffs virtually impossible, but Parliament
stubbornly resisted attempts to alter the Corn Laws. After earlier unsuccessful at-
tempts to repeal or modify them, Richard Cobden, a Manchester industrialist, formed
the Anti-Corn Law League in 1839 and mounted a strong and effective campaign to
influence public opinion. In 1841 the Whig government, then in power, proposed re-
ductions in the tariffs on both wheat and sugar; when these measures went down in
defeat, they called a new general election.
Earlier the Corn Laws and protectionism in general had not been party issues,
since landowners formed the bulk of both the Whig and the Tory parties. In the elec-
toral campaign the Whigs, seeking to capitalize on anti-Corn Law sentiment, pro-
posed a reduction (not repeal) of the Corn Laws, whereas the Tories advocated the
status quo. The Tories won, but the new prime minister, now Sir Robert Peel, had al-
ready decided on extensive revisions in the fiscal system, including the abolition of
export taxes, elimination or reduction of many import taxes, but not the duties on
292 A CONCISE ECONOMIC HISTORY OF THE WORLD

grain, and imposition of an income tax to replace the lost revenue. Several of these
measures had already taken effect, and the government would probably have pro-
posed a reduction in the grain tariff, when in 1845 the disastrous potato blight struck
Ireland (and Scotland to a lesser extent), reducing large numbers of the Irish popula-
tion to starvation. Prodded by this catastrophe, Peel introduced a bill to repeal the
Corn Laws which, with the support of most Whigs, passed in January 1846, over the
opposition of the majority of his own party.
In the aftermath of Corn Law repeal the modern British political system—at least
until 1914—-began to take shape. Peel, ostracized by his own party, retired from pol-
itics. W. E. Gladstone, one of a small number of Tories who followed him in voting
for repeal, joined the Whigs, becoming chancellor of the exchequer and eventually
prime minister. The Whigs, subsequently known as Liberals, became the party of free
trade and manufactures, whereas the Tories, also known as Conservatives, remained
the party of the landed interest and, eventually, of imperialism.
Also in the aftermath, Parliament cleared the books of much of the old “mercan-
tilist” legislation, such as the Navigation Acts, which were repealed in 1849. As the
new party alignments settled down in the 1850s and the 1860s, with Gladstone as
chancellor of the exchequer for much of the time, an uncompromising policy of free
trade emerged. After 1860 only a few import duties remained, and those were exclu-
sively for revenue on such non-British commodities as brandy, wine, tobacco, coffee,
tea, and pepper. In fact, although most tariffs were eliminated altogether and the rates
of duty on all others were reduced, the increase in total trade was such that customs
revenue in 1860 was actually greater than that of 1842.

The Free Trade Era

The next major development in the movement toward free trade was a notable trade
treaty, the Cobden-Chevalier, or Anglo-French, treaty of 1860. France had tradition-
ally followed a policy of protection; this was especially true in the first half of the
nineteenth century when the French government, at the behest of mill Owners, strove
to protect the cotton textile industry from British competition. Part of France’s pro-
tectionist policy was a flat prohibition imposed on the import of all cotton and woolen
textiles and very high tariffs on other commodities, including even raw materials and
intermediate goods. Economists such as Frederic Bastiat pointed out the absurdity of
such policies, but powerful vested interests in the French legislature were immune to
rational argument.
The government of Napoleon III, which came to power ina coup d’état in 1851,
desired to follow a policy of friendship with Great Britain. This was partly to gain po-
litical status and diplomatic respect. Even though the coup d’état had subsequently
been ratified by a referendum, the government's legitimacy was still in question. Af-
ter the Crimean War, in which Britain and France had been allies, Napoleon III
wished
to cement these new ties of friendship. Moreover, although France had traditionall
y
followed a policy of protectionism, a strong current of thought favored economic
lib-
eralism. One of the leaders of this school was the economist Michel Chevalier,
who
had traveled widely both in Britain and the United States and had a cosmopolitan out-
 The Growth of the World Economy 293

look. As professor of political economy at the Collége de France since 1840, he had
been teaching the principles of economic liberalism and free trade. Appointed by
Napoleon to the French Senate, he persuaded the emperor that a trade treaty with
Britain would be desirable.
Another political circumstance in France made the treaty route attractive. Under
the French constitution of 1851, which Napoleon himself had granted, the two-cham-
ber parliament had to approve any domestic law, but the sovereign, the emperor, had
the exclusive right to negotiate treaties with foreign powers, the provisions of which
had the force of law in France. Napoleon tried in the 1850s to reduce the strongly pro-
tectionist stance of French policy, but because of opposition in the legislature he was
unable to carry through a thorough reform of tariff policy. Chevalier was a friend of
Richard Cobden, of Anti-Corn Law fame, and through Cobden he persuaded Glad-
stone, the British chancellor of the exchequer, of the desirability of a treaty. The
thought in Britain at this time, after its move to free trade, was that the advantages of
a free trade policy would be so obvious that other countries would adopt it sponta-
neously. Because of the strength of protectionist interests, however, this was not the
case. Accordingly, a treaty negotiated by Cobden and Chevalier late in 1859 was
signed in January 1860.
The treaty provided that Britain would remove all tariffs on imports of French
goods with the exception of wine and brandy. These were considered luxury products
for British consumers, so Britain retained a small tariff for revenue only. Moreover,
because of Britain’s long-standing economic ties with Portugal, which also produced
wine, Britain was careful to protect the Portuguese preference in the British market.
France, for its part, removed its prohibitions on the importation of British textiles and
reduced tariffs on a wide range of British goods to a maximum of 30 percent; in fact,
the average tariff was about 15 percent ad valorem. The French thus gave up extreme
protectionism in favor of a moderate protectionism.
A major feature of the treaty was the inclusion of a most-favored-nation clause.
This meant that if one party negotiated a treaty with a third country, the other party
to the treaty would automatically benefit from any lower tariffs granted to the third
country. In other words, both parties to the Anglo-French treaty would benefit from
the treatment accorded to the “‘most favored nation.” Britain, by this time on virtually
complete free trade, had no bargaining power with which to engage in treaties with
other countries, but the French still had high tariffs against imports of goods from
other countries. In the early 1860s France negotiated treaties with Belgium, the Zoll-
verein, Italy, Switzerland, the Scandinavian countries, and, in fact, with almost every
country in Europe except Russia. The result of these new treaties was that when
France granted a lower rate of duty, say, to imports of iron from the Zollverein, British
iron producers automatically benefited from the lower rates.
Moreover, in addition to this network of treaties that France negotiated through-
out Europe, the other European countries also negotiated treaties with one another,
and all contained the most-favored-nation clause. As a result, whenever a new treaty
went into effect a general reduction of tariffs took place. For a decade or so, in the
1860s and the 1870s, Europe came as close as ever to complete free trade until after
World War II (Fig. 12-1).
The consequences of this network of trade treaties were quite remarkable. Inter-
294 A CONCISE ECONOMIC HISTORY OF THE WORLD

A THPAN TG
OCEAN

Viv Vv Be ek
eo HUNGARY \
pre ¢
yK \. ~

WAL Y
consi]

& &
st See e.
es ag&°® ae
SARDINIA,

Yep Sey Mediterranean Sea

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FiGurE 12—1. The Europe of the trade treaties, about 1871.

national trade, which had already accelerated somewhat with the British reforms of
the 1840s, increased at about 10 percent per year for several years (Fig. 12-2). Most
of the increase took place in intra-European trade, but overseas nations also partici-
pated. (The American Civil War, which broke out the year after the Cobden-Cheva-
lier treaty was signed, had a contrary effect. The northern blockade of the South cut
off southern exports, causing a “cotton famine” in Europe, especially harmful in Lan-
cashire, and also restricted European exports of both consumer and capital goods to
the South.) Another consequence of the treaties, notably in France but also in several
other countries, was a reorganization of industry forced by the greater competition;
inefficient firms that had been protected by tariffs and prohibitions had to modernize
and improve their technology or go out of business. The treaties thus promoted both
technical efficiency and increased productivity.
 The Growth of the World Economy 295

Europe

1830 1840 1850 1860 1870 1880 1890 1900 1910

FiGURE 12—2. Index of the annual volume of exports of European countries (1899-1901 =
100). (From Commerce extérieur et devéloppement économique de |’Europe au XIX siécle,
by Paul Bairoch, Paris, 1978.)

The “Great Depression” and the Return to Protection

Another consequence of the integration of the international economy brought about

by freer trade was synchronization of price movements across national borders. In the
preindustrial economy abrupt price fluctuations were generally local or regional,
brought on by natural causes (droughts, floods, etc.) that affected the harvest. With
increasing industrialization and international commerce, the fluctuations were more
often related to the “‘state of trade” (fluctuations in demand), became cyclical in na-
ture, and were transmitted from country to country through commercial channels. The
cyclical nature of the movements became more pronounced as the century progressed.
Subsequent statisticians distinguished several varieties of “business cycles,” as
they came to be called: relatively mild short-term (2 or 3 years) “inventory cycles”;
longer-term movements (9 or 10 years), frequently terminating in financial crises fol-
lowed by depressions (1825-26, 1837-38, 1846-47, 1857, 1866, 1873, 1882, 1893,
1900-1, 1907); and still longer-term (20 to 40 years) “secular trends.” Complex in-
teractions of both monetary and “real” factors caused the fluctuations, but authorities
do not always agree on the relative importance of the two.
Fluctuations in production usually accompanied the price fluctuations. Again, au-
thorities do not always agree on the direction of causation, but whereas a fall in prices
might continue for a number of years, declines in output were usually relatively brief.
The long-run trend was clearly upward, as is shown in Figure 9-1.
296 A CONCISE ECONOMIC HISTORY OF THE WORLD

Prices in virtually all countries in Europe, and in the United States as well, reached
a peak early in the century, near the end of the Napoleonic Wars. Causes were both
real (wartime shortages) and monetary (the exigencies of war finance). Thereafter,
until midcentury, in spite of short-term fluctuations, the secular trend was downward.
Again, the causes were both real (technical innovations, improvements in efficiency)
and monetary (repayment of war debts by governments). Prices bounded upward in
the 1850s, primarily as a result of gold discoveries in California (1849) and Australia
(1851), and then fluctuated for a couple of decades with no discernible trend.
In 1873, after a boom lasting several years, financial panics occurred in both Vi-
enna and New York and quickly spread to most other industrial (or industrializing)
nations. The ensuing fall in prices lasted until the mid- or late 1890s, and was known
in Great Britain (until the greater catastrophe of the 1930s) as the “Great Depression.”
Eventually gold discoveries in South Africa, Alaska, Canada, and Siberia reversed the
downward trend of prices and sent them gently upward again until World War I, which
brought severe inflation.
The depression following the panics of 1873 was probably the most severe and
widespread of the industrial era to that date. Industrialists incorrectly blamed it on in-
tensified international competition as a result of the trade treaties, and more insistent
pleas for renewed protection resulted. Concurrently, agriculturists—both landlords
and small peasant farmers—joined in the demand for protection. Before 1870 they
had not been troubled by overseas competition, because transportation costs on over-
seas shipments on bulky, low-value commodities such as wheat and rye had effec-
tively protected them. In the 1870s dramatic reductions in transportation costs as a
result of the extension of railways to the American Midwest and Plains states, and
subsequently in the Ukraine, Argentina, Australia, and Canada, together with equally
dramatic reductions in ocean freight rates as a result of improvements in steam navy-
igation, brought into production vast new areas of virgin prairies. In 1850 U.S. ex-
ports of wheat and flour, mainly to the West Indies, amounted to $8 million; in 1870
to $68 million, much of them bound for Europe; and in 1880 to $226 million. For the
first time European farmers faced strenuous competition in their own markets.
At this juncture the situation of German agriculture was critical. Germany at the
time was divided essentially into an industrializing west and an agrarian east. The
Junkers of East Prussia, with their large estates, had long engaged in the export of
grain through the Baltic to western Europe, including western Germany. This was the
major exception to the fact that transport costs made the long-distance transportation
of grain prior to the 1870s uneconomical. Thus, the Junker aristocrats had tradition-
ally favored free trade because they were exporters. When they began to suffer from
the fall in price of grain as a result of the large imports from America and Russia they
demanded protection. The German population was growing rapidly. With industrial-
ization cities were also growing rapidly. The Junkers wanted to preserve that large
and growing market for themselves.
Otto von Bismarck, creator and chancellor of the new German Empire, formerly
chancellor of Prussia, an astute politician, and himself a Junker landlord from East
Prussia, saw his opportunity. The industrialists of western Germany had long been
clamoring for protection; now that the East Prussian Junkers also demanded it, Bis-
marck “acceded” to their demands, denounced the Zollverein’s trade treaties with
 The Growth of the World Economy 297

France and other nations, and gave his approval to a new tariff law in 1879 that in-
troduced protectionism for both industry and agriculture. This was the first major step
in the “return to protectionism.”
The protectionist interests in France, never reconciled to the Cobden-Chevalier
treaty, gained political strength with defeat in the Franco-Prussian War and still more
with the German tariff of 1879. In 1881 they succeeded in obtaining a new tariff law
that explicitly reintroduced the principle of protectionism. Even so, the free traders
retained considerable political clout, and in 1882 new trade treaties with seven con-
tinental countries maintained the basic principles of the Cobden-Chevalier treaty.
Moreover, the tariff of 1881 did not attend to the protectionist demands of the agrar-
ians. French agriculture, unlike that of East Prussia, was dominated by small peasant
proprietors who, under the political system of the Third Republic, had the franchise
and political power. After the elections of 1889 returned a protectionist majority to
the Chamber of Deputies, they succeeded in passing the infamous Meline tariff of
1892. The tariff has been characterized as extremely protectionist, but a more apt term
would be “refined protectionism.” Though it did grant protection to some branches
of agriculture, and retained the industrial protection of the tariff of 1881, it also con-
tained several features favored by the free traders.
A tariff war with Italy from 1887 to 1898 caused a serious setback to French—
and even more to Italian—commerce. Italy followed Germany in the return to pro-
tection and, largely for political reasons, chose particularly to discriminate against
French imports. That was unwise, because France was Italy’s largest foreign market.
France retaliated with discriminatory tariffs of its own, and for more than a decade
commerce between the two neighbors fell to less than half its normal figure. Germany
and Russia also engaged in a brief tariff war in 1892—94.
A number of other countries also followed the German and French examples by
raising tariffs. Austria-Hungary, which had a long history of protectionism, did enter
into treaties with France and some other countries, but it retained a higher degree of
protection than most and quickly returned to ultraprotectionism. Russia had never en-
tered into the network of trade treaties set off by the Cobden-Chevalier treaty, and in
1891 it enacted a virtually prohibitive tariff. The United States, prior to the Civil War,
had vacillated between very high and very low tariffs but, by and large, because of
the influence of the southern planter aristocracy who depended on exports of cotton,
had followed a low-tariff policy. After the Civil War, with the political influence in
the South greatly diminished while that of the manufacturing interests of the North-
east and Midwest had increased, the nation became one of the most protectionist
countries, and remained so to a large extent until after World War II.
There were a few holdouts for free trade during this return to protection, of which
Great Britain was the most notable. Although political movements for “fair trade” and
“empire preference” developed, they did not achieve any success before World War
I. (The success of German merchants and industrialists in foreign and even in British
markets did, however, inspire some retaliatory efforts. In 1887 Parliament passed the
Merchandise Marks Act, which required foreign products to be labeled with the name
of the country of origin. It was expected that the label “made in Germany” would dis-
courage British consumers from buying those commodities; actually, just the reverse
occurred.) The Netherlands specialized in processing such overseas imports as sugar,
298 A CONCISE ECONOMIC HISTORY OF THE WORLD

tobacco, and chocolate for reexport to Germany and other continental countries; thus
they retained a largely free trade position, as did Belgium, which was heavily depen-
dent on its export industries. Denmark, a predominantly agricultural nation, appeared
to suffer from large-scale imports of cheap grain; but the Danes made a very quick
adjustment from grain growing to livestock and dairy and poultry products, import-
ing cheap grain as feed. Thus, Denmark also remained in the free trade bloc.
Much has been made in textbooks of the “return to protection”—probably too
much. Although the rate of growth of international commerce slowed somewhat in
the two decades after 1873, that rate was still positive, and it accelerated again in the
two decades before World War I. In the immediate prewar decade it amounted to about
4.5 percent per year, almost as high as in the expansive middle decades of the cen-
tury. The nations of the world, and especially those of Europe, depended more on in-
ternational trade than ever before (Fig. 12-3). For the larger developed countries—
Great Britain, France, and Germany—exports accounted for between 15 and 20 per-
cent of total national income. For some of the smaller developed countries, such as
Belgium, Switzerland, the Netherlands, and the Scandinavian countries, the ratio was
still higher. Even the lesser developed countries of Europe, those of the south and east,
participated to a much greater degree than ever before in international commerce.
Much the same can be said for other parts of the world. Although the United States,
with its large, diversified economy, depended much less on the rest of world, it was
nevertheless the world’s third largest exporter in 1914. The self-governing dominions
of the British Empire—Canada, Australia, New Zealand, and South Africa—and some
of the British colonies were almost as dependent (or more so) as the mother country.
Likewise, several nations of Latin America were involved in world markets for their
exports of foodstuffs and raw materials, of which Europe took more than half.

FIGURE 12-3. Regional distribution of world trade, 1913.

Europe
62%

Oceania 2.4 %
lo

pirice of
Latin
America
7.6 %o
North
America
(RAGS
 The Growth of the World Economy 299

In short, the world economy at the beginning of the twentieth century was more
integrated and interdependent than it had ever been, or would be again until well af-
ter World War II. The peoples of the world, and those of Europe in particular, would
discover, to their cost, how fortunate they had been in the agony and aftermath of
world war.

The International Gold Standard

According to some authorities the high degree of integration achieved in the world
economy in the late nineteenth century depended critically on general adherence to
the international gold standard. According to others, that integration depended pri-
marily on the central role of Great Britain, and of London, its financial as well as its
political capital, in the world economy. Since Great Britain adhered to the gold stan-
dard for most of the century (although few other countries did), it is necessary to scru-
tinize the gold standard in some detail.
Throughout history various commodities (e.g., land, cattle, and wheat) have
served as monetary standards, but gold and silver have always been the most promi-
nent standards. The function of a monetary standard is to define the unit of account
of a monetary system, the unit into which all other forms of money are convertible.
Thus, in medieval England the “pound sterling” was legally defined as a pound weight
of sterling silver; England at that time was on a silver standard, although the actual
coins in use were only fractions of a pound. In the eighteenth century England was
technically on a bimetallic standard (i.e., gold and silver), but in fact gold was over-
valued by the Mint, so that gold coins—the famous “guineas” that got their name
from the region of Africa where the gold originated—largely replaced silver coins in
actual use. During the Napoleonic Wars the Bank of England, with government sanc-
tion, “suspended payment” —that is, refused to pay out gold or silver in exchange for
its banknotes—and, strictly speaking, the country had no monetary standard at all; it
had fiat money, or “forced circulation.”
After the wars the government decided to return to a metallic standard, but chose
gold, the de facto standard of the eighteenth century, in preference to silver, although
the pound was still called “sterling.” The money of account (standard of value) was
the gold sovereign or gold pound, defined as 113.0016 grains of fine (pure) gold. Un-
der the terms of the Act of Parliament creating the gold standard three conditions had
to be observed: (1) the Royal Mint was obliged to buy and sell unlimited quantities
of gold at a fixed price; (2) the Bank of England—and, by extension, all other banks—
was obliged to exchange its monetary liabilities (banknotes, deposits) into gold on
demand; and (3) no restrictions could be imposed on the import or export of gold.
This meant that gold served as the ultimate base or reserve of the entire monetary sup-
ply of the country. The amount of gold the Bank of England held in its coffers deter-
mined the amount of credit it could extend in the form of banknotes and deposits;
these in turn (held as reserves by other banks of issue and deposit) determined the
amount of credit they could extend. Thus, the movement of gold into and out of the
country—a function of the balance of payments—caused fluctuations in the total
money supply, which in turn caused fluctuations in the movement of prices. When
300 A CONCISE ECONOMIC HISTORY OF THE WORLD

the international gold flows were slight, or when inflows balanced outflows, as they
usually did, prices tended to be stable; but large inflows, such as occurred after the
gold strikes in California and Australia in 1849-51, could cause inflation, and sud-
den withdrawals, such as occurred periodically in the nineteenth century, brought on
monetary panics.
For the first three quarters of the nineteenth century most other countries were on
either silver or bimetallic standards; some had no metallic standard at all. But, be-
cause of the preeminent role of Britain in world commerce, almost all countries were
affected by its economic fluctuations. Increasingly, as the world economy became
more integrated, economic fluctuations tended to be transmitted internationally.
For a short time in the 1860s and 1870s France attempted to create an alternative
to the international gold standard in the form of the Latin Monetary Union. Although
France was nominally on a bimetallic standard, the gold discoveries in California and
Australia caused a rise in the general price level and a decline in the price of gold rel-
ative to silver. France then changed to a de facto silver standard, and persuaded Bel-
gium, Switzerland, and Italy to join it in 1865. (Italy’s participation ended the fol-
lowing year during the war with Austria, when Italy adopted a corso forzoso, or forced
circulation of paper money.) The objective was to maintain price stability. Each coun-
try defined its currency in terms of a fixed weight of silver (Belgium and Switzerland
already used the franc, and Italy defined its new lira as equivalent to the franc). Sub-
sequently Bulgaria, Greece, and Romania joined the Union, defining their currencies
as equal to the franc. But within a few years, as a result of the discovery of new sil-
ver deposits, the relative prices of gold and silver reversed themselves, and the na-
tions of the Latin Monetary Union found themselves flooded with inflows of cheap
silver. Rather than allow the inflation of prices that would result, they restricted their
purchases of silver and eventually eliminated them altogether, returning to a pure gold
standard.
Meanwhile, the first nation after Britain officially to adopt the gold standard was
the new German Empire. In the wake of victory over France in the Franco-Prussian
War, Bismarck, the German chancellor, extracted from the defeated nation an in-
demnity of 5 billion francs, unprecedented in history. On the basis of this windfall
the government adopted a new money of account, the gold mark, and established the
Reichsbank as its central bank and sole issuing agency. In view of Germany’s in-
creasing weight in international commerce, other nations joined the movement to the
gold standard.
Prior to the Civil War the United States was technically on a bimetallic standard.
During the war both North and South issued fiat paper money; the Confederate issues,
of course, eventually became worthless, but the northern ““greenbacks” continued to
circulate, although at a discount to gold. In 1873 Congress passed a law declaring that
the greenbacks would be redeemed in gold beginning in 1879. Concurrently, a long
decline in prices that began in 1873 led to agitation by both farmers and silver pro-
ducers against the “crime of “73,” and demands for unlimited coinage of silver, but
these were resisted. In effect, the United States was on a gold standard from 1879, al-
though Congress did not legally adopt the gold standard until 1900.
Russia had been on a nominal silver standard throughout the nineteenth century
but in fact, because of the precarious financial position of the government, had re-
 The Growth of the World Economy 301

sorted to large issues of unredeemable paper money. In the 1890s, during the indus-
trialization drive undertaken by the Minister of Finance, Count Witte, while the Rus-
sian government was borrowing large sums from France, Witte decided the country
should go on the gold standard, which it did in 1897. In the same year Japan, having
extracted a large indemnity from China after the 1895 war, used the proceeds to cre-
ate a gold reserve in the Bank of Japan and officially adopt the gold standard. Thus,
by the beginning of the twentieth century virtually all important trading nations had
adopted the international gold standard. It endured for less than two decades.

International Migration and Investment

In addition to the freer movement of commodities symbolized by the free trade era,
a great increase in the international movement of people and capital, the factors of
production other than land, also occurred in the nineteenth century. Since interna-
tional migration was dealt with in Chapter 8, a brief recapitulation is sufficient here.
Some international migration took place within Europe, but the most significant
movement involved overseas migration. In the course of the century some 60 million
persons left Europe for overseas destinations. The overwhelming majority went to
countries with abundant land. The United States alone took 35 million and the newly
settled areas of the British Empire another 10 million. About 12 or 15 million went
to Latin America. The British Isles provided the largest number of emigrants; alto-
gether about 18 million English, Welsh, Scots, and Irish settled abroad, mainly in the
United States and the British dominions. German-speaking emigrants went to both
the United States and Latin America. The latter also obtained many new citizens from
Spain and Portugal. The late nineteenth and early twentieth centuries witnessed a
large migration from Italy and eastern Europe. Italians went to the United States, but
also to Latin America, especially Argentina. Emigrants from Austria-Hungary,
Poland, and Russia went mainly to the United States. Some of the emigrants eventu-
ally returned to their native countries, but the vast majority remained overseas. Over-
all, this vast migration had beneficial effects; it relieved population pressures in the
countries supplying the emigrants, thus lessening downward pressure on real wages;
and it provided the resource-rich, labor-short countries to which they went with a sup-
ply of willing workers at wages higher than they could have obtained in their native
lands. Finally, by means of human and cultural as well as economic ties, it promoted
the integration of the international economy.
The export of capital, or foreign investment, further strengthened the integration
of the international economy. Although foreign investment had occurred in the eigh-
teenth century and before, it reached unprecedented magnitudes in the nineteenth and
early twentieth centuries. It is useful to begin consideration of foreign investment in
terms of sources (or resources), motives, and mechanisms.
In general, the resources available for investment abroad (just as for domestic in-
vestment) resulted from the tremendous increases 1n wealth and income generated by
the application of new technologies. But unlike domestic investment, foreign invest-
ment requires special sources of funds generated by foreign trade and payments.
Broadly speaking, there are two main categories of funds (gold or foreign exchange)
302 A CONCISE ECONOMIC HISTORY OF THE WORLD

that can be used for international investment: those arising from an export balance of
commodity trade, and those arising from such “invisible” exports as shipping ser-
vices, earnings from international banking and insurance, emigrant remittances, and
the interest and dividends on previous foreign investments. These sources can oper-
ate in different combinations in different cases, as we will see.
The main motive for foreign investment is the expectation (not always realized)
on the part of the investor of a higher rate of return abroad than at home.
The mechanisms for foreign investment consist of a host of institutional arrange-
ments for transferring funds from one country to another: markets for foreign ex-
change, stock and bond markets, central banks, private and joint-stock investment
banks, brokers, and many others. Most of these special institutional arrangements, al-
though existing earlier, grew greatly during the nineteenth century.
Great Britain—or, more accurately, the private investors of Great Britain—was
far and away the largest foreign investor before 1914. At the latter date British in-
vestments abroad amounted to about 4 billion pounds sterling (approximately $20 bil-
lion at current values), or 43 percent of the world total. This situation existed even
though for most of the century Britain had a so-called unfavorable balance of trade,
that is, it imported goods of a greater value than it exported. Thus, for Britain, the
sources of its foreign investments consisted almost entirely of invisible exports. At
the beginning of the century the earnings of Britain’s merchant marine, the world’s
largest, accounted for most of its favorable balance of payments (not trade), and re-
mained important to the end. Increasingly, however, earnings from international
banking and insurance, and especially from previous foreign investments, contributed
to the surplus. Indeed, after 1870 earnings from previous investments provided funds
to cover all new investments, with a sizable surplus left to finance the deficit in the
balance of commodity trade.
Before about 1850 British investors purchased government bonds of several Eu-
ropean countries and invested in private enterprises there, especially the early French
railways. They also bought the securities of American state governments, then en-
gaged in large-scale programs of internal improvements (canals and railways), and
those of Latin American countries as well. The revolutions of 1848 on the European
continent deterred British investors from much further investment there. Instead, they
turned their attention to American railways, mines, and ranches (American cowboys
were financed in large part by British, especially Scottish, capital), to similar invest-
ments in Latin America, and, above all, to the British Empire. In 1914 the self-gov-
erning dominions accounted for 37 percent of British foreign investments and India
for another 9 percent; the United States accounted for 21 percent and Latin America
for 18 percent. Only 5 percent of Britain’s total foreign investments were in Europe.
France (or the French) was the second largest foreign investor, with total invest-
ments in 1914 of more than SO billion francs (about $10 billion). France actually be-
gan the century by borrowing abroad, mainly in Britain and Holland, to pay the large
indemnity imposed by the Allies after the defeat of Napoleon. As noted, British cap-
italists also helped finance some of the early French railways. But France quickly es-
tablished a large export surplus in commodity trade, which provided the bulk of the
resources for foreign investment until the 1870s. After that the earnings on previous
investments, as with the British, more than financed new investments.
 The Growth of the World Economy 303

In the first half of the century the French invested chiefly in their near nei ghbors:
the securities of both revolutionary and reactionary governments in Spain, Portugal,
and the several Italian states (the loans to the defeated parties were forfeited, of
course); bonds of the new government of Belgium after the successful revolution of
1830; mines and other industrial enterprises in Belgium, both before and after 1830;
and similar but smaller investments in Switzerland, Austria, and the German states,
especially western Germany. Between 1851 and about 1880 French investors and en-
gineers took it upon themselves to build the railway networks of much of southern
and eastern Europe. They also invested in industrial enterprises in the same areas, and
financed the perennial government deficits of the countries located there, as well as
the Ottoman Empire and Egypt—to their subsequent sorrow, when both of those poli-
ties declared partial bankruptcy in 1875-76. After the Franco-Russian alliance of
1894 French investors, with the active encouragement of their government (and even
before, without such encouragement), invested huge sums in both public and private
Russian securities—also to their sorrow, when the Bolshevik government of V. I.
Lenin repudiated all debts, public and private, incurred under the tsarist regime.
In 1914, at the outbreak of World War I, fully one-fourth of all French foreign in-
vestment was in Russia. About 12 percent each was in Mediterranean Europe (Iberia,
Italy, Greece), the Near East (Ottoman Empire, Egypt, Suez), and Latin America, with
smaller amounts in the United States, the Scandinavian countries, Austria-Hungary,
the Balkans, and elsewhere. Unlike the British, the French put less than 10 percent of
their investments into French colonies. Overall, the French contribution to the eco-
nomic development of Europe was substantial, but as a result of wars, revolutions,
and other natural and manmade disasters, especially the enormous disaster of World
War I, the investors and their heirs paid dearly.
Germany presents the interesting case of a nation that made the transition from
net debtor to net creditor in the course of the century. Disunited and poor at the be-
ginning of the century, the German states had few foreign debts and even fewer for-
eign credits. In the middle decades of the century the western provinces benefited
from an inflow of French, Belgian, and British capital; this capital helped develop
powerful industries and a booming export surplus that provided the funds with which
Germany repatriated the foreign capital and accumulated investments abroad. Most
of these investments were in Germany’s poorer neighbors to the east and southeast
(including its ally, the Habsburg Monarchy), although Germans also had scattered
investments in the United States, Latin America, and elsewhere (including miniscule
amounts in the African and Pacific colonies). The German government, like the
French, sometimes tried to use private foreign investment as a weapon of foreign
policy; in 1887 it closed the Berlin stock exchange to Russian securities, and later it
urged the Deutsche Bank to undertake the Anatolian (the so-called Berlin-to-Bagh-
dad) Railway.
The smaller developed nations of western Europe—Belgium, the Netherlands, and
Switzerland—all of which had benefited from foreign investment in their economies
during the century, had likewise become net creditors by the end of the century. In 1914
their combined foreign investments amounted to about 6 billion dollars, almost as
much as Germany’s. Austria, the western half of the Habsburg Monarchy, invested in
Hungary and also in the Balkans, although on balance the empire was a net debtor.
304 A CONCISE ECONOMIC HISTORY OF THE WORLD

Germany
13%

Britain
43% Belgium
Netherlands
Switzerland
12%

Africa
SS

North America
Latin America 24%
19%

FiGure 12-4. Distribution of foreign investments in 1914: (A) by investing countries; (B)
by recipients.

Of the recipients of foreign investment the United States was by far the largest
(Fig. 12-4). As indicated, foreign, especially British, capital helped build railways,
open up mineral resources, finance cattle ranches, and support numerous other en-
deavors. After the Civil War, however, and especially from the late 1890s, American
investors began to purchase foreign securities, and even more important, American
corporations began to invest directly abroad in a variety of industrial, commercial,
 The Growth of the World Economy 305

and agricultural operations. Most of these investments were in the Western Hemi-
sphere (Latin America and Canada), but some were in Europe, the Near and Middle
East, and East Asia. In 1914, when total foreign investments in the United States
amounted to slightly more than 7 billion dollars, American investors had invested al-
most half as much abroad. In the next four years of World War I, as a result of Amer-
ican loans to the Allies, the United States became the world’s largest creditor nation.
Within Europe the largest single recipient of foreign investment was Russia. The
Russian railway network, like the American, was built largely with foreign capital,
which was channeled into both private securities (stocks and bonds) and government
and government-guaranteed bonds. Foreigners, especially foreign banks, also in-
vested heavily in Russian joint-stock banks, and in the great metallurgical enterprises
of the Donbas, Krivoi Rog, and elsewhere. The largest borrower of all, however, was
the Russian government, which used the money not only to build railways but also to
finance its army and navy. The largest investors were the French, but Germans,
British, Belgians, Dutch, and others also took part. After 1917, of course, the investors
lost everything.
Most of the nations of Europe borrowed at one time or another during the nine-
teenth century. As indicated, Germany and some of the smaller developed nations
made the transition from net debtor to net creditor. Of those that did not, the record
for both productive uses of the funds and repayment was poorest in the Mediterranean
countries and those of southeastern Europe. Frequently the proceeds of both private
investments and government loans were used wastefully and at times corruptly. As
with domestic investment, a foreign investment, to contribute to economic develop-
ment, must generate a stream of income sufficient to pay a positive rate of return and
eventually to repay the original investment.
In brilliant contrast to the poor record of many investments in southern and east-
ern Europe (and the Ottoman Empire, Egypt, and North Africa), most investments in
the Scandinavian countries not only paid for themselves but also made positive con-
tributions to the development of the economies in which they were made. Indeed, al-
though the absolute amounts were relatively small, on a per capita basis foreign in-
vestments in Sweden, Denmark, and Norway were the largest in Europe. The amounts
borrowed were invested wisely, and along with the high educational attainments of
the population of those countries, should be credited with the rapid development of
their economies in the late nineteenth century.
Like the Scandinavian countries, Australia, New Zealand, and Canada had large
foreign investments in relation to the size of their populations, which helps account
for their high growth rates and high standards of living at the beginning of the twen-
tieth century. By 1914 Canada had received the equivalent of $3.85 billion (1914 val-
ues), mostly from Great Britain, although U.S. citizens and firms had invested about
$900 million there. Australia had $1.8 billion and New Zealand about $300 million—
more than 95 percent in both cases from Great Britain. The greater part of the funds
in all three cases was invested in public (government) securities, and went to finance
social overhead capital (railways, port facilities, public utilities, etc.), although sub-
stantial sums also went into mining in Australia and Canada. This pattern of foreign
investment permitted domestic investment to flow into directly productive activities
in the most promising sectors of the economy. In view of the sparse populations and
306 A CONCISE ECONOMIC HISTORY OF THE WORLD

large land areas of all three countries, it is not surprising that they specialized in the
production of goods requiring little labor in proportion to land: wool (with its by-
product mutton) in Australia and New Zealand, and wheat in Canada. These products
found ready markets in Europe, especially Britain, and accounted for the greater part
of these countries’ exports. Australia also exported some wheat and crude metals, and
Canada exported metals, timber, and other forest products. With relatively high per
capita incomes, all three countries developed domestic service industries and some
manufacturing capacity, but remained dependent on Europe, mainly Britain, for most
manufactured consumer and especially capital goods. (By the beginning of the twen-
tieth century, however, the United States had replaced Britain as Canada’s largest for-
eign market and supplier.)
Investments in Latin America and Asia, although substantial in total, were much
smaller in relation to the populations of the recipient nations than the countries just
considered. Moreover, they did not have the impressive amounts of human capital
with which to work as did the others, and the institutional structures of their
economies (except for Japan’s) were not conducive to economic development. In
these areas, and in Africa to an even greater degree, the principal result of foreign in-
vestment was development of sources of raw materials for European industries, with-
out transformation of the internal structure of the economy. In 1914 foreign invest-
ment amounted to approximately $8.9 billion in Latin America, $7.1 billion in Asia,
and slightly more than $4 billion in Africa. In every case Great Britain was the largest
single source of funds, accounting for 42 percent in Latin America, 50 percent in Asia,
and more than 60 percent in Africa.
A slightly more detailed examination of British investments in Latin America will
provide a better understanding of the significance of foreign investment for the less
developed countries in general, and for the world economy as a whole. Total British
investments in the region rose from less than £25 million in 1825 to almost £1.2 bil-
lion in 1913. In the latter year Argentina was by far the largest recipient, with over 40
percent of the total, followed by Brazil with 22 percent and Mexico with 11 percent.
Chile, Uruguay, Cuba, Colombia, and others received lesser amounts, but there was
no country without some British investment. Of the total, almost 38 percent had been
invested in government securities and a further 16 percent (i.e., more than 50 percent
altogether) in railway bonds and similar securities. Most of these funds, as in Aus-
tralia, New Zealand, and Canada, went to build railways and other infrastructure in-
vestments. Of the direct foreign investments (i.e., those in which the investor con-
trolled the use of the funds) the largest part, again, went into railways, followed by
public utilities (gas, electricity, waterworks, telephone and telegraph, tramways, etc.),
financial institutions (banks and insurance companies), raw materials production
(coffee, rubber, minerals, nitrates), miscellaneous industrial and commercial ven-
tures, and shipping companies. In other words, except for the relatively small amounts
invested directly in raw material production, most of the foreign investment provided
infrastructure and superstructure to enable the dependent economies to participate in
the international economy; production of commodities for both home consumption
(mainly foodstuffs) and export (mainly raw materials, but also some foodstuffs) was
left to the domestic population of landlords and peasants or landless laborers. Under
these circumstances the countries of Latin America exchanged their primary products
 The Growth of the World Economy 307

for European and American manufactures, and in doing so most of them became de-
pendent on one or a very few staple commodities: wheat, meat, hides, and wool from
Argentina, coffee and rubber from Brazil, nitrates and copper from Chile, tin from
Bolivia, coffee from Colombia and Central America, and so on. They did not, as did
the Scandinavian countries, for example, begin processing their own raw materials
and so export a higher value-added product. Later critics of the system blamed the
foreign investors, and their governments, for this state of affairs. In reality, most of
the blame should be laid on the archaic social structures and political systems of the
countries themselves.

The Revival of Western Imperialism

The vast continents of Asia and Africa participated only minimally in the commercial
expansion of the nineteenth century until forced to do so by the military might of the
West. Although parts of Asia, notably India and Indonesia, had been open to Euro-
pean influence and conquest since the beginning of the sixteenth century, much of the
continent remained in isolation. The vast and ancient empire of China, as well as Ja-
pan, Korea, and the principalities of Southeast Asia, attempted to remain aloof from
Western civilization, which they regarded as inferior to their own. They refused to ac-
cept Western diplomatic representatives (except Siam, which had diplomatic relations
with France), excluded or persecuted Christian missionaries, and allowed only a
trickle of commerce with the West. Most of Africa, located within the tropics, had a
climate oppressive to Europeans and a host of unfamiliar, frequently lethal diseases.
It had few navigable rivers, making the interior largely inaccessible. The virtual ab-
sence of organized political states of the European variety and the low level of eco-
nomic development made it unattractive to European merchants and entrepreneurs.
Nevertheless, in spite of these negative features, a concatenation of events led inex-
orably to the involvement of both Asia and Africa in the evolving world economy be-
fore the end of the nineteenth century.

Africa (Fig. 12-5)

Cape Colony, at the southern tip of Africa, had been settled by the Dutch in the mid-
seventeenth century as a victualing station for the East Indiamen on their way to and
from Indonesia. The British captured it during the Napoleonic Wars, and afterwards
encouraged British settlement. British policies, especially the abolition of slavery
throughout the empire in 1834 and efforts to ensure more humane treatment for na-
tives, angered the Boers or Afrikaaners (descendants of the Dutch colonists). To es-
cape British interference the Boers began their Great Trek to the north in 1835, cre-
ating new settlements in the region between the Orange and Vaal rivers (which
became the Orange Free State), north of the Vaal (the Transvaal, which became the
South African Republic in 1856), and on the southeast coast (Natal). Despite the
Boers’ attempts to isolate themselves from the British, conflict continued throughout
the century. In addition to conflicts between the British and the Boers, both groups
clashed frequently with African tribes, encounters that ended sooner or later in defeat
 308 A CONCISE ECONOMIC HISTORY OF THE WORLD

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for the natives. Some tribes were almost exterminated, and those that survived were
reduced to a state of servitude not far from slavery.
At first both Boer and British settlements were primarily agrarian, but in 1867 the
discovery of diamonds led to a great influx of treasure seekers from all over the world.
In 1886 gold was discovered in the Transvaal. These events completely altered the
economic basis of the colonies and intensified political rivalries. They also helped the
 The Growth of the World Economy 309

rise to power of one of the most influential persons in African history, Cecil Rhodes
(1853-1902). Rhodes, an Englishman, came to Africa in 1870 at the age of seven-
teen and quickly made a fortune in the diamond mines. In 1887 he organized the
British South African Company, and in 1889 secured a charter from the British gov-
ernment granting it extensive rights and governing power over a vast territory north
of the Transvaal, later called Rhodesia.
Not content with mere profits, Rhodes took an active role in politics and became
an ardent spokesman for imperialist expansion. He entered the Cape Colony legisla-
ture in 1880 and became prime minister of the colony ten years later. One of his ma-
jor ambitions was to build a railway “from the Cape to Cairo”—all on British terri-
tory. President Kruger of the South African Republic would not join a South African
union and also refused permission for the railway to cross the Transvaal. Rhodes
thereupon hatched a plot to overthrow Kruger and annex his country. The plot failed;
the British government in London denied any knowledge of the conspiracy and forced
Rhodes to resign. It genuinely wished to avoid war with the Boers, but extremists on
both sides pushed the issue to its fateful conclusion. In October 1899 the South
African or Boer War began.
The British, who had only 25,000 soldiers in South Africa when the war began,
suffered several early defeats, but eventually rallied with reinforcements and over-
ran and annexed both the Transvaal and the Orange Free State. Soon afterward the
British government changed its policy from repression to conciliation, restored self-
government, and encouraged the movement for union with Cape Colony and Natal,
which the British had earlier annexed. In 1910 the Union of South Africa joined
Canada, Australia, and New Zealand as a fully self-governing dominion within the
British Empire.
Before 1880 the only European possession in Africa, apart from British South
Africa and a few coastal trading posts dating from the eighteenth century or earlier,
was French Algeria. Charles X undertook to conquer Algeria in 1830 in an attempt to
stir up popular support for his regime. The attempt came too late to save his throne
and left a legacy of unfinished conquest to his successors. Not until 1879 did civil
government replace the military authorities. By then the French had begun to expand
from their settlements on the African west coast. By the end of the century they had
conquered and annexed a huge, thinly populated territory (including most of the Sa-
hara Desert), which they christened French West Africa. In 1881 border raids on Al-
geria by tribesmen from Tunisia furnished an excuse to invade Tunisia and establish
a “protectorate.” The French rounded out their North African empire in 1912 by es-
tablishing a protectorate over the larger part of Morocco (Spain claimed the small
northern corner) after lengthy diplomatic negotiations, especially with Germany.
Meanwhile more momentous events took place at the eastern end of Islamic
Africa. The opening of the Suez Canal by a French company in 1869 revolutionized
world commerce. It also endangered the British “lifeline” to India—or so it seemed
to the British. Great Britain had not participated in building the canal and, in fact, had
actually opposed it. But once the canal opened it became a cardinal tenet of British
foreign policy to seek control over both it and its approaches in order to prevent them
from falling into the hands of an unfriendly foreign power. This purpose was fortu-
itously favored by the financial difficulties of the khedive (king) of Egypt. The khe-
310 A CONCISE ECONOMIC HISTORY OF THE WORLD

dive and his predecessors, in an effort to build Egypt up to the status of a great power,
had incurred enormous debts to European investors (mainly French and British) for
such purposes as an abortive attempt at industrialization, the construction of the Suez
Canal, and an attempted conquest of Sudan. This financial stringency enabled Ben-
jamin Disraeli, the British prime minister, to purchase on behalf of the British gov-
ernment the khedive’s shares in the canal company at the end of 1875. In an effort to
bring some order into the tattered finances of the country (it suspended payments on
its debt in 1876) the British and French governments appointed financial advisers who
soon constituted the effective government. Egyptian resentment of foreign domina-
tion resulted in widespread riots and the loss of European lives and property. To re-
store order and protect the canal the British bombarded Alexandria in 1882 and landed
an expeditionary force.
The British prime minister, once again the Liberal Gladstone, assured the Egyp-
tians and the other great powers (who had been invited to participate in the occupa-
tion but declined) that the occupation would be temporary. Once in, however, the
British found to their chagrin that they could not easily or gracefully withdraw. Be-
sides continued nationalist agitation, the British inherited from the government of the
khedive the latter’s unfinished conquest of Sudan. In pursuing this objective, which
seemed to be justified by the importance of the Upper Nile to the Egyptian economy,
the British ran head-on into the French, who were expanding eastward from their West
African possessions. At Fashoda in 1898 rival French and British forces faced one an-
other with sabers drawn, but hasty negotiations in London and Paris prevented actual
hostilities. At length the French withdrew, opening the way for British rule in what
became known as the Anglo-Egyptian Sudan.
One by one the Turkish sultan’s nominal vassal states along the North African
coast had been plucked away until only Tripoli remained, a long stretch of barren
coastline backed by an even more barren hinterland. Italy, its nearest European neigh-
bor, was a latecomer as both a nation and an imperialist. It had managed to pick up
only a few narrow strips on the East African coast and had been humiliatingly re-
pulsed in an attempted conquest of Ethiopia in 1896. It watched with bitter, impotent
envy while other nations picked imperial plums. In 1911, having carefully made
agreements with the other great powers to gain a free hand, Italy picked a quarrel with
Turkey, delivered an impossible ultimatum, and promptly occupied Tripoli. The war
was something of a farce, since neither side was vigorous enough to overcome the
other. The threat of a new outbreak in the Balkans, however, persuaded the Turks to
make peace in 1912. They ceded Tripoli to Italy, and the Italians renamed it Libya.
Central Africa was the last area in the “dark continent” to be opened to European
penetration. Its inaccessability, inhospitable climate, and exotic flora and fauna were
responsible for its sobriquet and formidable reputation. Prior to the nineteenth cen-
tury the only European claims in the region were those of Portugal: Angola on the
west coast and Mozambique on the east. Explorers such as the Scottish missionary
David Livingstone and the Anglo-American journalist H. M. Stanley aroused some
interest during the 1860s and 1870s. In 1876 King Leopold of Belgium organized the
International Association for the Exploration and Civilization of Central Africa, and
hired Stanley to establish settlements in the Congo. Agitation for colonial enterprise
in Germany resulted in the formation of the German African Society in 1878 and the
 The Growth of the World Economy 311

German Colonial Society in 1882. A reluctant Bismarck, for domestic political rea-
sons, allowed himself to be converted to the cause of colonialism. The discovery of
diamonds in South Africa stimulated exploration in the hope of similar discoveries in
central Africa. Finally, the French occupation of Tunis in 1881 and the British occu-
pation of Egypt in 1882 set off a scramble for claims and concessions.
The sudden rush for territories created frictions that might have led to war. To head
off this possibility, and incidentally to balk British and Portuguese claims, Bismarck
and Jules Ferry, the French premier, called an international conference on African af-
fairs to meet in Berlin in 1884. Fourteen nations including the United States sent rep-
resentatives. The conferees agreed on a number of pious resolutions, including one
calling for the suppression of the slave trade and slavery, which still flourished in
Africa. More important, they recognized the Congo Free State headed by Leopold of
the Belgians, an outgrowth of his International Association, and laid the ground rules
for further annexations. The most important rule provided that a nation must effec-
tively occupy a territory to have its claim recognized.
In this fashion the dark continent was carved up and made to see the light. Before
the outbreak of World War I only Ethiopia and Liberia, established by emancipated
American slaves in the 1830s, retained their independence. Both were nominally
Christian. Annexation was one thing, however, effective settlement and development
quite another. The African subjects would have to wait a long time before receiving
the fruits, if any, of European tutelage.

Asia (Fig. 12-6)

Internal decay had seriously weakened the Manchu dynasty, which had ruled over
China since the middle of the seventeenth century. That gave Westerners the oppor-
tunity to force their way into the empire from which they had for so long been ex-
cluded. British commercial interests provided the initial occasion for intervention.
Chinese tea and silks found a ready market in Europe, but British traders could offer
little in exchange until they discovered that the Chinese had a marked taste for opium.
The Chinese government forbade its importation, but the trade flourished by means
of smugglers and corrupt customs officials. When one honest official at Canton seized
and burned a large shipment of opium in 1839, the British traders demanded retalia-
tion. Lord Palmerston, the foreign secretary, informed them that the government
could not intervene for the purpose of permitting British subjects to violate the laws
of the country with which they traded, but the military and diplomatic representatives
on the spot disregarded these instructions and took punitive action against the Chi-
nese. Thus began the Opium War (1838-42), which ended with the dictated Treaty
of Nanking. Under it China gave Britain the island of Hong Kong, agreed to open five
more ports to trade under consular supervision, established a uniform 5 percent im-
port tariff, and paid a substantial indemnity. The opium trade continued.
The ease with which the British prevailed over the Chinese encouraged other na-
tions to seek equally favorable treaties, which were accordingly granted. Such a show
of weakness by the Chinese government provoked demonstrations that were both
antigovernment and antiforeign and led to the Taiping Rebellion (1850-64). Gov-
ernment forces eventually defeated the rebels, but in the meantime the general law-
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lessness gave Western powers another excuse for intervention. In 1857—58 a joint An-
glo-French force occupied several principal cities and forced more concessions, in
which the United State and Russia also participated.
China’s history for the remainder of the nineteenth century followed a depress-
ingly similar pattern. Concessions to foreigners led to fresh outbreaks of antiforeign
violence and lawlessness, leading in turn to further foreign reprisals and concessions.
In the end, China avoided complete division by the great powers only because of great
power rivalry. Instead of outright partition, Britain, France, Germany, Russia, the
United States, and Japan contented themselves with special treaty ports, spheres of
influence, and long-term leases of Chinese territory. At the initiative of the American
secretary of state, John Hay, the great powers agreed in 1899 to follow an “open door”
policy in China by not discriminating against the commerce of other nations in their
own spheres of influence.
Continued humiliations resulted in a final desperate outburst of antiforeign vio-
lence known as the Boxer Rebellion (1900-1). “Boxers” was the popular name given
to the members of the secret Society of Harmonious Fists, whose aim was to drive all
foreigners from China. In uprisings in several parts of the country they attacked Chi-
nese converts to Christianity and murdered hundreds of missionaries, railroad work-
ers, businessmen, and other foreigners, including the German minister to Peking (Bei-
jing). The first attempts of British and other military forces to occupy Peking were
repulsed. A second and larger joint expedition took the capital, meted out severe
reprisals, and exacted further indemnities and concessions. Thereafter the Chinese
Empire was in a state of almost visible decay. It succumbed in 1912 to a revolution
led by Dr. Sun Yat-sen, a Western-educated physician, whose program was “nation-
alism, democracy, and socialism.” The Western powers did not attempt to interfere in
the revolution, but neither were they worried. The new Republic of China remained
weak and divided, its hopes of reform and regeneration long postponed.
Korea in the nineteenth century was a semiautonomous kingdom under nominal
Chinese rule, although the Japanese had long had claims there. The bitter rivalry be-
tween China and Japan for predominance, as well as the general poverty of the coun-
try, discouraged Western diplomats and traders. Although Korea had been the princi-
pal cause of the war between China and Japan in 1894, the treaty of 1895 ending it
did not result in Japanese annexation. Japan remained content with China’s recogni-
tion of Korea’s “independence.” After the defeat of Russia in 1905 and a series of re-
bellions against Japanese-imposed puppets, Japan formally annexed Korea in 1910.
During the nineteenth century the British, operating from India, established con-
trol over Burma and the Malay states and eventually incorporated them into the em-
pire. French missionaries had been active in the eastern half of the southeast Asian
peninsula since the seventeenth century, but in the first half of the nineteenth they
were subjected increasingly to persecution, giving the French government an excuse
for intervention. In 1858 a French expedition occupied the city of Saigon in Cochin
China, and four years later France annexed Cochin China itself. Once established on
the peninsula the French found themselves involved in conflict with the natives,
which obliged them to extend their “protection” over ever-larger areas. In the 1880s
they organized Cochin China, Cambodia, Annam, and Tonkin into the Union of
French Indochina, to which they added Laos in 1893.
314 A CONCISE ECONOMIC HISTORY OF THE WORLD

Thailand (or Siam, as it was called by Europeans), between Burma on the west and
French Indochina on the east, had the good fortune to remain an independent kingdom.
It owed its independence to a series of able and enlightened kings, and to its position
as a buffer between French and British spheres of influence. Although it was opened
to Western influence by gunboat treaties, like most of the rest of Asia, its rulers reacted
with conciliatory gestures and at the same time tried to learn from the West and mod-
ernize their kingdom. Few other non-Western nations were so fortunate.

Explanations of Imperialism
Asia and Africa were not the only areas subject to imperial exploitation, nor were
the nations of Europe the only ones to engage in it. Once Japan had adopted West-
ern technology it pursued imperialistic policies much like those of Europe. The
United States, despite strong domestic criticism, embarked on a policy of colonial-
ism before the end of the century. Some British dominions were far more aggres-
sively imperialistic than the mother country itself. The expansion of South Africa,
for example, took place mostly through South African initiative and frequently
against the wishes and explicit instructions of the government in London. British an-
nexation of southeastern New Guinea in 1884, after the Dutch had claimed the west-
ern half and the Germans the northeast, was a direct result of the agitation of the
Queensland government in Australia.
A distinction is sometimes made between imperialism and colonialism. Thus, nei-
ther Russia nor Austria-Hungary had overseas colonies, but both were clearly empires
in the sense that they ruled over alien peoples without their consent. The imperial
powers did not establish colonies in China, yet China was clearly subject to imperial
control. The countries of Latin America experienced no new attempts at conquest by
outside powers, but it was frequently alleged that they constituted part of the infor-
mal empires of Britain and the United States as a result of economic dependence and
financial control.
The causes of imperialism were many and complex. No single theory explains
all cases. One of the most popular explanations of modern imperialism involves eco-
nomic necessity. In fact, modern imperialism has been called “economic imperial-
ism,” as if earlier forms of imperialism had no economic content. One such expla-
nation goes as follows: (1) competition in the capitalist world becomes more intense,
resulting in the formation of large-scale enterprises and the elimination of small
ones; (2) capital accumulates in the large enterprises more and more rapidly, and
since the purchasing power of the masses is insufficient to buy all the products of
large-scale industry, the rate of profit declines; and (3) as capital accumulates and
the output of capitalist industries goes unsold, the capitalists resort to imperialism to
gain political control over areas in which they can invest their surplus capital and
sell their surplus products.
Such is the essence of the Marxist theory of imperialism, or actually the Leninist
theory, for Marx did not foresee the rapid development of imperialism even though
he lived until 1883. Building on the foundation of Marxist theory and in some cases
modifying it, Lenin published his theory in 1915 in his widely read pamphlet, Jmpe-
rialism, the Highest Stage of Capitalism.
 The Growth of the World Economy 315

Lenin was by no means the first person to advance an economic interpretation of

imperialism. He borrowed heavily from John A. Hobson, the liberal British critic of
imperialism, who in turn adopted, in revised form, many of the arguments of the ad-
vocates of imperialism. One such was Captain A. T. Mahan, an American naval offi-
cer and author whose dictum was “trade follows the flag.” Jules Ferry, a French politi-
cian who twice became prime minister, was chiefly responsible for the largest colonial
acquisitions of France. Interestingly, Ferry did not use economic arguments in de-
fending his actions before the French Assembly; instead, he stressed French prestige
and military necessity. Only after he had been permanently retired from office did he
write books in which he emphasized the economic gains France would supposedly
realize from its colonial empire.
The advocates of imperialism argued that, in addition to offering new markets and
outlets for surplus capital, colonies would provide new sources of raw materials and
serve as outlets for the rapidly growing populations of the industrial nations. The ar-
gument that colonies would serve as outlets for surplus population is easily seen to
be fallacious. Most colonies were located in climates that Europeans found oppres-
sive. Most emigrants preferred to go to independent countries, such as the United
States and Argentina, or to the self-governing territories of the British Empire. It is
true that colonies did in some cases furnish new sources of raw materials, but access
to raw materials (or to any purchasable commodity) did not require political control.
In fact, North and South America and the self-governing dominions of Australasia
were the largest overseas suppliers of raw materials for European industry.
The justification of colonies as markets for surplus manufactures was also falla-
cious. The colonies were neither needed for this purpose nor used for it after they were
acquired. Before 1914 little more than 10 percent of French exports went to French
colonies, in spite of favored status. The colonies were too sparsely populated and too
poor to serve as major markets. Moreover, as in the case of raw materials, political
control was not required. British India was indeed a large market, for in spite of its
poverty it purchased large quantities of European products—but not from Britain
alone. The Germans sold far more to India than in all their own colonies together.
France sold more to India than to Algeria. In spite of protective tariffs, the industrial,
imperialist nations of Europe continued to trade predominantly with one another. The
largest external market for German industry was Britain, and one of the largest mar-
kets for British industry was Germany. The United States was also a large customer
and supplier of European countries.
Perhaps the most important argument for imperialism as an economic phenome-
non concerned the investment of surplus capital, at least according to Marxist theory.
Here again the facts do not substantiate the logic. Britain had the largest empire and
the largest foreign investments, but over half of Britain’s foreign investments were
made in independent countries and the self-governing territories. Less than 10 per-
cent of French investments before 1914 went to French colonies; the French invested
mainly in other European countries—Russia alone, itself an imperialist nation, took
more than a quarter of French foreign investments. German investments in German
colonies were negligible. Some of the imperialist nations were actually net debtors;
besides Russia, these included Italy, Spain, Portugal, Japan, and the United States.
If the economic interpretation of imperialism fails to explain the burst of impe-
316 A CONCISE ECONOMIC HISTORY OF THE WORLD

rialism in the late nineteenth century, how can it be explained? Major responsibility
mut be assigned to sheer political opportunism, combined with growing aggressive
nationalism. Disraeli’s conversion to imperialism (he had been an anti-imperialist
earlier in his career) was motivated principally by the need to find new issues with
which to oppose the Liberal Gladstone. Bismarck encouraged French imperialism
as a means of deflecting French ideas for revenge on Germany, but at first he had re-
jected it for Germany itself; when at last he allowed himself to be persuaded, he did
so to strengthen his own political position and deflect attention from social questions
in Germany.
Power politics and military expediency also played important roles. Britain’s im-
perial policy throughout the century was dictated primarily by the supposed neces-
sity of protecting Indian frontiers and the “lifeline.” This explains the British con-
quest of Burma and Malaya, Baluchistan and Kashmir, as well as British involvement
in the Near and Middle East. The occupation of Egypt, undertaken reluctantly by
Gladstone with the promise of early withdrawal, was deemed necessary to protect the
Suez Canal. Other nations emulated the successful British, either in the hope of gain-
ing similar advantages or simply for national prestige.
The intellectual climate of the late nineteenth century, strongly colored by Social
Darwinism, likewise favored European expansion. Although Herbert Spencer, the
foremost popularizer of Social Darwinism, was an outspoken anti-imperialist, others
applied his arguments for “survival of the fittest” to the imperial struggle. Theodore
Roosevelt spoke grandly of “manifest destiny,” and Kipling’s phrase, “the lesser
breeds without the law,” reflected the typical European and American attitude toward
the nonwhite races. The historical roots of European racism and ethnocentrism, how-
ever, reach far deeper than Darwinian biology. Christian missionary activity itself was
an expression of old beliefs in European, or Western, moral and cultural superiority.
Throughout their history—at least, until the midtwentieth century—Europeans and
Christians have been expansionist and evangelical. In the final analysis, modern im-
perialism must be regarded as a psychological and cultural phenomenon as well
as a
political or economic one.
 cS
Overview of the World Economy
in the Twentieth Century

Spurred by the accelerating pace of technological change, buffeted by the two most
destructive wars in history, the world economy in the twentieth century took on new
and unprecedented dimensions. Nowhere were these dimensions more evident than
in the behavior of population.

Population

The population of Europe more than doubled in the nineteenth century, but that of the
world outside the areas of European settlement increased by little more than 20 per-
cent. In the twentieth century, on the other hand, population growth in Europe decel-
erated while that of the rest of the world accelerated at unprecedented rates. Most of
that growth has occurred since the Second World War, as is clear from Table 13-1.
As a first approximation we can say that the cause of the tremendous increase in
numbers has been the decline in crude death rates, especially in non-Western coun-
tries. Western nations underwent a “demographic transition” (from a regime of high
birth and death rates to one much lower) in the late nineteenth and early twentieth
centuries. Most non-Western nations are currently undergoing a similar transition. As
4 result of the diffusion of Western technology of public health and sanitation, med-
ical care, and agricultural production, death rates in Third World countries have de-
clined dramatically while birth rates have responded much more slowly. This is
shown for selected countries in Table 13-2.
A major contributory factor in the decline in the overall death rate was the decline
in infant mortality (deaths under the age of one year). This is shown in Table 13-3.
A major consequence of the decline in death rates was a sharp increase in the av-
erage life span. This is frequently measured by the concept “life expectancy at birth,”
the average number of years that persons born in a given year will live. At the begin-
advanced
ning of the twentieth century this figure was generally below 50 even in the
in 1900 the average for both sexes of the
countries. For example, in the United States
the nonwhite population . In Sweden,
white population was 47.3 and only 33.0 for
were
which had exceptionally long-lived people, the averages in the decade 1881—90
in the non-Weste rn world life
48.5 for males and 51.5 for females. On the other hand,

Sully)
 318 A CONCISE ECONOMIC HISTORY OF THE WORLD

TABLE 13-1. World Population by Continents (millions)

Region 1900 1950 1998

Africa 120 222 761

Asia 937 1,366 3,482
East Asia“ 671 1,448
Other 695 2,033
Europe? 401 392 S17
Russia/former USSR 126 180 286
North America 81 166 300
Latin America® 63 165 502
Oceania 6 13 BY)
World total 1,608 2,504 5,880

“Japan, Korea, China.

’Excluding Russia/USSR and European Turkey.

“Central America, Mexico, and the Caribbean with Latin America.

Sources: 1950, United Nations, Demographic Yearbook, 1994; 1900, W. S. and

E. S. Woytinsky, World Population and Production: Trends and Outlook (New
York, 1953); the 1900 figure for Russia is from the 1897 census; 1998, World
Bank, World Development Indicators, 2000. Both dates and population figures
are approximations.

expectancy at the beginning of the century was quite low, scarcely above the levels
attained in the ancient Roman Empire. For example, in India the life expectancy at
birth as late as 1931 was only 26.8. By midcentury the life expectancy in the advanced
Western nations had risen to the 60s or even higher, while in the rest of the world it
was usually still below the Western figures for the beginning of the century. Since
World War II, however, large gains have been recorded almost everywhere, as indi-
cated in Table 13-4.
A close correlation exists between these statistics, especially those of life ex-
pectancy, and various measures of welfare such as per capita income, nutritional lev-
els, and standards of health care. Thus, in countries with high average incomes the
population is better fed and has better medical care, as a rule, than in countries with
markedly lower incomes; consequently, death rates are lower and life expectancy cor-
respondingly greater. As Professor Robert Fogel showed in his Nobel Prize lecture in
1993, there is a long-run feedback from decreased infant mortality, to greater work
effort, to increased per capita output that has been especially important in the twen-
tieth century.
The process of urbanization, so marked in Europe in the nineteenth century, con-
tinued in the twentieth century, spreading to other areas of the world. (A possible wave
of the future, however, can be observed in Great Britain, the first industrial
-urban na-
tion: there the proportion of the urban population has declined slightly in recent
decades as prosperous business and professional people have forsaken city residences
in favor of small villages from which they commute to the city.) In advanced
indus-
trial nations cities are usually centers of affluence as well as of culture,
since pro-
 Overview of the World Economy in the Twentieth Century Sng

TABLE 13—2. Crude Birth and Death Rates, Selected Countries

(per thousand total population)

Ca. 1900-10 1950 1998

Country CBR CDR CBR CDR CBR CDR

Australia 26.5 iy 2 233) 9.6 13%3 6.8

Austria 34.7 23.3 15.6 12.4 10.0 9.6

France 20.6 19.4 20.7 12.8 12.6 oD

Israel 34.5 6.9 PS) 6.2

Japan 32.2 20.7 28.2 10.9 9'5 7.4

Romania 39.8 25.8 19.6 20.0 10.6 LES

Russia/former USSR 46.5b” 29.b” 2078 Oe 8.8 3)

Spain 34.4 Wye) 20.1 10.9 oF 9.1

Sweden 24.8 14.9 16.4 iB) 10.0 10.5

United Kingdom Dif 15.4 15.8 er 12.0 10.8

United States 24.3 a7 DBE 9.6 14.4 8.6

25.4 9.0 HOES 7.6
Argentina
Brazil 41.4 12.1 20.3 74

Mexico — 44.7 1519 27.5 Sell

49.1 27S) 27.8 9.6
Bangladesh
India 40.5 24.2 26.5 8.9
45.0 26.4 23) ies)
Indonesia
Egypt 44.2 19.0 24.2 6.9
51.8 29.0 40.1 23
Nigeria
Tunisia 30.1 oS ED 5.6
48.2 26.3 46.0 14.7
Zaire (Congo, Dem. Rep.)

“Or nearest year.

’Ca. 1900-10, European Russia only.
©1945.
Trends and Outlook (New York,
Sources: Ca. 1900-10, W. S. and E. S. Woytinsky, World Population and Production:
Bank, World Development Indicators,
1953); 1950, United Nations, Demographic Yearbook, various issues; 1998, World
2000. Both dates and rates are approximations.

is
ductivity and incomes are normally higher in urban than in rural occupations. This
nations, however. In them a large proportion of
not necessarily true of Third World
the coun-
urban inhabitants consists of unemployed or underemployed migrants from
ns on the fringes of the city centers (Fig. 13-1).
tryside living in miserable shantytow
about 2 million inhabitant s in the 1940s to more
Mexico City, for example, grew from
unskilled,
than 20 million in the 1990s—mostly as a result of the influx of illiterate,
most of the
and unemployed peasants. Such mushroom growth has characterized
Africa, placing unbearabl e pressures on
large cities of Latin America, Asia, and even
growth of the urban populatio n in se-
the urban infrastructure. Table 13-5 depicts the
be placed on the
lected countries since World War II. Too much reliance should not
 320 A CONCISE ECONOMIC HISTORY OF THE WORLD

TABLE 13-3. Infant Mortality, Selected Countries

(per thousand live births)

Country Ca. 1901-10 1950 1998

Australia 87 23.8 5.0

Austria 209 55.6 4.9
England and Wales 128 Paps) 5.8
France i) 46.2 4.8
Israel 41.8 5.7
Japan 156 SyAall Su,
Russia/former USSR Hs)s| EP 16.5
Spain 164 62.5 5.4
United States 97 28.1 7.0
Argentina 64.8 18.6
Brazil 107.3 33.1
Mexico Oval 30.2
India 185 69.8
Indonesia 95.2 43.0
Egypt 49.1
Nigeria 87.2 76.4
Tunisia 193 28.1
Zaire (Congo, Dem. Rep.) 90.3

Sources: Ca. 1900-10, W. S. and E. S. Woytinsky, World Population and Production:

Trends and Outlook (New York, 1953); 1950, United Nations, Demographic Yearbook,
various issues; 1998, World Bank, World Development Indicators, 2000. Both dates
and
rates are approximations.

absolute numbers, because of different definitions of “urban” in different countries,

as well as the usual hazards of population statistics; but the general trend is undoubt-
edly correct.
The growth of cities came about primarily as a result of internal migration, as the
surplus population from rural areas and small towns sought the greater opportunit
ies
and freedom of city life and lights. International migration, such a prominent feature
of nineteenth-century population history (at least for Europe and regions of European
settlement overseas), also continued, although under somewhat different circum-
stances. Most nineteenth-century migration had been motivated by economic
pres-
sures at home and opportunities abroad. These factors remained important
in the
twentieth century, but political oppression (or its threat) in the wake of wars
and rev-
olutions also played a major role. Throughout previous centuries, migration on
a large
scale had usually been forced and not voluntary, as came increasingly to be
the case
in the nineteenth century. In the twentieth century, while the incentives
for voluntary
migration continued to be as strong as in the nineteenth, more
and more migration
came to be forced. After World War I, Europe was organized into
separate nation-
 Overview of the World Economy in the Twentieth Century S21

TABLE 13—4. Life Expectancy at Birth in Selected Countries

(years)

Ca, 1950 Ca. 2000

Country M F M F

Australia 67 73 76 82
Bulgaria 61 66 67 1B
United Kingdom 66 7h 75 80
Israel 70 74 76 80
Japan 56 60 Te 84
Russia/former USSR 61 67 61 2
Spain 60 64 75 82
Sweden 70 73 Wi 82
United States 66 7 74 80
Argentina 63 69 70 Ta,
Brazil 51 57 63 71
Mexico 48 51 69 75
Bangladesh 38 37 58 59
China 45 47 68 72
India 42 41 62 64
Indonesia Si) 38 64 67
Egypt 4l 44 65 68

Nigeria 33 36 52 55
Tunisia 43 45 70 74

Zaire (Congo, Dem. Rep.) 37 40 49 22

Sources: United Nations, Demographic Yearbook, various issues; World Bank, World
Development Indicators, 2000.

states, each of which defined its citizenship in terms of the ethnic majority, which
meant expelling large numbers of ethnic minorities. Whatever the initial cause of the
first wave of migration, however, subsequent flows of migrants tended to come from
the same regions in the sending country and to go to the same regions in the receiv-
ing country, creating long-lasting “chain migrations.”
The nineteenth-century type of international migration reached its culmination in
the years immediately preceding World War I, with an annual average of more than
a million people leaving Europe for overseas destinations, principally the United
States. World War I temporarily halted that flow in part, and the U.S. adoption after
the war of restrictive immigration legislation further curtailed it. Whereas immigra-
tion to the United States in the decade preceding the war averaged about | million per
year, immigration in the 1920s was less than half that figure. The depression of the
1930s severely constrained the opportunities in America, and World War II further re-
duced the tide of immigration, which averaged less than 50,000 per year from 1930
622
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 Overview of the World Economy in the Twentieth Century 323

TaBLE 13—5. Urban Population (percent of total)

Country Ca. 1950 Ca. 2000

Australia 79 85
Bulgaria 51 69
Israel 78 91
Japan 38 79
Russia/former USSR 48 77
Spain 55 77
United States 64 77
Argentina 74 89
Brazil 36 80
Mexico 43 74
Bangladesh — 23
India — 28
Indonesia 15 Sy)
Egypt 38 45
Nigeria 10 42
Tunisia 37 64
Zaire (Congo, Dem. Rep.) 22 30

Source: United Nations, Demographic Yearbook.

to 1945. After the war many refugees from the wartime devastation and new politi-
cal repressions swelled the numbers of immigrants, which rose from about 100,000
in the late 1940s to more than half a million in the 1980s.
The character of American immigration has also changed in recent decades. For-
merly the immigrants were overwhelmingly European; today many more come from
Asia and Latin America. Many of the latter (probably a majority of those from Mex-
ico and some Central American countries) are illegal entrants, “wetbacks” seeking
work, or political refugees from Central America and the Caribbean.
The character of European immigration and emigration has also changed in the
twentieth century. In the nineteenth century Europe provided the bulk of international
migrants, but today western Europe has become a haven for political refugees and,
temporarily at least, a land of opportunity for the impoverished masses of central and
eastern Europe, North Africa, and parts of the Middle East.
The process began in the wake of the Russian Revolution of 1917, when many
subjects of the tsar (former aristocrats and others) chose residence in the West, espe-
cially France, rather than remain in their homeland under the Soviet regime. The
process accelerated massively after World War II with the redrawing of the bound-
aries of eastern Europe. Millions of German-speaking people were expelled or fled,
but many of other nationalities also took advantage of the postwar chaos to flee from
what they regarded as oppressive political regimes—a process that was repeated on
324 A CONCISE ECONOMIC HISTORY OF THE WORLD

a smaller scale in the wake of the abortive Hungarian Revolution of 1956 and the in-
vasion of Czechoslovakia in 1968.
West Germany bore the brunt of the flood of refugees, which seemed a heavy bur-
den at first; but with the economic revival of continental western Europe in the 1950s
and 1960s, with its strong demand for labor, the burden proved to be a blessing. In-
deed, the demand for labor outran the supply of refugees, with the result that several
countries—notably France, Switzerland, and Belgium as well as West Germany—in-
vited “guest workers” from Portugal, Spain, Italy, Greece, Yugoslavia, Turkey, and
North Africa to supplement their own native labor forces. In most instances these mi-
grations were temporary, or intended as such, but they also led to some permanent
immigration.
Another novel current of migration involved European Jews and, eventually, Jews
from other parts of the world. Following World War I the British, who had been given
a League of Nations mandate over Palestine, allowed a limited number of Zionists to
settle there. During and after World War II, with the revelation of Nazi atrocities to-
ward the Jews, thousands of survivors of the Holocaust sought refuge there. At first
the British resisted, and deported many who had immigrated illegally; but after the
proclamation of the state of Israel in 1948 the floodgates opened and millions of Jews
entered, not only from Europe but also America, Asia, and Africa. In recent years
many Jews from the former Soviet Union left for Israel or other destinations.

Resources

The unprecedented growth of population in the twentieth century, as well as the grow-
ing affluence of at least a part of the world, resulted in an unprecedented demand on
the world’s resources. Although occasional temporary shortages of some commodities
occurred, especially in wartime, and fears were expressed in the last quarter of the cen-
tury concerning the exhaustion of certain critical resources, the world economy re-
sponded reasonably well to the demands made on it. That it did so was a result, in large
part, of the increasing interaction of science and technology with the economy. Agron-
omists discovered new ways to increase the yield of crops, engineers discovered new
ways to increase the yield of minerals, scientists discovered new uses for existing re-
sources, and, indeed, created new resources from old in the form of synthetic products.
The most important development in terms of resources in the twentieth century
has been a change in the nature and sources of primary energy. In the nineteenth cen-
tury coal became the most important source of energy in industrializing nations,
largely replacing wood, charcoal, wind, and water power. In the twentieth century
coal has been largely, though not wholly, displaced by new energy sources, especially
petroleum and natural gas. Although petroleum was first commercially produced in
the nineteenth century, it was then used mainly for illumination and secondarily as a
lubricant. The development of internal combustion engines at the end of the nine-
teenth century greatly extended its possibilities, and it also competed with coal and
water power in the production of electricity and with the former for space heating. In
the second half of the twentieth century it acquired new importance as a raw mater-
ial for the production of synthetics and plastics.
 Overview of the World Economy in the Twentieth Century 325

TABLE 13—6. World Primary Energy Production, 1996

(percentage of total)

Region Solids Liquids Gases Electricity

North America“ Tal 74 7.9 om

South America 0.3 3.4 0.9 0.5
Europe 5.1 TD O 4.0
Asia 11.9 15.7 4.8 2.0
Africa 1.3 4.0 1.0 0.1
Oceania 1.6 0.3 0.4 0.1
Total 219) 38.0 24.3 9.8

“Includes Mexico, Central America, and the Caribbean.

Source: United Nations, Energy Statistics Yearbook, 1996 (New York, 1998).

At the beginning of the twentieth century the dominance of coal was unques-
tioned. In 1928 it still accounted for 75 percent of world energy production, petro-
leum for about 17 percent, and water power for about 8 percent. (These figures omit
the contributions of work animals, wood fuel, manure, etc., but these were negligible
in the industrialized economies.) Around 1950 coal still accounted for almost half of
total energy, with petroleum and natural gas up to 30 percent, but by the 1990s those
proportions had been more than reversed.
In the light of its major importance and manifold uses, petroleum has acquired
great geopolitical significance. Petroleum deposits are widely scattered throughout
the world, but most production comes from a relatively small number of geographi-
cal areas. Ironically, Europe, although abundantly endowed with coal, has the small-
est petroleum reserves of any major land mass. The United States, Russia, and possi-
bly China, on the other hand, have plentiful resources of both coal and petroleum.
Petroleum production was first developed on a large scale in the United States. As of
1950 more than 60 percent of total cumulative world production since the beginnings
of commercial exploitation had taken place in the United States, and in that year the
country still produced more than 50 percent of the world’s output. Since that time,
however, although it is still a major producer, the United States had become a net im-
porter of petroleum. The countries of the Middle East surrounding the Persian Gulf
are now, collectively, the largest source of supply for the world market. Russia is also
a major producer. Table 13-6 shows the percentages of world primary energy pro-
duction by type of fuel and geographic location.

Technology

Technological change, the major driving force behind nineteenth-century industrial-

ization, continued that role undiminished in the twentieth century. Indeed, it appears
that the pace of change accelerated, although our measures for gauging such changes
326 A CONCISE ECONOMIC HISTORY OF THE WORLD

Miles per hour

— 1,200

— 1,100

— 1,000

— 900

— 800

— 700

Airplane — 600

— 500

— 400

— 300

é Automobile — 200
Steamship Railroad

1825 1850 1875 1900 1925 1950 1975 2000

FIGURE 13-2. Range of practical speeds for continental and intercontinental travel.

are rather crude and unreliable. It is indubitable, nevertheless, that new technology
affects, in profound and countless ways, the daily life of virtually every human be-
ing, even those to whom the technology itself is foreign. In earlier ages the mark of
success of human societies was their ability to adapt to their environments. In the
twentieth century the mark of success is the ability to manipulate the environment and
adapt it to the needs of society. The fundamental means of manipulation and adapta-
tion is technology—specifically, technology based on modern science. A major rea-
son for the more rapid pace of social change in the twentieth century is the marked
acceleration of scientific and technological progress.
The recent history of transportation and communications provides a graphic ex-
ample of the acceleration of technological change (Fig. 13-2). At the beginning of the
nineteenth century the speed of travel had not changed appreciably since the Hel-
lenistic era. By the beginning of the twentieth century people could travel at veloci-
ties of up to eighty miles per hour by means of steam locomotives. The development
of automobiles, airplanes, and space rockets dwarfed even that achievement in speed
and also in range and flexibility.
Until the invention of the electric telegraph, communication over appreciable dis-
tances was limited to the speed of human messengers. The telephone, radio, and tele-
vision added immeasurably to the convenience, flexibility, and reliability of long-dis-
tance communication. In January 1927, commercial long-distance radio-telephone
service was introduced between the United States and Great Britain by AT&T and the
British Postal Office after four years of experimenting. They expanded it later to com-
municate with Canada, Australia, South Africa, Egypt, and Kenya as well as with
ships at sea. Nearly fifty years would pass before the first telephone cable was laid
under the Atlantic in 1956, greatly expanding calling capacity. By the 1990s, global
telephony began an explosive growth through the development of mobile telephone.
 Overview of the World Economy in the Twentieth Century 327

In 1990, there were just over 11 million of them worldwide. By the end of 1999, there
were almost 400 million, against only 180 million personal computers. It is even pos-
sible to “communicate” with (or to receive communications from) other planets in the
solar system by means of space capsules and electronic systems. Each of these
achievements has depended increasingly on the application of basic science.
The scientific basis of modern industry has resulted in hundreds of new products
and materials. Already in the nineteenth century chemists had created numerous syn-
thetic dyes and pharmaceuticals. Beginning with the invention of rayon in 1898,
dozens of artificial or synthetic textile fibers have been created. In the twentieth cen-
tury plastic materials made from petroleum and other hydrocarbons have replaced
wood, metals, earthenware, and paper in thousands of uses ranging from lightweight
containers to high-speed drilling machines. The increasing use of electrical and me-
chanical power, the invention of hundreds of new labor-saving devices, and the de-
velopment of automatic instruments of control have brought about changes in the con-
ditions of life and work more far-reaching than the so-called industrial revolution in
Great Britain. In an extreme instance, a single worker can oversee the operation of a
huge petroleum refinery.
The ability of science and technology to grow rapidly depends on a host of ac-
cessory developments, some of them stemming from the progress of science itself. A
major example is the electronic computer, which performs thousands of complicated
calculations in a fraction of a second. The first mechanical calculating machine be-
yond the simple abacus was invented in the 1830s and was powered by steam. By the
beginning of the twentieth century a few rudimentary mechanical devices were in use,
chiefly for commercial purposes, but the age of the electronic computer did not dawn
until World War II. Its progress since then has rivaled the speed with which it oper-
ates. Without it many other scientific advances, such as the exploration of space,
would have been impossible.
This example brings to mind the role of scientific research and in particular the
ways in which it is financed. Although many new developments in chemistry and bi-
ology have been stimulated by their commercial applications in agriculture, industry,
and medicine, most basic research requires expenditures so vast, and with so little
prospect of immediate return, that governments have been obliged to finance it either
directly or indirectly. Moreover, the requirements of war and national rivalry have led
governments to devote huge resources to scientific research and development for mil-
itary purposes. Military crash programs resulted in the development of radar and other
electronic communication devices, in the successful harnessing of atomic energy, and
in the development of space rockets and artificial satellites. Such achievements are
scarcely imaginable without the financial resources of governments.
Another requirement for scientific and technical advance is a sizable pool of ed-
ucated manpower—or brainpower. By the beginning of the twentieth century virtu-
ally all Western countries had high literacy rates, in sharp contrast with the low liter-
acy rates of most of the rest of the world. The widening technical gap between the
developed and underdeveloped parts of the world is reflected in differences in edu-
cational levels as well as in differences in income.
Mere literacy, however, as important as it is for the initiation and sustenance of
economic development, is not sufficient for the high-technology world of the twenty-
328 A CONCISE ECONOMIC HISTORY OF THE WORLD

first century. The ability of individuals to participate fully and effectively in the new
scientific-technological matrix of civilization, whether as scientists and technicians
or in its commercial and bureaucratic superstructures, increasingly requires advanced
study at the college or university level and beyond. The twentieth century witnessed
a proliferation of institutes for advanced study and research under both private and
public sponsorship. Most governments and many business firms maintain special of-
fices or departments to promote scientific and technological development. Many tal-
ented individuals from underdeveloped countries find it in their personal interest to
seek education and employment in developed countries, thereby creating a “brain
drain.” That is another reason for the widening gap between rich and poor nations.
The application of scientific technology has greatly increased the productivity of
human labor. Output per worker, or per worker-hour, is the most meaningful measure
of economic efficiency. In agriculture, still the major source of supply for the major-
ity of the world’s foodstuffs and raw materials, productivity has increased greatly in
Western nations by means of scientific techniques of fertilization, seed selection and
stock breeding, pest control, and by the use of mechanical power. Unfortunately, these
techniques are not yet widely used in Third World countries. At midcentury output
per worker in agriculture in the United States was more than ten times as great as in
most Asian countries, and about twenty-five times as high as in most African coun-
tries. In the 1960s, as a result of the “green revolution” (new techniques especially
adapted for tropical climates), agricultural productivity increased substantially in
some Asian nations—India, for example, became self-sufficient in food production—
but a large gap in productivity remained between rich and poor countries.
The rise in power production has been even more remarkable. World power pro-
duction increased more than fourfold between 1900 and 1950, and has more than
quintupled since then. Most of the increase took place in areas of European settlement
and in forms that had been in their infancy at the beginning of the century. For ex-
ample, the generation of electricity (which is a form, not a source of energy) has in-
creased more than a hundredfold. Electric energy is far cleaner, more efficient, and
more flexible than most other forms of energy. It can be transmitted hundreds of miles
at a fraction of the cost of transporting coal or petroleum. It can be used in massive
concentrations to smelt metals or in tiny motors to operate delicate instruments, as
well as to provide illumination, heat, and air conditioning. Its application to domes-
tic appliances has helped to revolutionize patterns of family life, the status of women,
and the employment of domestic servants. From a total production of less than 1 tril-
lion kilowatt-hours in 1950 (up from virtually zero in 1880), world production rose
to more than 13.5 trillion kilowatt-hours in 1996, an average annual rate of 5.8 per-
cent. Table 13-7 indicates the pattern of energy production by source and by geo-
graphic region. Several features are worth noting, even at such an aggregated level.
Europe is especially reliant on nuclear and geothermal sources, followed by North
America, as might be expected for the most advanced industrial economies. Asia and
africa are concentrated in thermal sources, often heavy polluting coal-fired generat-
ing plants rather than the natural gas plants that exist mostly in Europe and North
America. South America is especially dependent on hydroelectric power, the most en-
vironmentally friendly source of production, but typically the most expensive to
transmit from source to urban centers.
 Overview of the World Economy in the Twentieth Century 329

TABLE 13—7. Production of Electricity, 1996

(percentage of world total)

Nuclear
Total Thermal Hydro and Other

World 100.0 63.2 19.2 17.6

Africa PPg} BD) 0.4 0.1
North America SS 20.1 5.5 DY
South America 4.4 0.8 3.6 0.1
Asia 29.4 21.8 4.2 3.3
Europe 30.3 17.0 Dil 8.2
Oceania 1.6 1S 0.3 0.0
Former USSR 7.8 5.4 1.3 He

Source: United Nations, Energy Statistics Yearbook, 1996 (New York, 1998).

Petroleum and natural gas, which accounted for only a tiny fraction of total en-
ergy at the beginning of the century, surpassed coal as a source of energy around 1960,
and in the 1990s accounted for more than 65 percent of total world production. The
internal combustion engine, the most important consumer of petroleum, was an in-
vention of the nineteenth century, but it produced a revolution only when applied to
two of the most characteristic technological devices of the twentieth century, the au-
tomobile and the airplane. A few automobiles were built in the last years of the nine-
teenth century, but not until Henry Ford introduced the principle of mass production
with a moving assembly line in 1913 did the automobile become more than a rich
man’s toy (Fig. 13-3). Ford’s technique was soon imitated by other manufacturers in
the United States and Europe, and the automobile industry became one of the largest
employers of any manufacturing industry, as well as providing unprecedented op-
portunities for personal mobility.
The automobile came to symbolize twentieth-century economic development in
much the same way that the steam locomotive symbolized that of the nineteenth cen-
tury. In addition to being a large employer in its own right, the automobile industry
stimulated the demand for several other industries. Just as locomotives and trains
needed railways and iron, so automobiles needed roads and cement. In the United
States and other leading auto producers, the industry was the largest consumer of
steel, rubber (both natural and, later, synthetic), and glass. The rapid emergence of Ja-
pan as a major economic power in the second half of the twentieth century owed much
to its success as an exporter of automobiles. The automobile also had a profound im-
pact on social mores and customs, from courtship to commuting.
The technique of assembly-line production was adopted by other industries, in-
cluding the aircraft industry in World War II. The air age began with the fifteen-sec-
ond flight of the Wright brothers on a beach in North Carolina in 1903. Airplanes were
discovered to have military applications in World War I, at first for observation, and
later for bombardment. After the war they were used to carry mail and eventually fare-
330 A CONCISE ECONOMIC HISTORY OF THE WORLD

nN

"I>
tn

FiGurE 13-3. Ford’s first assembly line. The moving assembly line, pioneered by Henry
Ford in 1913, made the automobile an object of mass production and consumption and sym-
bolized both a new method of production and a new style of life. (From the collections of
Henry Ford Museum and Greenfield Village.)

paying passengers. The commercial aviation industry developed rapidly in the 1930s,
along with the technology, and on the eve of World War II trans-Atlantic service
became available. Up until that time all successful aircraft had been powered by gaso-
line-fired piston engines driving propellers. During the war the Germans began ex-
perimenting with jet-propelled planes and also with rockets. Although their experi-
ments did not prevent them from losing the war, they did set the stage for further
developments in both aviation and the exploration of space—the latter carried out
mainly by Russians and Americans, who scrambled in 1945 to obtain the services of
the German rocket scientists. By 1960 jet-propelled aircraft had rendered propellers
obsolete for commercial passenger traffic and, in the United States at least, had also
made the railway obsolescent for passenger traffic.
The most spectacular application of science to technology has occurred in the ex-
ploration of space. As recently as the 1940s manned flight in space was chiefly a sub-
ject for science fiction. While comic strips portrayed scantily clad men and women
of the twenty-fifth century flying through space with rockets strapped to their shoul-
ders, learned men made calculations that purported to prove that no vehicle could ever
attain the velocity required to leave the earth’s gravitational field. During World War
 Overview of the World Economy in the Twentieth Century 331

II scientists gained much valuable experience with jet engines and military rockets,
but few people expected it would be possible for humans to survive in outer space
even if they could reach it. New developments such as more powerful rocket engines,
electronic signaling and control devices, and computers for rapid calculation of tra-
jectories converged to make space flight a real possibility. On October 4, 1957, sci-
entists in the Soviet Union put a capsule into orbit around the earth. The Space Age
had begun.
Further progress occurred rapidly, largely stimulated by national rivalry. A sec-
ond orbiting Russian rocket followed a month later, and early in 1958 the United
States placed a capsule in orbit. Within a few years both nations rocketed astronauts
into space and successfully retrieved them. Unmanned satellites were put into more
or less permanent orbits to relay scientific information back to earth by means of ra-
dio and television, and other rockets were sent to the moon, Venus, Mars, and outer
space with similar aims. In December 1968 the United States put a space crew in or-
bit around the moon, but outdid even that feat the following year. On July 20, 1969,
astronauts Neil Armstrong and Edwin Aldrin, supported by astronaut Michael Collins
and a crew of thousands of scientists and technicians on earth, became the first men
to set foot on the moon. Truly, the human race had created a new age. One measure
of the difference between that new age and all previous eras of human achievement
lay in the manner in which the event was publicized. When Columbus discovered the
New World (which he mistook for the Indies) the event was witnessed only by the ac-
tual participants, and it was months, even years, before the news reached a larger pub-
lic. The first step of a man on the moon, by contrast, was witnessed by hundreds of
millions all over the earth by means of television relays—the largest audience, in fact,
ever to witness a single event to that time.

Institutions

Altered by technological change and by changes in the use of natural resources,

strained by the growth of world population, and alternately bruised and soothed by
political changes outside the scope of the economy proper, the institutional structure
of the world economy at the end of the twentieth century differed greatly from what
it had been at the beginning of that century. The number of such institutional changes
is almost countless, and they vary from insignificant to earth-shaking. They can be
categorized, however, under a few headings: changes in international relations, in na-
tional institutions, and within nations, such as the role of government, the nature and
size of business firms, and the role of education. Some of these institutional changes
are treated in somewhat greater detail in subsequent chapters. Only the broad outlines
are sketched here.

International Relations

The pre-1914 world economy was dominated, literally and figuratively, by Europe
(especially western Europe) and the United States. In political terms, the overseas em-
pires of West European nations—primarily the British, French, and Germans, but also
WwWeS)i) A CONCISE ECONOMIC HISTORY OF THE WORLD

TaBLe 13-8. World Trade (Imports and Exports),

1913 and 1999 (percentage of total)

1913 1999

World 100 100

Europe 58.4 46.2

United States and Canada 14.1 18.0

Asia 12.1 26.5

Latin America 8.3 4.5

Africa 4.4 1.8

Oceania Mil 3.0

Sources: W. S. and E. S. Woytinsky, World Commerce and Governments (New York,

1955), p. 45; IMF, World Economic Outlook, October 2000, p. 187.

the Dutch, Belgians, Danes, and Italians—together with the vast land empire of im-
perial Russia gave them control of more than three-quarters of the earth’s surface and
almost as large a fraction of world population. Economically, Europe and the United
States (without their empires) accounted for well over half of total production and
trade. Table 13-8 shows the percentage distribution for world trade; comparable fig-
ures for production or income are not available, but it is certain that the European-
American predominance in production was even greater than in trade.
World War I and its concomitant, the Russian revolutions of 1917, brought fun-
damental changes in this structure. Tsarist Russia disappeared, its place taken by the
Soviet Union, with a novel form of economic organization. The Habsburg Empire of
east-central Europe also disappeared, replaced by several new or enlarged national
states, economically deprived and struggling. Germany lost its overseas empire as
well as a substantial part of its own territory and population. The remaining European
empires exploited their colonies with increased nationalist fervor. Europe proper suf-
fered a decline in its share of world trade and production, mainly though not exclu-
sively to the United States, the British dominions, and Japan. Finally, and partly at
least as a result of the war, the 1920s and 1930s witnessed the rise of Fascist dicta-
torships in Italy, Germany, and several other European nations, also with novel forms
of economic organization.
In Asia, Japan, which had a small prewar empire, enlarged it and became an im-
portant economic power. Japanese participation in World War I had been motivated
principally by the desire to take over German possessions in the Pacific and German
concessions in China. In this goal they were successful. They also utilized the Rus-
sian revolutions to extend their interest in Manchuria, under the nominal suzerainty
of China, by taking control of the South Manchurian Railway. In September 1931 the
Japanese troops guarding the railway occupied Manchuria by force and shortly after
set up a puppet regime, renaming the country Manchukuo. Japan continued its pres-
sure on China with the intention of forcing the Chinese into a position of subordina-
tion in what the Japanese rulers began to refer to as a “Greater Asian Co-Prosperity
Sphere” in Asia—a euphemism for a greatly enlarged Japanese Empire. In 1937 they
 Overview of the World Economy in the Twentieth Century 333

provoked a military “incident” and began an all-out though still undeclared war on
China. Japanese superiority in organization and equipment enabled them to capture
the major cities and control the entire seacoast, but the Chinese fought on desperately
and retreated slowly inland, refusing to surrender. The struggle had reached a stale-
mate when the outbreak of war in Europe gave the Japanese further opportunities for
expansion elsewhere in Asia.
World War II brought in its wake a fundamental reorganization of international
relations, with important economic consequences. Europe lost its hegemony in both
politics and economics. Instead, a rivalry between the two new superpowers, the
United States and the Soviet Union, replaced the age-long bickering of the traditional
European great powers. As a consequence of this rivalry, Europe was divided more
clearly and decisively than ever before between East and West: an eastern bloc under
Soviet domination, and a western group of mainly democratic nations, most of which
were tied politically and economically to the United States.
In the immediate aftermath of the war the old imperial nations attempted to retain
or reimpose their authority in their former overseas possessions, but the new politi-
cal and economic realities soon disabused them of their illusions. The Arab nations
of the Middle East and North Africa rather quickly threw off the controls that the
French and British had exercised between the wars, except Algeria, which engaged
in a long and bloodly struggle before the French reluctantly granted it independence
in 1962. The various colonies of Southeast Asia, occupied by Japan during the war,
also quickly gained their independence, although France again sought, unsuccess-
fully, to retain its control in Vietnam. Britain, rather than face a war on the Indian sub-
continent, agreed in 1947 to the creation of two new nations there, the predominantly
Hindu Union of India and the Islamic state of Pakistan. (East Pakistan, separated from
the dominant western part of the country by the breadth of India, subsequently de-
clared its independence as Bangladesh.) Britain also granted independence to Cey-
lon, subsequently renamed Sri Lanka.
Japan, devastated by American bombardment, including the only two atomic
bombs ever exploded during hostilities, underwent nearly five years of occupation by
American military forces, during which it radically reshaped virtually all of its major
institutions (with the notable exception of the imperial dynasty) under the supervi-
sion of American authorities, emerging as a truly democratic nation. The outbreak of
the Korean War, coincident with the restoration of Japanese sovereignty, provided a
powerful economic stimulus for Japan, which it used to good effect. Within a few
decades Japan had become the second largest economy in the world.
China, which had more or less successfully resisted Western incursions for more
than two centuries, underwent two radical changes—revolutions—in the twentieth
century, as well as decades of civil and international war. In 1911 a group of young,
Western-oriented reformers overthrew the venerable Qing (Ch’ing) dynasty and at-
tempted to create a modern democratic republic. They never really gained control of
the country, however, and in the 1930s the Japanese invasions, first of Manchuria and
then of China proper, prevented any sustained economic development. Immediately
after the end of World War II the Chinese Communist party began its assault on the
government, which it eventually drove out in 1949. For a few years the Chinese Com-
munists allied themselves with the Soviet Union and attempted to model their econ-
334 A CONCISE ECONOMIC HISTORY OF THE WORLD

omy along Soviet lines. After breaking with the Soviet Union in 1960 they tried var-
ious other experiments and expedients without great success. Eventually, in the
1970s, they reestablished diplomatic and economic relations with the United States
and other Western nations, and began a new era of economic development with a cu-
rious blend of public and private enterprise.
Decolonization and the creation of new nations, together with the attempts of
other Third World nations (e.g., those of Latin America) to modernize and achieve
sustained economic development, introduced a new element into international eco-
nomic relationships. A North-South dimension (developed versus underdeveloped—
euphemistically referred to as “‘developing”) was added to the East-West confronta-
tion. Partly to facilitate constructive dialogue and prevent outright hostilities, a num-
ber of new international organizations were established.
A few international organizations date from the nineteenth century—for exam-
ple, the International Red Cross, established in Geneva in 1864, and the Universal
Postal Union, created in 1874 with headquarters in Berne, Switzerland—but the
twentieth century has been especially prolific in creating them. Literally hundreds of
organizations exist, mostly of little or no economic significance, but some affect the
performance of the world economy in major ways.
The League of Nations, created by the Treaty of Versailles in 1919, was intended
by Woodrow Wilson, whose brainchild it was, to guarantee world peace, and thus
prosperity. The failure of the U.S. Senate to ratify the treaty, and of the United States
to join the League, along with weaknesses in its structure, condemned it to failure. Its
economic achievements were more lasting than its political ones, but scarcely im-
pressive. Its Economic Section collected and published useful statistics and technical
reports, and introduced standardized accounting methods, but it proved powerless to
deal with the really important economic issues of the interwar period. One of the
League’s subagencies, the International Labor Organization (ILO), survived the
League and continues as a subagency of the United Nations. It investigates working
and living conditions of workers, publishes its findings, and makes recommendations
regarding them; but its recommendations are not binding.
The League’s successor, the United Nations, has had a slightly better record as a
peacekeeper and has spawned several specialized agencies dealing with economic
and related affairs. Several other international and supranational organizations, no-
tably the Organization for European Economic Cooperation (OEEC) and the Euro-
pean Union, will be discussed below.

The Role of Government

Another major institutional change affecting all nations in the twentieth century is the
greatly enlarged role of government in the economy. In the heyday of economic na-
tionalism—the seventeenth century —absolute monarchs attempted to bend the econ-
omy to their wills, but their resources were too limited and their instruments too puny
for them to have much effect. In the nineteenth century, on the other hand, under the
influence of the classical economists, governments in general deliberately limited
their participation in the economy. The growth of government in the twentieth cen-
 Overview of the World Economy in the Twentieth Century 335

tury is related in part to the financial necessities of the two world wars and to other
considerations of national defense—but only in part.
In the Soviet Union, and in other Soviet-style economies, the government as-
sumed total responsibility for the economy through a system of comprehensive eco-
nomic planning and control. (The major changes in the Soviet system in the early
1990s, and the collapse of the Soviet empire, are discussed in Chapter 16.) During the
two world wars most of the belligerent nations also adopted very far-reaching con-
trols and government participation, but with some exceptions (to be noted later), eco-
nomically productive activities in peacetime in the advanced industrial democracies
are assumed to be the province of private individuals and corporations. This does not,
however, mean a reversion to nineteenth-century notions (or myths) of laissez faire.
In the interwar period all governments attempted, generally with little success, to pur-
sue policies of economic recovery and stabilization. After World War II they tried
even more deliberately, with greater sophistication, and generally with greater suc-
cess. Most adopted some form of economic planning, although not as comprehensive
or compulsory as that of the Soviet Union. For this the label of ‘““mixed economies”
has been applied to the nations of western Europe.
The exceptions mentioned previously are of two types: directly productive activ-
ities carried out by or on behalf of the government, and transfer payments, or redis-
tribution of income by means of taxation and expenditure. Even in the nineteenth cen-
tury municipal governments, for example, operated waterworks, gasworks, and other
public utilities, and in a few instances national governments built or subsequently na-
tionalized railways (see Chapters 8 and 11). In the twentieth century state-owned in-
dustries became much more common, sometimes as a result of the failure of private
enterprise (e.g., passenger railways in the United States), at other times because of
the ideological commitment of the ruling political party. More will be said about these
cases in subsequent chapters.
The other main reason for the growth of government—transfer payments—also
has roots in the late nineteenth century, but it did not achieve large dimensions until
after World War II. In the 1880s Bismarck, the German chancellor, introduced com-
pulsory sickness and accident insurance for workers and a very limited pension sys-
tem for the overaged and disabled, largely for paternalistic reasons. These innova-
tions were gradually copied and extended in other countries, mostly after World War
I; the United States, for example, did not adopt comprehensive social insurance (in-
cluding unemployment compensation) until the New Deal reforms of the 1930s. Af-
ter World War II, as a result of strong political pressures, most democratic govern-
ments greatly extended their systems of social security and other transfer payments.
For this reason they have become known in some quarters as “welfare states.”
A few figures will give meaning to the phrase “growth of government.” In the
nineteenth century, in peacetime, government expenditure as a percentage of national
income was generally less than 10 percent, sometimes much less. For example, in the
United States for the years 1900 to 1916, federal government expenditures amounted
to only 2.5 percent of national income (to be sure, the sum of state and local govern-
ment expenditures in the United States in those days amounted to more than the fed-
eral budget). But even in Great Britain on the eve of World War I, when the country
336 A CONCISE ECONOMIC HISTORY OF THE WORLD

res
was engaged in an armaments race with Germany, total government expenditu
amounted to only 8 percent of national income. During the war, on the other hand,
while government expenditures rose to 28 percent of national income in the United
States, it exceeded 50 percent in most of the European belligerents. After the war gov-
ernment spending came down, but not by much and not for long. For example, in the
United Kingdom government expenditures averaged about 20 percent throughout the
1920s and 1930s, much of it accounted for by interest payments on the war debt and
much of the rest by the “dole,” Britain’s system of unemployment compensation. The
U.S. federal budget, after falling briefly to less than 5 percent of national income in
the late 1920s, averaged about 12 percent during the New Deal years and then rock-
eted to more than 50 percent during World War II. Once again, after the war expen-
ditures, as a proportion of much larger national incomes, came down modestly, but
not for long. In the 1950s in both western Europe and the United States government
expenditures amounted to between 20 and 30 percent of national income, depending
on the extent of public enterprise, but they have since risen to between 30 and 40 per-
cent, or more.

The Forms ofEnterprise

The joint-stock limited-liability company, or modern corporation, was already well
established in the leading industrial countries at the beginning of the twentieth cen-
tury, but for the most part it was used only in large-scale, capital-intensive industries.
In other activities, such as wholesaling and retailing, artisanal production, the service
trades, and especially agriculture, the unicorporated family firm predominated. The
long-term trend, however, favored the spread of the corporate form of enterprise to
ever-wider spheres of activity. Large corporate multiunit enterprises, “chain stores,”
came to dominate retailing in industries as diverse as fresh produce and high-tech-
nology electronics; they integrated backward to the production stage, in many cases
eliminating the wholesale function altogether. In other cases producers of sewing ma-
chines, farm machinery, and automobiles, for example, integrated forward, relying on
franchised dealers to handle the retailing function. A related development was the ap-
pearance of the corporate conglomerate, huge corporations engaged in the production
and sale of dozens or even hundreds of products, ranging from heavy producer goods
to such consumer goods as cosmetics and fashions. This development was facilitated
by the use of holding companies, corporations whose only business was to own (and
manage) other corporations. Although the corporate form of enterprise was brought
into existence initially by the technologically determined requirements of large-scale
production, and accordingly favored ever-larger units of organization, it could also
be adapted to smaller scales of operation; by the latter half of the century even inde-
pendent professional practitioners, in law and medicine, for example, were incorpo-
rated for fiscal purposes.
These trends in the use of the corporate form of organization were pioneered pri-
marily in the United States in the latter part of the nineteenth century, but they spread
rapidly in Europe and elsewhere in the twentieth century. One reason for this was that
it enabled enterprises to compete successfully with another primarily American phe-
nomenon, the multinational firm. Multinational firms were not entirely novel, nor
 Overview of the World Economy in the Twentieth Century 397/

were they exclusively American—the Medici bank in the fifteenth century, based in
Florence, had branches in other countries—but until the twentieth century they were
relatively rare. Now, they are quite common. An outstanding example is the Nestlé
Company (food products), headquartered in the small city of Vevey, Switzerland, but
with production and sales facilities on every continent and in virtually every country
of the world. In recent years its sales turnover has exceeded the Swiss government
budget!

Organized Labor
At the beginning of the twentieth century the right of workers to organize and bargain
collectively was recognized in most Western nations, and in a few (e.g., Great Britain
and Germany), organized labor wielded considerable power in the labor market. Even
in those countries, however, organized labor was a minority, no more than a fifth or
a fourth of the total labor force. The interwar years witnessed a growth in union mem-
bership in the industrial nations and a spread of labor organization to other, less de-
veloped nations. In the United States, for example, union membership in the 1920s
amounted to only about one-tenth of the nonagricultural labor force, mainly skilled
workers; by 1940, largely as a result of New Deal legislation favorable to organized
labor and a campaign by the latter to organize unskilled and semiskilled factory work-
ers, the proportion had grown to more than one-quarter. It reached a peak of almost
36 percent in 1945, as a result of the marked expansion of the war industries, then
dropped off slightly. Since the mid-1950s, with the growth of service occupations and
high-technology industries, union membership as a percentage of the labor force has
again declined to less than one-fifth.
Trends in union membership in western Europe, although not identical with those
in the United States, have been similar. A major difference, however, is that in Europe
trade unions are much more closely identified with specific political parties than in
the United States. In Great Britain, for example, the Labour party is supported mainly,
although not exclusively, by union members and other, unorganized, workers. In a
stunning upset in the general election of 1945, immediately after the war, it won a
clear victory over the wartime prime minister, Winston Churchill, and with a social-
ist program proceeded to nationalize several key industries. Although it lost the elec-
tion of 1952, it alternated in power with the Conservative party for the next thirty
years; in the wake of a decisive defeat in 1979, however, it split in two, with the less
doctrinaire members forming a new Social Democratic party.
The Social Democratic party in pre-World War I Germany was a worker-sup-
ported party, the largest in Germany, although it never succeeded in forming a gov-
ernment before the war. Under the Weimar Republic it participated in most of the
coalition governments of that fragile democracy, but with the advent of the Nazi dic-
tatorship of Adolph Hitler in 1933 it was forcibly dissolved, along with all other po-
litical parties except the Nazis.
The Nazis abolished not only the political parties but the trade unions as well. All
workers were compelled to become members of the Labor Front, an organization run
by members of the Nazi party to ensure labor discipline. Similar developments took
place in Italy, the Soviet Union, and other totalitarian countries. At the time of the
338 A CONCISE ECONOMIC HISTORY OF THE WORLD

1917 revolution the members of the Russian trade unions (which existed illicitly un-
der the tsarist regime) expected they would be called on to play a leading role in the
reform and reorganization of the Russian economy and society. They were grievously
disappointed when the government used the unions, not as defenders of workers’
rights, but as instruments to instill labor and party discipline.

Informal Institutions
Along with the proliferation of formal institutions created by force of law within in-
dividual countries or by force of international treaty among several countries, the
twentieth century also witnessed an increased variety of informal institutions. These
institutions create and sustain rules of economic behavior and interaction that are not
explicitly enforced by the authorities, but instead are simply accepted as the “right
way” to do things by members of a community, civic organization, religion, or eth-
nic group. If individuals ignore or violate the norms of the informal institution, they
may suffer the loss of benefits from continued association with, or acceptance by,
the other members. The possibility of social disapproval is often sufficient to enforce
continued practice of customary patterns of behavior. The importance of informal
institutions in economic activities generally has risen with the remarkable spread of
the political franchise in modern societies—from adult males with substantial prop-
erty to all adult citizens among the industrialized capitalist economies. Nobel laure-
ate Douglass North has emphasized the significance for economic growth of the
“mental models” held by people as a result of their acceptance of a culture’s infor-
mal institutions. If people or organizations can be trusted to perform as expected in
repeat dealings, then the level of transaction costs necessary to operate an economy
is reduced. Lack of trust raises transaction costs and inhibits the creation and adop-
tion of new technology, the incorporation of new groups of immigrants into a local
economy, or the agreement on the legal and political changes required to promote
economic growth.
By the end of the twentieth century, some thinkers foretold a coming “clash of
civilizations” among nations split along lines of Islam, Buddhism, Christianity, and
atheism, rather than among the geopolitical divisions of the nineteenth and twentieth
centuries. North himself has noted the difficulty of creating viable market economies
in the former communist states, given their general lack of informal institutions other
than the discredited Communist Party. On the bright side, perhaps, is the increased
number of NGOs (nongovernmental organizations) in the most advanced industrial
economies in North America and western Europe and their increased influence on in-
ternational organizations such as the World Bank and the World Trade Organization.
 14
International Economic
Disintegration

Fundamental economic change normally occurs over a long period of time. The con-
sequences of changes in population, resources, technology, and even institutions
may spread out over a period of years, decades, and even centuries. Political changes,
on the other hand, can occur quite abruptly, in a period of days or weeks, sometimes
bringing in their wake abrupt economic changes as well. Such was the case with
World War I. The intricate but fragile system of the international division of labor
that had grown gradually in the century prior to August 1914, and that had brought
unprecedented levels of well-being and even affluence to the populations of Europe
and some overseas outposts of Western civilization, suddenly disintegrated with the
outbreak of war. After more than four years of the most destructive war the world
had yet witnessed, world political leaders sought a “return to normalcy,” but, like
Humpty Dumpty in the nursery rhyme, the world economy could not easily be put
together again.

The Economic Consequences of World War I

Before it became known in history books as the World War (later the First World War)
the war of 1914-18 was known to millions of Europeans who experienced it as the
Great War. In retrospect it seems a tragic prelude to the war of 1939—45, but for the
generation who lived before 1939 its emotional and psychological as well as physi-
cal impact clearly justified the name. For concentrated destructiveness it surpassed
anything in human history until the mass air raids and atomic bombings of World War
II. Military casualties numbered about 10 million killed and twice that number seri-
ously wounded; direct civilian casualties also amounted to about 10 million, and an-
other 20 million died from war-caused famine and disease. The Asian flu epidemic
of 1918 spread rapidly from Asia to the United States to Europe and beyond, creat-
ing a surge in mortality worldwide. Estimates of the direct money costs of the war
(i.e., for military operations) range from 180 to 230 billion dollars (1914 purchasing
power), and the indirect money costs as a result of property damage to more than 150
billion dollars. Most of the damage—destruction of housing, industrial plants and
equipment, mines, livestock and farm equipment, transportation and communications

639
340 A CONCISE ECONOMIC HISTORY OF THE WORLD

facilities—occurred in northern France, Belgium, a small area of northeastern Italy,

and the battlefields of eastern Europe. Ocean shipping also suffered greatly, primar-
ily as a result of submarine warfare. Such estimates are subject to a large margin of
error, and are probably too low. Not included are losses of production occasioned by
shortages of manpower and raw materials for industry, excessive depreciation and de-
pletion of industrial plant and equipment without adequate maintenance and replace-
ment, overcropping and lack of fertilizer and draft animals in agriculture. In central
and eastern Europe, cut off from economic relations with the rest of the world and
further disrupted by the marching and countermarching of armies, the fall in agricul-
tural output reduced large areas to the point of mass starvation.
Even more damaging to the economy, in the long run, than the physical destruc-
tion, the disruption and dislocation of normal economic relations did not cease with
the war itself but continued to take its toll in the interwar period. Prior to 1914 the
world economy had functioned freely and, on the whole, efficiently. In spite of some
restrictions in the form of protective tariffs, private monopolies, and international car-
tels, the bulk of economic activity, both domestic and international, was regulated by
free markets. During the war the governments of every belligerent nation and those
of some nonbelligerents imposed direct controls on prices, production, and the allo-
cation of labor. These controls artificially stimulated some sectors of the economy,
and by the same token artificially restricted others. Although most of the controls were
removed at war’s end, the prewar relationships did not reestablish themselves either
quickly or easily.
An even more serious problem resulted from the disruption of foreign trade and
the forms of economic warfare to which the belligerents—Britain and Germany, in
particular—resorted. Before the war Britain, Germany, France, and the United States,
as the world’s leading industrial and commercial nations, were also one another’s best
customers and leading suppliers. Commercial intercourse between Germany and the
others halted immediately, of course, although the United States, in its neutral phase,
attempted to maintain relations. It was hampered in this by the retaliatory actions of
both Britain and Germany. Britain, with its mastery of the seas, immediately imposed
a blockade on German ports, as it had done against Napoleon a century earlier. The
blockade was, on the whole, quite effective. Not only were German ships prohibited
from the seas, but the British fleet also harassed neutral shipping and sometimes con-
fiscated their cargoes. This caused some friction with the United States, but that was
offset by the countermeasures of the Germans. Unable to attack the British navy
frontally, especially after the battle of Jutland, the Germans resorted to submarines—
a novel instrument of war—in an effort to halt the flow of overseas supplies to Britain.
The submarines avoided the British navy as much as possible, but attacked unarmed
vessels, neutral as well as British, passenger as well as merchant ships. The sinking
of the British liner Lusitania off the coast of Ireland in 1915, with the loss of more
than a thousand lives (including about 100 Americans) brought a strong protest from
the United States. For a time the German High Command moderated its policy, but
in January 1917, desperate to bring Britain to its knees, it unleashed unrestricted sub-
marine warfare. That was a major cause of America’s entry into the war which, in
turn, ensured the eventual Allied victory.
Closely related to the disruption of international trade and the imposition of gov-
 International Economic Disintegration 34]

ernment controls, the loss of foreign markets had even longer-lasting effects. Ger-
many, of course, was completely cut off from overseas markets and, without the in-
genuity of its scientists and engineers (for example, the inventors of the Haber-Bosch
process for the fixation of atmospheric nitrogen, an essential ingredient for both fer-
tilizer and gunpowder), would have been forced to capitulate much sooner than it did.
But even Britain, with its control of the seas and large merchant marine, had to divert
resources from normal uses to war production. By 1918 its industrial exports had
fallen to about half their prewar level. Consequently, overseas nations undertook to
manufacture for themselves or to buy from other overseas nations goods they had for-
merly purchased in Europe. Several Latin American and Asian countries established
manufacturing industries, which they protected after the war with high tariffs. The
United States and Japan, which had already developed important manufacturing in-
dustries before the war, expanded into overseas markets formerly regarded as the ex-
clusive preserve of European manufacturers. The United States also greatly increased
its exports to the Allied and neutral countries of Europe.
The war also upset the equilibrium in world agriculture. By greatly increasing the
demand for foodstuffs and raw materials at the same time that some areas went out
of production or were cut off from markets, the war stimulated production in both es-
tablished areas, such as the United States, and relatively virgin areas such as Latin
America. This led to overproduction and falling prices in the 1920s. Wheat, sugar,
coffee, and rubber were especially vulnerable. American farmers increased their
acreage in wheat during the war, and also bought new land at war-inflated prices.
When prices fell many were unable to pay off their mortgages and went into bank-
ruptcy. Malaya, the source of much of the world’s natural rubber, and Brazil, which
accounted for 60 to 70 percent of the world’s coffee, both tried to raise prices by hold-
ing supplies off the market; but as they did so new producers came in and drove prices
down again. Producers of cane sugar in the Caribbean, South America, Africa, and
Asia suffered from the protected and subsidized producers of beet sugar in Europe
and the United States.
In addition to losing foreign markets, the belligerent nations of Europe suffered a
further loss of income from shipping and other services. The German merchant ma-
rine, completely bottled up during the war, had to be handed over to the Allies in pay-
ment of reparations after the war. Germany’s submarine warfare took a heavy toll on
the British merchant fleet, while the United States, with a government-subsidized pro-
gram of wartime shipbuilding became a major competitor in international shipping
for the first time since the American Civil War. London and other European financial
centers likewise lost some of their income from banking, insurance, and other finan-
cial and commercial services that were transferred to New York and elsewhere (e.g.,
Switzerland) during the war.
Another major loss from the war was that of income from foreign investments
(and in many cases the investments themselves). Before the war Britain, France, and
Germany were the most important foreign investors. Since Britain and France im-
ported more than they exported, the income from foreign investments helped pay for
the import surplus. Both were obliged to sell some of their foreign investments to fi-
nance the purchase of urgently needed war materials. Other investments declined in
value as a result of inflation and related currency difficulties. Still others suffered de-
342 A CONCISE ECONOMIC HISTORY OF THE WORLD

fault or outright repudiation, notably the large French investments in Russia, which
the new Soviet government refused to recognize. Overall, the value of British foreign
investments declined by about 15 percent (in contrast to a continuously rising value
before the war), and those of France by more than 50 percent. Germany’s investments
in belligerent countries were confiscated during the war, and subsequently all were
liquidated for reparations payments. The United States, on the other hand, converted
itself from a net debtor into a net creditor as a result of its booming export surplus and
its large loans to the Allies.
A final dislocation in both national and international economies resulted from in-
flation. The pressures of wartime finance forced all belligerents (and some non-bel-
ligerents) except the United States off the gold standard, which had served in the pre-
war period to stabilize, or at least to synchronize, price movements (see chapter 12).
All the belligerents resorted to large-scale borrowing and the printing of paper money
to finance the war. This caused prices to rise, though they did not all rise in the same
proportion. At the end of the war prices in the United States averaged about 2.5 times
higher than they were in 1914; in Britain they were about 3 times higher, in France
about 5.5 times, in Germany more than 15 times, and in Bulgaria more than 20 times
higher than in 1914. The great disparity in prices, and consequently in the values of
currency, made the resumption of international trade difficult, and also caused severe
social and political repercussions.

Economic Consequences of the Peace

The Peace of Paris, as the postwar settlement came to be known, instead of attempt-
ing to solve the serious economic problems caused by the war, actually exacerbated
them. The peacemakers did not intend this to happen (except in the treatment of Ger-
many); they simply failed to take account of economic realities. Two major categories
of economic difficulty resulted from the peace treaties: the growth of economic na-
tionalism and monetary and financial problems. For neither of these difficulties were
the peace treaties solely to blame, yet in both the treaties added to the problems in-
stead of ameliorating them.
The actual treaties were named for the suburbs of Paris in which they were signed.
The most important was the Treaty of Versailles, with Germany. It restored Alsace-
Lorraine to France and permitted the French to occupy the coal-rich Saar valley for
fifteen years. It gave most of West Prussia and a part of mineral-rich Upper Silesia to
newly recreated Poland. With other minor border adjustments, it deprived Germany
of 13 percent of its prewar territory and 10 percent of its 1910 population. These losses
included almost 15 percent of its arable land, about three-quarters of its iron ore, most
of its zinc ore, and a quarter of its coal resources. Of course, its colonies in Africa and
the Pacific had already been occupied by the Allies (including Japan), who were con-
firmed in their possession.
In addition, Germany had to surrender its navy, large quantities of arms and am-
munition, most of its merchant fleet, 5,000 locomotives, 150,000 railroad cars, 5,000
motor trucks, and various other commodities. It also had to accept restrictions on its
armed forces, Allied occupation of the Rhineland for fifteen years, and several other
 International Economic Disintegration 343

damaging or merely humiliating conditions. Most humiliating of all was the famous
“war guilt” clause, Article 231 of the Treaty of Versailles, which declared that Ger-
many accept “the responsibility of Germany and her allies for causing all the loss and
damage . . . as a consequence of the war. .. .” The statement was intended to justify
Allied claims to monetary “reparations,” but the Allies themselves were badly divided
on both the nature and amount of the reparations, to the extent that they could not
agree in time for the signing of the treaty and had to appoint a Reparations Commis-
sion with instructions to report by May 1, 1921. John Maynard Keynes, an economic
adviser to the British delegation at the peace conference, was so distressed that he re-
signed his position and wrote a best-selling book, The Economic Consequences of the
Peace, in which he predicted dire consequences, not only for Germany but for all Eu-
rope, unless the reparations clauses were revised. Although Keynes’s reasoning has
been disputed, the subsequent course of events seemed to bear out his prediction.
The break-up of the Austro-Hungarian Empire in the last weeks of the war re-
sulted in two new states, Austria and Hungary, each much smaller than the old areas
of the same names. Czechoslovakia, created from former Austrian and Hungarian
provinces, and Poland, recreated from former Austrian, German, and (mostly) Rus-
sian lands, also became new nation-states. Serbia obtained the South Slav provinces
of Austria-Hungary and united with Montenegro to become Yugoslavia. Romania, al-
lied with the Western powers, obtained much territory from Hungary, whereas Bul-
garia, a vanquished enemy, lost land to Greece, Romania, and Yugoslavia. Italy gained
Trieste, the Trentino, and the German-speaking south Tyrol from Austria. The hoary
Ottoman Empire lost virtually all of its territory in Europe except for the immediate
hinterland of Istanbul, as well as the Arab provinces of the Near East; in 1922 it suc-
cumbed to a revolution that created a Turkish national republic.
The prewar Austro-Hungarian Empire, however anachronistic politically, had
performed a valuable economic function by providing a large free trade area in the
Danube basin. The new states that issued from the break-up of the empire were jeal-
ous of one another and fearful of great power domination. They therefore asserted
their nationhood in the economic sphere by trying to become self-sufficient. Although
complete self-sufficiency was manifestly impossible because of their small size and
backward economies, their efforts to achieve it hindered the economic recovery of
the entire region and added to its instability. The height of absurdity came with the
disruption of transportation. Immediately after the war, with borders in dispute and
continued border skirmishes, each country simply refused to allow the trains on its
territory to leave. For a time trade came almost to complete standstill. Eventually
agreements overcame these extremes of economic nationalism, but other types of re-
strictions remained.
Economic nationalism was not limited to the new states that emerged from the
break-up of empires. During its civil war Russia simply disappeared from the inter-
national economy. When it reemerged under the Soviet regime its economic relations
were conducted in a manner completely different from any previously experienced.
The state became the sole buyer and seller in international trade. It bought and sold
only what its political rulers regarded as strategically necessary or expedient.
In the West, countries that had formerly been highly dependent on international
trade resorted to a variety of restrictions, including not only protective tariffs but also
344 A CONCISE ECONOMIC HISTORY OF THE WORLD

more drastic measures such as physical import quotas and import prohibitions. At the
same time they sought to stimulate their own exports by granting export subsidies and
other measures. Great Britain, formerly the champion of free international trade, had
imposed tariffs during the war as a measure of war finance and to save shipping space.
They remained (and were increased in both number and rate) after the war, at first on
a “temporary” basis, but after 1932 as official protectionist policy. Britain also nego-
tiated numerous bilateral trade treaties in which it abandoned the principle of the most
favored nation that had done so much to extend trade in the nineteenth century.
The United States, which already had relatively high tariffs before the war, raised
them to unprecedented levels thereafter. The Emergency Tariff Act of 1921 placed an
absolute embargo on imports of German dyestuffs. (The dyestuff industry had not
even existed in the United States before the war; it began with the confiscation of Ger-
man patent rights during the war.) The Fordney-McCumber Tariff Act of 1922 con-
tained the highest rates in American tariff history, but even those were surpassed by
the Smooth-Hawley Tariff in 1930, which President Hoover signed into law in spite
of the published protests of more than a thousand economists.
The adverse consequences of this neomercantilism, as such policies were called,
did not stop with the immediate application of the laws in question. Each new mea-
sure of restriction provoked retaliation by other nations whose interests were affected.
For example, after the passage of the Smoot-Hawley Tariff dozens of other nations
immediately responded by raising their tariffs against American products. Although
total world trade had more than doubled in the two decades before the war, it rarely
achieved the prewar level in the two decades that followed. During the same period
the foreign trade of European countries, which had also doubled in the two prewar
decades, equaled the prewar figure in but a single year, 1929. In 1932 and 1933 it was
lower than it had been in 1900. Such exaggerated economic nationalism produced the
opposite of what its formulators intended—lower instead of higher levels of produc-
tion and income.
The monetary and financial disorders caused by the war and aggravated by the
peace treaties eventually led to a complete breakdown of the international economy.
The problem of reparations was at the heart of these disorders, but the “reparations
tangle” was, in reality, a complex problem involving inter-Allied war debts and the
whole mechanism of international finance. The insistence of Allied statesmen, espe-
cially Americans, on treating each question in isolation,, instead of recognizing rela-
tionships, was a major factor in the subsequent debacle.
Until 1917 Britain was the chief financier of the Allied war effort. By that year it
had loaned about $4 billion to its allies. When the United States entered the war it
took over the role of chief financier from Britain, whose financial resources were al-
most exhausted. Altogether, by the end of the war inter-Allied debts amounted to more
than $20 billion, about half of which had been loaned by the U.S. government. (The
latter included more than $2 billion advanced by the American Relief Agency be-
tween December 1918 and 1920.) Britain had advanced about $7.5 billion, roughly
twice as much as it received from the United States, and France about $2.5 billion,
roughly equal to the amount it had borrowed. Among the European allies the loans
had been in name only; they expected to cancel them at the end of the war. They nat-
urally regarded the American loans in the same light, all the more in that the United
 International Economic Disintegration 345

States had been a latecomer to the war, had contributed less in both manpower and
materials, and had suffered negligible war damage. The United States, however, re-
garded the loans as commercial propositions. Although it agreed after the war to re-
duce the rate of interest and lengthen the period of repayment, it insisted on repay-
ment of the principal in full.
At this point the reparations issue intruded. France and Britain demanded that
Germany pay not only damages to civilians (reparations proper), but also the entire
cost incurred by the Allied governments in prosecuting the war (an indemnity). Pres-
ident Wilson made no claims for the United States and tried to dissuade the others
from pressing theirs; but his argument was not strong inasmuch as he insisted that the
Allies should repay their war debts. The French wanted the United States to cancel
the war debts but insisted on collecting reparations. Lloyd George, the British prime
minister, suggested that both reparations and war debts be canceled, but the Ameri-
cans stubbornly refused to recognize any relationship between the two. The Ameri-
can attitude was summed up in a remark subsequently made by President Coolidge:
“They hired the money, didn’t they?” The eventual compromise required Germany to
pay as much as the Allies thought they could possibly extract, but in deference to Wil-
son the entire amount was called “reparations.”
Meanwhile the Germans had begun to pay in cash and in kind (coal, chemicals,
and other goods) as early as August 1919, even before the treaty was signed, and long
before the total bill was known. These payments were to be credited toward the final
amount. Finally, at the end of April 1921, only a few days before the deadline of May
1, the Reparations Commissions informed the Germans that the total would amount
to 132 billion gold marks (about $33 billion), a sum greater than twice the German
national income.
In fact, with the weakened European economies and the precarious state of the
international economy, France, Britain, and the other Allies could repay the United
States only if they received an equivalent amount in reparations. But Germany’s ca-
pacity to pay reparations depended ultimately on its ability to export more than it
imported to gain the foreign currency or gold in which the payments had to be made.
The economic restrictions imposed on it by the Allies, however, together with the
internal weakness of the Weimar Republic, made it impossible for the German gov-
ernment to obtain a surplus adequate for the annual payments. In the late summer of
1922 the value of the German mark began to decline disastrously as a result of the
heavy pressure of reparations payments (and also as a result of the actions of spec-
ulators). By the end of the year the pressure was so great that Germany ceased pay-
ments altogether.
French and Belgium troops occupied the Ruhr in January 1923, took over the coal
mines and railroads, and attempted to force the German mineowners and workers to
deliver coal. The Germans replied with passive resistance. The government printed
huge quantities of paper money for compensation payments to Ruhr workers and em-
ployers, setting in motion a wave of uncontrolled inflation. The German gold mark
was valued at 4.2 to the dollar in 1914. At war’s end the paper mark stood at 14 to the
dollar; by July 1922 it had fallen to 493, and by January 1923 to 17,792. Thereafter
the fall in the value of the mark proceeded exponentially until November 15, 1923,
when the last official transaction recorded an exchange value for the dollar of 4.2 tril-
346 A CONCISE ECONOMIC HISTORY OF THE WORLD

lion (4,200,000,000,000)! The mark was literally worth less than the paper on which
it was printed. At that point the German monetary authorities demonetized the mark
and substituted a new monetary unit, the rentenmark, equal in value to | trillion of
the old marks.
The adverse consequences of the inflation could not be confined to Germany. All
of the successor states of the old Habsburg Monarchy, Bulgaria, Greece, and Poland
suffered similar runaway inflations. The par value of the Austrian crown was five to
the dollar; in August 1922 it was quoted at 83,600, at which time the League of Na-
tions sponsored a stabilization program that succeeded by 1926, with the introduc-
tion of a new currency unit, the schilling. Even the French franc suffered; before the
war the gold franc exchanged at 5 to the dollar, but in 1919 it had fallen by more than
half to 11 to the dollar. During the French occupation of the Ruhr it rose at first, then
fell abruptly as it became obvious that the occupation was not achieving its purpose.
After reaching a low of 40 to the dollar, the government finally stabilized the franc at
25.5 in 1926.
As Keynes had predicted, the international economy was confronted with a grave
crisis. The French withdrew from the Ruhr at the end of 1923 without having ac-
complished their objective, the resumption of German reparations. A hastily con-
voked international commission under the chairmanship of Charles G. Dawes, an
American investment banker, recommended a scaling down of annual reparations
payments, reorganization of the German Reichsbank, and an international loan of 800
million marks (about $200 million) to Germany. The so-called Dawes Loan, most of
which was raised in the United States, enabled Germany to resume reparations pay-
ments and return to the gold standard in 1924. It was followed by a further flow of
American capital to Germany in the form of private loans to German municipalities
and business corporations, who borrowed extensively in the United States and used
the proceeds for technical modernization and “rationalization.” In the process the
German government obtained the foreign exchange it needed to pay reparations.
The disastrous inflation left deep scars on Germany society. The unequal inci-
dence of inflation on individuals resulted in drastic redistributions of income and
wealth. While a few clever speculators gained enormous fortunes, most citizens, es-
pecially the lower middle classes and those living on fixed incomes (pensioners,
bondholders, many salaried employees), saw their modest savings wiped out in a mat-
ter of months or weeks, and suffered a severe decline in their standard of living. This
made them susceptible to the appeals of extremist politicians. Significantly, both
Communists and Nationalists made large gains at the expense of the moderate dem-
ocratic parties in the Reichstag elections of 1924.
Economic problems loomed large in postwar Britain. Even before the war Britain’s
unusually great dependence on international trade and overcommitment to lines of in-
dustry that were rapidly becoming obsolete had guaranteed that the British would face
a difficult period of readjustment in the twentieth century. During the war they lost for-
eign markets, foreign investments, a large part of their mercantile marine, and other
sources of overseas income. Yet they depended as much as ever on imports of food and
raw materials, and they found themselves with even greater worldwide responsibili-
ties as the strongest of the victors in Europe and as the administrator of new territories
overseas. Export they must, yet factories and mines lay idle while unemployment
 International Economic Disintegration 347

mounted. In 1921 more than 1 million workers—about one-seventh of the labor

force—had no work; in the 1920s the rate of unemployment rarely fell below 10 per-
cent, and in the worst years of the depression it mounted to more than 25 percent.
The government’s measures to deal with its economic problems were timid,
unimaginative, and ineffective. Its only solution for unemployment was the dole, a
system of relief payments that was entirely inadequate to support the families of the
unemployed while it placed a heavy burden on an already overstrained budget. For
the rest, government economic policy consisted mainly in paring expenditures to the
bone, thus depriving the nation of urgently needed expansion and modernization of
its schools, hospitals, highways, and other public works. The single forthright initia-
tive taken by the government in the economic sphere resulted in disaster.
Britain had abandoned the gold standard in 1914 as a measure of war finance.
Given London’s prewar position as the undisputed center of the world’s financial mar-
kets, strong pressures existed for a quick return to the gold standard to prevent fur-
ther erosion, begun during the war, of its financial preeminence. The major unre-
solved questions were (1) how soon could it return, and (2) at what value for the pound
sterling? The answer to the first question depended on the accumulation of gold re-
serves by the Bank of England; by general consensus, these were deemed adequate
by the mid-1920s. The answer to the second was more controversial. Under the pre-
war system the pound was equal to $4.86, but the United States had remained on the
gold standard throughout the war. Britain had experienced a higher rate of inflation
than the United States. To return to gold at the prewar parity would place British in-
dustry at a competitive disadvantage with respect to the United States and to other
countries that maintained parity with the dollar, or adopted an even lower rate of ex-
change. On the other hand, the British had always manifested a strong desire to main-
tain traditions, especially in such important questions as finance. Moreover, since
most British foreign investments were denominated in gold or sterling, to return to
gold at a lower rate would penalize the owners of those investments. In 1925 the chan-
cellor of the exchequer, Winston Churchill, who had earlier switched his allegiance
from the Liberals to the Conservatives, resolved to return Britain to the gold standard
at the prewar parity. To keep British industry competitive, this necessitated a fall in
wages. The overall effect was a redistribution of income in favor of the rentiers and
at the expense of workers.
The coal industry was one of the most severely affected by the loss of foreign mar-
kets and higher costs. Coalminers were among the most radical of British workers;
they had already staged several major strikes in the early postwar years. When faced
with a wage cut as a result of the return to the gold standard, the miners went out on
strike on May 1, 1926, and persuaded many other trade unions to join them in what
was intended to be a general strike. About 40 percent of British trade union members
joined them, mainly those in public utilities and similar industries, but the strike lasted
only ten days, ending in defeat for the unions. Middle-class volunteers manned es-
sential services, and the trade union leaders gave up rather than risk civil war in the
face of the government’s strong opposition. Brief as it was, the general strike left a
bitter legacy of class division and hatred, which made concerted national action
against both domestic and international problems even more difficult.
In spite of Britain’s problems, most of Europe prospered in the late 1920s. For
348 A CONCISE ECONOMIC HISTORY OF THE WORLD

five years, from 1924 to 1929, it seemed that normality had indeed returned. Recon-
struction of physical damage had been largely achieved; the most urgent and imme-
diate postwar problems had been solved; and under the newly created League of Na-
tions a new era in international relations apparently had dawned. Most countries,
especially the United States, Germany, and France, experienced a period of prosper-
ity. Yet the basis of that prosperity was fragile, depending on the continued voluntary
flow of funds from America to Germany.

The Great Contraction, 1929-33

Unlike Europe, the United States emerged from the war stronger than ever. In eco-
nomic terms alone, it had converted from a net debtor to a net creditor, had won new
markets from European producers both at home and abroad, and had established a
highly favorable balance of trade. With its mass markets, growing population, and
rapid technological advance it seemed to have found the key to perpetual prosperity.
Although it experienced a sharp depression in 1920-21 along with Europe, the drop
proved to be brief, and for almost a decade its growing economy experienced only
minor fluctuations. Social critics who insisted on revealing the disgraceful conditions
in urban and rural slums or who pointed out that the new prosperity was shared most
unequally between the urban middle classes, on the one hand, and factory workers
and farmers, on the other, were dismissed by the former as cranks who did not share
the American dream. For them the “new era” had arrived.
In the summer of 1928 American banks and investors began to cut down their pur-
chases of German and other foreign bonds in order to invest their funds through the
New York stock market, which accordingly began a spectacular rise. During the spec-
ulative boom of the “great bull market” many individuals with modest incomes were
tempted to purchase stock on credit. By the late summer of 1929 Europe was already
feeling the strain of the cessation of American investments abroad, and even the
American economy had ceased to grow. The U.S. gross national product peaked in
the first quarter of 1929, then gradually subsided; U.S. auto production declined from
622,000 vehicles in March to 416,000 in September. In Europe, Britain, Germany and
Italy were already in the throes of a depression. But with stock prices at an all-time
high, American investors and public officials paid scant heed to these disturbing signs.
On October 24, 1929—“Black Thursday” in American financial history—a wave
of panic selling on the stock exchange caused stock prices to plummet and eliminated
millions of dollars of fictitious paper values. Another wave of selling followed on Oc-
tober 29, “Black Tuesday.” The index of stock prices, which peaked at 381 on Sep-
tember 3 (1926 = 100), fell to 198 on November 13... and kept on falling. Banks
called in loans, forcing still more investors to throw their stocks on the market for
whatever prices they would bring. Americans who had invested in Europe ceased to
make new investments and sold existing assets there to repatriate the funds. Through-
out 1930 the withdrawal of capital from Europe continued, placing an intolerable
strain on the entire financial system. Financial markets stabilized, but commodity
prices were low and falling, transmitting the pressure to producers like Argentina
and
Australia.
 International Economic Disintegration 349

The stock market crash was not the cause of depression—that had already begun,
in the United States as well as Europe—but it was a clear signal that the depression
was underway. Monthly automobile production in the United States fell to 92,500 in
December, and unemployment in Germany rose to 2 million. By the first quarter of
1931 total foreign trade had fallen to less than two-thirds of its value in the compa-
rable period of 1929.
In May 1931 the Austrian Creditanstalt, of Vienna, one of the largest and most
important banks in central Europe, suspended payments. Although the Austrian gov-
ernment froze bank assets and prohibited the withdrawal of funds, the panic spread
to Hungary, Czechoslovakia, Romania, Poland, and especially to Germany, where a
large-scale withdrawal of funds took place in June, resulting in several bank failures.
Under the terms of the Young Plan, which had replaced the Dawes Plan in 1929 as a
method of settling the reparations problem, Germany was obliged to make a further
reparations payment on July 1. In the United States President Hoover, forced by cir-
cumstances to recognize the interdependence of war debts and reparations, proposed
on June 20 a one-year moratorium on all intergovernmental payments of war debts
and reparations, but it was too late to stem the panic. France temporized, and the panic
spread to Great Britain where, on September 21, the government authorized the Bank
of England to suspend payments in gold.
Several countries hard hit by the decline in prices of their primary products, in-
cluding Argentina, Australia, and Chile, had already abandoned the gold standard. Be-
tween September 1931 and April 1932 twenty-four other countries officially departed
from the gold standard and several others, although nominally still on it, had actually
suspended gold payments. Without an agreed-upon international standard, currency
values fluctuated wildly in response to supply and demand, influenced by capital
flight and the excesses of economic nationalism, as reflected in retaliatory tariff
changes. Foreign trade fell drastically between 1929 and 1932, inducing similar,
though less drastic, falls in manufacturing production, employment, and per capita
income (see Fig. 14-1).
A principal characteristic of the economic policy decisions of 1930—31 had been
their unilateral application: the decisions to suspend the gold standard and to impose
tariffs and quotas had been undertaken by national governments without international
consultation or agreement, and without considering the repercussions on or responses
of the other affected parties. This accounted in large part for the anarchic nature of
the ensuing muddle. Finally, in June 1932, representatives of the principal European
powers gathered in Lausanne, Switzerland, to discuss the consequences of the end of
the Hoover moratorium: should Germany resume reparations payments, and if so un-
der what conditions? Should the European debtors resume war debt payments to the
United States? Although the Europeans agreed on a virtual end of reparations, and
with it an end to the war debts, the agreement was never ratified because the United
States insisted the two issues were entirely separate. Thus, both reparations and war
debts simply lapsed; it was left to Hitler in 1933 to declare an end to “interest slav-
ery.” Only tiny Finland repaid its small debt to the United States.
The last major effort to secure international cooperation to end the economic cri-
sis was the World Monetary Conference of 1933. Officially proposed by the League
of Nations in May 1932 and adopted as a resolution at the Lausanne Conference in
350 A CONCISE ECONOMIC HISTORY OF THE WORLD

A. INDEX OF MANUFACTURING PRODUCTION B. INDEX OF PER CAPITA INCOME

(1925 - 1929 = 100) (1925 - 1929 = 100)

Index number Index number

120i— 120 --
1O- Noe
100 + 100 |-
90 }- pa
80}- 80 }-
70; Ol
60! 60
Ol 50 }-
40 }|- 40 }-
30 }- 30
20}- 20
10 }- 10
0 0
United United Germany France Total United United Germany France
States Kingdom Europe States Kingdom

C. INDEX OF EMPLOYMENT D. FOREIGN TRADE°

(1937 = 100)

Index number ‘ Millions of dollars

120 ;- lO
110 gE

100}- Ais
90 aie
80
70 6
60 Sire
50 qt
40 aie
30}
2
20
10 | ae
United United Germany France? United United Germany France
States Kingdom States Kingdom
[_]19e9
1932 ° Data for France (1929) from 1930 F\lmports plus exports

FiGurE 14-1. Economic collapse, 1929-32.

July of that year, the draft agenda for the conference looked to agreements to restore
the gold standard, reduce tariff and import quotas, and implement other forms of in-
ternational cooperation. The role of the United States, then engaged in a presidential
election, in such a conference was universally regarded as essential. Because of the
election, and the unwillingness of the candidates, Hoover and Roosevelt, to commit
themselves in advance, the conference was postponed to the spring of 1933, and then
again until June to allow Roosevelt to organize his administration. Roosevelt took of-
fice in the very depths of the depression; one of his first official actions was to de-
 International Economic Disintegration 3a

clare an eight-day “bank holiday” to allow the banking system time to reorganize, and
most of the measures taken in the first “hundred days” of his term were emergency
actions to prop up the domestic economy. Among others these included taking the
United States off the gold standard, something that the First World War had been un-
able to do. When the conference finally convened in London in June, Roosevelt sent
word that the American government's first responsibility was to restore domestic
prosperity, and that he could not enter into any international commitments that would
interfere with that task. Dispirited, the delegates to the conference listened to a few
meaningless speeches and adjourned in July without taking any meaningful action.
Once again, international cooperation had failed.
What caused the depression? After more than seventy years there is still no gen-
eral consensus on this question. For some the cause were primarily monetary—a dras-
tic decline in the quantity of money in the major industrial economies, the United
States in particular, which spread its influence to the rest of the world. For others the
causes are to be found in the “real” sector: an autonomous fall in consumption and
investment expenditure, which propagated itself throughout the economy, and the
world, by means of the multiplier-accelerator mechanism. Still other explanations
have been offered: the prior depression in agriculture, the extreme dependence of
Third World countries on unstable markets for their primary products, a shortage or
misallocation of the world’s stock of gold, and so on. An eclectic view is that no sin-
gle factor was responsible but an unfortunate concatenation of events and circum-
stances, both monetary and nonmonetary, occurred to produce the depression. One
can further assert that these events and circumstances can be traced in part (perhaps
in large part) to World War I and the peace settlement that followed. The breakdown
of the gold standard, the disruption of trade, which was never fully restored, and the
nationalistic economic policies of the 1920s all have a place in the explanation.
Whatever the precise cause (or causes) of the depression, there is more general
agreement on the reasons for its severity and length. They relate to the relative posi-
tions and policies of Great Britain and the United States. Before the war Great Britain,
as the world’s leading commercial, financial, and (until late in the nineteenth century)
industrial nation, had played a key role in stabilizing the world economy. Its free trade
policy meant that commodities from all over the world could always find a market
there. Its large foreign investments enabled countries with sizable deficits in their bal-
the
ances of trade to obtain the resources to balance their payments. Its adherence to
that
gold standard, together with London’s preeminence as a money market, meant
dis-
nations with temporary balance of payments problems could obtain relief by
no
counting bills of exchange or other commercial paper. After the war Britain was
longer able to exercise such leadershi p—althoug h that was not fully evident until
to ac-
1931. The United States, clearly the world’s dominant economy, was unwilling
pol-
cept the role of leader, as exemplified by its immigration policy, its trade (tariff)
and its attitude toward internation al cooperation . Had the
icy, its monetary policy,
open policies both in the 1920s and especially in the cru-
United States pursued more
milder
cial years of 1929 to 1933, the depression almost surely would have been both
and briefer.
were
The long-run consequences of the depression also merit notice. Among them
in the economy, a gradual change in attitudes to-
a growth in the role of government
352 A CONCISE ECONOMIC HISTORY OF THE WORLD

ward economic policy (the so-called Keynesian revolution), and efforts on the part of
Latin American and some other Third World countries to develop import-substituting
industries. The depression also contributed, through the suffering and unrest it caused,
to the rise of extremist political movements of both the left and the right, notably in
Germany, and thus contributed indirectly to the origins of World War II.

Rival Attempts at Reconstruction

When Franklin Roosevelt took office as the thirty-second president of the United
States on a cold, blustery day in March 1933, the nation lay in the grip of its worst
crisis since the Civil War. With more than 15 million unemployed—almost half the
industrial work force—industry had virtually shut down and the banking system was
on the verge of complete collapse. Nor was the crisis solely economic. An “army” of
about 15,000 unemployed veterans of World War I marched on Washington in 1932,
only to be dispersed by the regular army under General Douglas MacArthur. In rural
areas farmers sometimes took the law into their own hands to prevent the foreclosure
of mortgages; and violence ruled in city streets.
In his campaign speeches Roosevelt had called for a “New Deal” for America. In
the famous hundred days that followed his inauguration a willing Congress did his
bidding, turning out new legislation at an unprecedented rate. In fact, for the four
years of his first term the volume of legislation surpassed that of any previous ad-
ministration. It dealt mainly with economic recovery and social reform in the areas
of agriculture, banking, the monetary system, the securities markets, labor, social se-
curity, health, housing, transportation, communications, natural resources—in fact,
every aspect of the American economy and society.
Perhaps the most characteristic enactment of the entire period was the National
Industrial Recovery Act. It created a National Recovery Administration (NRA) to su-
pervise the preparation of “codes of fair competition” for each industry by represen-
tatives of the industry itself. Although hailed at the time as a new departure in eco-
nomic policy, it turned out to be very like the trade association movement that Herbert
Hoover had promoted as secretary of commerce in the 1920s. It was even more like
the wartime economic administration; a number of high government officials had, in
fact, served in the wartime mobilization of the economy, including Roosevelt him-
self, as assistant secretary of the navy. The NRA also bore striking similarities to the
Fascist system of industrial organization in Italy, although without its brutality and
police-state methods. In essence, it was a system of private economic planning (“‘in-
dustrial self-government”), with government supervision to protect the public inter-
est and guarantee the right of labor to organize and bargain collectively.
In 1935 the Supreme Court declared the NRA unconstitutional. In other areas in
which the Court struck down his legislation Roosevelt achieved his goals by new
laws, but with respect to industry he altered his stand and initiated a campaign of “trust
busting” (also subsequently reversed with the approach of World War II). The indus-
trial recovery had been disappointing, and in 1937 the economy suffered a new re-
cession without having achieved full employment. The United States returned to war
in 1941 with more than 6 million still unemployed. Although several of the New Deal
 International Economic Disintegration 355

reforms were valuable in themselves, the New Deal system as a whole was no more
able to cure the depression than contemporary programs in Europe.
No Western nation suffered more from the war than France. Most of the fighting
on the Western front had taken place in its richest area. More than half of France’s
prewar industrial production, including 60 percent of its steel and 70 percent of its
coal, had been located in the war-devastated area, which was also among the most
important agricultural regions. Most appalling was the loss of life: 1.5 million French-
men—half of the prewar male population of military age—had been killed, with half
as many more permanently disabled. It is not surprising, therefore, that France de-
manded that Germany pay for the war.
Counting on German reparations to pay the cost, the French government under-
took at once an extensive program of physical reconstruction in the war-damaged ar-
eas, which had the incidental effect of stimulating the economy to new production
records. When German reparations failed to materialize in the expected amount, the
ramshackle methods used to finance the reconstruction took their toll. The problem
was compounded by the expensive and ineffective occupation of the Ruhr. The franc
depreciated more in the first seven years of peace than during the war. Realizing at
last that “the Boche” could not be made to pay, a coalition cabinet containing six for-
mer premiers stabilized the franc in 1926 at about one-fifth of its prewar value by un-
dertaking drastic economies and stiff increases in taxation. This solution was more
satisfactory than either of the extreme solutions adopted by Britain and Germany, but
it alienated both the rentier class, which lost about four-fifths of its purchasing power
in the inflation, and the working classes, which bore most of the burden of the in-
creased taxation. Thus, as in Germany, the inflation contributed to the growth of ex-
tremism on both right and left.
The franc, when finally stabilized, was actually undervalued in relation to other
major currencies. That stimulated exports, hindered imports, and led to an inflow of
gold. Thus, the depression struck later in France than elsewhere—not until 1931—
and was perhaps less severe, but it was longer lasting; the trough did not come until
1936, and the French economy was still floundering when war broke out in 1939. As
it had in other countries, the depression spawned social protest and a new crop of ex-
tremist organizations. In 1936 three leftist political parties, the Communists, the So-
cialists, and the Radicals, formed a coalition, the Popular Front, and won the election
of that year, forming a government under the premiership of the venerable Socialist
politician, Leon Blum. The Popular Front government nationalized the Bank of
France and the railways and enacted a number of reform measures affecting labor,
such as a maximum forty-hour work week, compulsory arbitration of labor disputes,
and paid vacations for industrial workers. On the larger question of economic recov-
ery, however, the Popular Front was no more successful than previous French or other
foreign governments had been, and it broke up in 1938 as foreign affairs increasingly
dominated the political scene.
The smaller countries of western Europe, all heavily dependent on international
trade, suffered accordingly during the depression, although not all to the same degree.
In the 1920s, when Britain and France returned to the gold standard, many of the
smaller countries, in eastern as well as western Europe, adopted the gold exchange
standard. Their central banks, instead of maintaining reserves of gold with which to
354 A CONCISE ECONOMIC HISTORY OF THE WORLD

redeem their national currencies, maintained deposits with the central banks of the
larger countries, which served the same purpose. After Britain’s departure from gold
in 1931 most of the countries that traded extensively with Britain also left the gold
standard and aligned their currencies on the pound sterling. This constituted the “ster-
ling bloc.” Their ranks included most of the Commonwealth countries and Britain’s
colonies, several Middle Eastern countries, and, in Europe, Portugal and the Scandi-
navian countries. When the United States devalued the dollar in 1933 most of its ma-
jor trading partners, mainly in Latin America and Canada, sought to align their cur-
rencies with the dollar. In Europe that left France at the center of the “gold bloc”—
those nations trying to maintain convertibility into gold—which also included
Switzerland, Belgium, and the Netherlands. They held out until 1936. (Germany,
meanwhile, adopted a novel system of international trade and payments, discussed
later.) When the French finally devalued the franc and cut its tie to gold, they did so
following a limited resumption of international cooperation in monetary affairs. In
the Tripartite Monetary Agreement of 1936 the governments of Britain, France, and
the United States undertook to stabilize exchange rates among their respective cur-
rencies, to avoid competitive devaluations, and in other ways to contribute to a
restoration of the international economy. It was a small step.
In central and eastern Europe, and also in Spain, political developments—the rise
of Fascist dictatorships—overshadowed purely economic phenomena; but even they
had their economic aspects. The earliest was Italy. Benito Mussolini came to office
by legal means in 1922, but quickly consolidated his power with police-state meth-
ods. To bolster the ideological underpinnings of his regime Mussolini employed the
philosopher Giovanni Gentile to provide a rationalization of Fascism, which was then
publicized as Mussolini’s own philosophy. Fascism glorified the use of force, upheld
war as the noblest human activity, denounced liberalism, democracy, socialism, and
individualism, treated material well-being with disdain, and regarded human in-
equalities as not only inevitable but desirable. Above all, it deified the state as the
supreme embodiment of the human spirit.
As an attempted total reconstruction of society, Fascism needed a distinctive form
of economic organization. Mussolini brought forth the corporate state, one of the most
publicized and least successful innovations of his regime. In principle, the corporate
state was the antithesis of both capitalism and socialism. Although it permitted the
private ownership of property, the interests of both owners and workers were subor-
dinated to the higher interests of society as a whole, as represented by the state. To
accomplish this, all industries in the country were organized into twelve “corpora-
tions,” corresponding to trade associations rather than business corporations. Work-
ers, proprietors, and the state were represented, with party functionaries holding the
key positions. All previously existing labor unions were suppressed. The functions of
the corporations included regulating prices, wages, and working conditions and pro-
viding social insurance. In practice, insofar as the corporations functioned at all, they
acted mainly as capitalistic trade associations whose aim was to increase the income
of businessmen and party administrators at the expense of workers and consumers.
Other aspects of Fascist economic policy were no more successful. In spite of large
public works and armaments programs, Italy suffered severely during the depression;
even the argument used by American apologists for Fascism, that “Mussolini made
 International Economic Disintegration 355

the trains run on time,” was untrue. Worse, as the Fascist government of Italy sought
to counter the economic depression of the 1930s, it created large state-supported en-
terprises in key sectors of the economy that were more concerned with maintaining
high employment than increasing efficiency. These have persisted in one form or an-
other to the present and have proved very difficult to privatize even by the end of the
twentieth century.
More successful in combatting the depression than Italy—indeed, more success-
ful than the Western democracies—Nazi Germany was the first major industrial na-
tion to achieve complete recovery. (Among the smaller nations, Sweden had the low-
est unemployment rate of any country throughout the 1930s.) From 6 million
unemployed in 1933—one-fourth of the labor force—the German economy reached
the point in 1939 of having more jobs than workers to fill them. This result was
achieved primarily by a large-scale public works program that melded gradually into
a rearmament program. In the process Germany developed the first modern highway
system (the famed autobahns) and greatly strengthened and expanded its industries,
which gave it a decided advantage over its enemies in the early years of World War II.
In place of the voluntary trade unions, suppressed in 1933, the Nazis established
compulsory membership in the National Labor Front. They abolished collective bar-
gaining between workers and employers, substituting boards of labor “trustees” with
full power to determine wages, hours, and conditions of work. Industrialists were per-
suaded to cooperate with the new industrial regime by the promise of an end to labor
problems if they did and the threat of confiscation and imprisonment if they did not.
Unlike the totalitarian regime in Russia, the Nazis did not resort to wholesale na-
tionalization of the economy (although confiscated Jewish enterprises were fre-
quently turned over to party members); they relied on coercion and controls to achieve
their objectives.
One of the principal economic objectives of the Nazis was to make the German
economy self-sufficient in the event of war. They recalled the crippling effects of the
Allied blockade in World War I and wished to be immune to such difficulties in the
future. They directed their scientists to develop new ersatz or synthetic commodities,
both consumer goods and military supplies, that could be manufactured from raw ma-
terials available in Germany. The policy of Autarkie (self-sufficiency) also deter-
mined the character of German trade relations with other nations. Already in 1931,
before the advent of the Nazis, Germany had resorted to exchange controls to prevent
the flight of capital; Dr. Hjalmar Schacht, Hitler’s economic adviser, devised several
new, intricate financial and monetary controls to give the Reichbank more control of
foreign exchange. Germany also negotiated trade agreements with its neighbors in
eastern Europe and the Balkans providing for the barter of German manufactured
goods for foodstuffs and raw materials, thus avoiding the use of gold or scarce for-
eign currencies. Very few German goods were actually shipped, but the policy suc-
cessfully tied eastern Europe into the German war economy.
Spain, having avoided involvement in World War I, escaped many of the prob-
lems and dilemmas that beset other European countries. Its industry actually bene-
fited somewhat from wartime demand, but it was still a predominantly agrarian na-
tion plagued by low-productivity agriculture. During the dictatorship of Miguel
Primo de Rivera, from 1923 to 1930, the economy participated in the international
356 A CONCISE ECONOMIC HISTORY OF THE WORLD

prosperity of the period, but the ensuing depression was a factor in the demise of the
monarchy and the establishment of the Second Republic in 1931. The international
climate of those years was scarcely favorable to the reforms the republicans sought
to bring about. In 1936 General Francisco Franco began a bloody, destructive civil
war that ended in the overthrow of the republic in 1939 and the institution of an au-
tarkic regime similar in some respects to those of Fascist Italy and Nazi Germany, but
without the advanced technology of the latter.

The Russian Revolutions and the Soviet Union

Imperial Russia entered the First World War in the expectation of a quick victory over
the Central Powers. That illusion was soon shattered, and as the war wore on the tra-
ditional Russian nemeses, inefficiency and corruption, took their toll. By the begin-
ning of 1917 the economy was in shambles. In early March strikes and riots broke out
in Petrograd (the renamed St. Petersburg), some soldiers joined the demonstrators and
gave them arms, while railway workers prevented other troops from coming in to re-
store order. On March 12 the leaders of the strikers and soldiers were joined by rep-
resentative of the various socialist parties in a Soviet (council) of Workers’ and Sol-
diers’ Deputies. On the same day a committee of the Duma (parliament) decided to
form a provisional government, and on March 15 obtained the abdication of the tsar.
Thus ended the long reign of the Romanovs, in a brief, almost leaderless, and nearly
bloodless revolution.
The Provisional Government was a motley collection of aristocrats, intellectuals,
and parliamentarians; it contained but one (middle-class intellectual) socialist,
Alexander Kerensky. Moreover, it had to share governance (in Petrograd, at least)
with the Petrograd Soviet. (Other Soviets were also organized in Moscow and in sey-
eral provincial cities.) The new regime immediately proclaimed freedom of speech,
press, and religion, announced that it would undertake social reform and land redis-
tribution, and promised to summon a constituent assembly to determine Russia’s per-
manent form of government. It also attempted to continue the war against Germany;
that proved to be its undoing.
V. I. Lenin, the leader of the Bolshevik faction of Russia’s socialist parties, who
had spent most of his adult life in exile, returned to Petrograd in April 1917 with the
connivance of the German government, which expected him to contribute to social
unrest and political chaos. Little did it imagine that he would become head of gov-
ernment! Lenin quickly established his dominance in the Petrograd Soviet and car-
ried on a relentless campaign against the Provisional Government. The latter, riven
by internal disputes and unable to establish its authority in either the army or the coun-
try at large, offered little resistance when a mob calling itself the Red Guards occu-
pied the Winter Palace, the seat of government, on October 25, 1917 (November 7 in
the Western calendar, which the Soviet Union adopted on January 1, 1918). The next
day Lenin formed a new government, called the Council of Peoples’ Commissars.
Nearly four years of bitter civil strife and war followed the October Revolution. In
March 1918 the government ended the war with Germany in the Treaty of Brest-
Litovsk (subsequently voided by the Treaty of Versailles), but still faced determined
 International Economic Disintegration 357

opposition from several so-called White armies, who were for a time aided by the West-
ern Allies, and in 1920 it went to war with newly independent Poland. In their efforts
to survive and stay in power the Bolsheviks, now calling themselves Communists, in-
troduced a drastic policy called War Communism. It included nationalization of the ur-
ban economy, confiscation and distribution of land to the peasants, and a new legal
system. Its outstanding characteristic, however, was its introduction of a single-party
government, the “dictatorship of the proletariat,” with Lenin as its voice.
In the elections to the long-awaited constitutional assembly the Social Revolu-
tionaries (SRs), opponents of the Bolsheviks, won a large majority. It met briefly in
January 1918, but Lenin sent troops to dissolve it after one session. The SRs then re-
vived their traditional tactic of assassination, and succeeded in wounding Lenin in
August 1918. The Communists thereupon adopted a deliberate reign of terror, mur-
dering their political opponents while maintaining control of the central government,
located in Moscow after March 1918.
The government granted Finland’s demand for independence soon after the Oc-
tober Revolution. During the civil war and afterwards it faced demands from other
regions for independence or at least autonomy. Although it acceded to these demands
from the Baltic states of Estonia, Lithuania, and Latvia, it resisted those from the
Ukraine, Transcaucasia, and elsewhere. The status of the non-Russian nationalities
remained unclear for two years after their reconquest. Then in 1922 Lenin decided to
create a federation, in name at least, against the advice of his specialist on national-
ity problems, the russified Georgian Joseph Stalin. On December 30, 1922, the Union
of Socialist Soviet Republics (USSR) came into being. It consisted of the Russian So-
viet Federated Socialist Republic (RSFSR), including most of European Russia plus
Siberia, and the republics of the Ukraine, White Russia, and Transcaucasia. Subse-
quently other republics, in central Asia and elsewhere, were added to the facade; but
the reality was that the whole was ruled by a small group of men in Moscow, who
controlled the machinery of both the Communist party and the government.
By March 1921, when the Treaty of Riga brought peace with Poland, the Com-
munists no longer faced active opposition to their rule either at home or abroad. But
the economy was in shambles. The policy of War Communism, with its strong ele-
ment of terrorism, had sufficed to defeat the enemy, but it clearly could not serve as
a long-term basis for the economy. Industrial production had fallen to less than a third
of its 1913 level, and the government’s agriculture policy produced no better results.
The peasants, whose land seizures the Bolsheviks had legitimized, refused to deliver
their produce at the artificially low prices set by the government. As early as August
1918 the government had sent troops and detachments of armed industrial workers
into the countryside to confiscate the harvest, and black markets were rife. At the end
of February 1921 a mutiny at the naval base of Kronstadt, caused by the abysmal con-
ditions of the sailors, convinced Lenin that a new policy was necessary.
Faced with economic paralysis and the possibility of a major peasant revolt, Lenin
radically reversed directions with the so-called New Economic Policy (NEP), a com-
promise with capitalist principles of economy that Lenin called “a step backward in
order to go forward.” A special tax in kind of agricultural produce replaced compul-
sory requisitions, allowing peasants to sell their surpluses at free market prices.
Small-scale industries (employing fewer than twenty workers) were returned to pri-
358 A CONCISE ECONOMIC HISTORY OF THE WORLD

vate ownership and allowed to produce for the market; foreign entrepreneurs leased
some existing plants and obtained special concessions to introduce new industries.
But the so-called commanding heights of the economy (large-scale industries, trans-
portation and communication, banking and foreign trade) remained under state own-
ership and operation. The NEP also included a vigorous program of electrification,
the establishment of technical schools for engineers and industrial managers, and the
creation of a more systematic organization for the state-owned sectors of the econ-
omy. Despite some further difficulties with the peasants, output increased in both in-
dustry and agriculture, and by 1926 or 1927 the prewar levels of output had been sub-
stantially regained.
Meanwhile, important changes were occurring in the Communist party leader-
ship. In May 1922 Lenin suffered the first of a series of paralytic strokes from which
he never fully recovered before his death in January 1924. In spite of his power, Lenin
refrained from explicitly designating his successor. In fact, in a unique “political will”
he pointed out both the strengths and the faults of all his close associates and possi-
ble successors.
Two of the main contenders were Leon Trotsky and Joseph Stalin. Trotsky had
served as war commissar and claimed credit for defeating the White armies during
the civil war. A gifted orator, he had a large following both within and outside the
party. But his late conversion to the Bolshevik cause (1917) and his penchant for mak-
ing tactless remarks about his colleagues made him suspect to the Old Bolsheviks.
Stalin, on the other hand, was a faithful adherent of Lenin and the Old Bolsheviks.
Although he was not seriously considered as Lenin’s successor immediately follow-
ing the latter’s death, Stalin used his position as general secretary of the Central Com-
mittee of the party (from 1922) to form coalitions within the party to dispose of his
rivals, Trotsky first of all.
Fundamental differences on both domestic and foreign policy separated the con-
tenders. Whereas Trotsky advocated world revolution, Stalin eventually sided with
those who favored building a strong socialist state in the Soviet Union: “Socialism in
one country.” After Stalin succeeded in demoting, exiling, and eventually assassinat-
ing Trotsky, he turned on his former allies, accusing some of being “Left Deviation-
ists,” others of “Rightist Opportunism.” By 1928 Stalin’s control over both party and
country was virtually complete.
Stalin’s program of “Socialism in one country” implied a massive build-up of
Russian industry to make the country both self-sufficient and powerful in the face of
a largely hostile world. The means for achieving this was comprehensive economic
planning, which from Stalin’s view had the further advantage of increasing the state’s
control over the lives of its subjects and thus preventing attempts to overthrow the
regime. In 1929, as soon as he was firmly in control of the party apparatus and the or-
gans of the state, he launched the first of the five-year plans. This event is sometimes
called “the second Bolshevik revolution.”
All the resources of the Soviet government were directly or indirectly used in the
effort. For purely technical matters the State Planning Commission (Gosplan) had
overall responsibility for formulating plans, setting output goals, and sending direc-
tives to various subsidiary agencies. Without regard for costs, profits, or consumer
preferences, the planning mechanism replaced the market. Instead of representing
 International Economic Disintegration 359)

workers and protecting their interests, trade unions were used to preserve labor dis-
cipline, prevent strikes and sabotage, and encourage productivity. The ideal of “work-
ers’ control” of industry, held by trade union leaders before the final triumph of Stalin,
had no place in the five-year plans.
Agriculture was one of the Soviet Union’s most difficult and persistent problem
areas. During the NEP the peasants had strengthened their traditional attachment to
their own soil and livestock, but Stalin insisted that they be organized in state farms.
The state owned all the land, livestock, and equipment and appointed a professional
manager, the peasants who worked the land formed a pure agricultural proletariat.
They bitterly resisted collectivization, in many instances burning their crops and
slaughtering their livestock to prevent them from falling into the hands of the gov-
ernment. Faced by such determined resistance, even Stalin backed off for a time. As
a compromise with the peasants the government sometimes allowed them to form co-
operative farms, on which most of the land was tilled in common; each household,
however, was allowed to keep small plots for its own use. The state supplied advice
and machinery from state-owned Machine-Tractor Stations, which could also be used
for inspection, propaganda, and control.
The objectives of the First Five-Year Plan were officially declared to have been
achieved after only four and a quarter years. In fact, the plan was far from a complete
success. Although output in some lines of industry had grown prodigiously, most in-
dustries had failed to make their quotas, which had been set unrealistically high. In
agriculture about 60 percent of the peasants had been collectivized, but agricultural
output had actually fallen, and the number of livestock declined to between half and
two-thirds of the 1928 level (which was regained only in 1957). The costs of the Five-
Year Plan were enormous, especially the human costs. In the collectivization of agri-
culture alone, millions died of starvation or were executed.
In 1933 the government inaugurated the Second Five-Year Plan, in which the em-
phasis was supposed to be on consumer goods; in fact, the government continued to
devote an extraordinary proportion of its resources to capital goods and military
equipment. In spite of great increases in industrial production, the country remained
mostly agrarian, and agriculture was its weakest sector. A notable feature of the Sec-
ond Five-Year Plan occurred in 1936—37—the Great Purge. Thousands of individu-
als, from lowly workers to high party and military leaders, were placed on trial (or
executed without trial) for alleged crimes ranging from sabotage to espionage and
treason. Naturally, this had a significant effect on output.
The Third Five-Year Plan, launched in 1938, was interrupted by the German in-
vasion of 1941, and the Soviet Union fell back on something like War Communism.

Economic Aspects of World War II

The Second World War was by far the most massive and destructive of all wars. In
some respects it represented merely an extension and intensification of features that
had manifested themselves in World War I, such as increasing reliance on science as
the basis of military technology, the extraordinary degree of regimentation and plan-
ning of the economy and society, and the refined and sophisticated use of propaganda
360 A CONCISE ECONOMIC HISTORY OF THE WORLD

both at home and abroad. In other respects it differed markedly from all previous wars.
Truly a global war, it directly or indirectly involved the populations of every con-
tinent and almost every country in the world. Unlike its predecessor, which had been
primarily a war of position, it was a war of movement—on land, in the air, and at sea.
Aerial warfare, an incidental feature of World War I, became a critical element in the
second. Naval operations, especially the use of carrier-based aircraft, became far
more important. Science-based technology accounted for many of the special new
weapons, both offensive and defensive, ranging from radar to rocket bombs, jet-pro-
pelled aircraft, and atomic bombs. The economic and especially the industrial capac-
ities of the belligerents acquired new importance. Mere numbers counted for less than
ever before, although size was still a factor in assessing the relative power of the op-
posing sides. In the final analysis the production line became as important as the fir-
ing line. The ultimate secret weapon of the victors was the enormous productive ca-
pacity of the American economy.
The pecuniary costs of the war have been estimated at more than | trillion dollars
(contemporary purchasing power) for direct military expenditure, and that is a lower-
bound estimate. It does not include the value of property damage, which has not been
accurately estimated but was certainly much larger; nor does it include interest on
war-induced national debt, pensions to wounded and other veterans, or—most ap-
palling of all, and most difficult to evaluate in pecuniary terms—the value of lives
lost or mangled, civilian as well as military.
Rough estimates place the number of war-related deaths at about 15 million in
western Europe: 6 million military and more than 8 million civilians, including be-
tween 4.5 and 6 million Jews murdered by the Nazis in the Holocaust. Millions more
were wounded, made homeless, and died of starvation or nutrition-related diseases.
For Russia it is estimated that more than 15 million died, more than half civilian ca-
sualties. China suffered more than 2 million military deaths, and untold millions of
civilians as a result of both enemy action and war-induced famine and disease. The
Japanese lost more than 1.5 million military personnel and, again, millions of civil-
ians; more than 100,000 died as a direct result of the atomic bombs dropped on Hi-
roshima and Nagasaki, and other Japanese cities were equally devastated by conven-
tional bombs.
Property damage was far more extensive than in World War I, largely because of
aerial bombardment. The U.S. Air Force prided itself on its strategic bombing, tar-
geted on military and industrial installations rather than civilians; but the postwar
Strategic Bombing Survey of Germany showed that only about 10 percent of indus-
trial plants had been permanently destroyed, while more than 40 percent of civilian
dwellings had been knocked out. About 900 tons of bombs were dropped on Ham-
burg in July 1943, virtually leveling the city. The same happened to Dresden near the
war’s end, leaving unknown numbers of casualties. Many other cities on both sides—
Coventry, England, and Rotterdam in the Netherlands, for example—suffered simi-
lar fates. Leningrad was virtually destroyed by artillery bombardment, but it never
capitulated.
Transportation facilities, especially railways and ports and docks, proved tempt-
ing targets. Every bridge over the Loire River, separating northern from southern
 International Economic Disintegration 361

France, was destroyed, as were all but one on the Rhine—the famous Remagen
bridgehead that enabled Allied soldiers to penetrate the heart of Germany.
All combatants resorted to economic warfare, a new phrase for an old policy. As
in World War I and even the Napoleonic Wars, Britain (later assisted by the United
States) imposed a blockade, to which Germany retaliated with unrestricted subma-
rine warfare. In addition to its ersatz commodities, such as gasoline made from coal,
Germany could command the resources of the occupied countries. In 1943 it extracted
more than 36 percent of French national income, and in 1944 almost 30 percent of its
industrial labor force consisted of non-Germans, virtual slave laborers.
At the end of the war in Europe the economic outlook was extremely bleak. In-
dustrial and agricultural output in 1945 was half or less than it had been in 1938. In
addition to the property damage and human casualties, millions of people had been
uprooted and separated from their homes and families, and millions more faced the
prospect of starvation. To make matters worse, the institutional framework of the
economy had been severely damaged. Reconstruction would be no easy matter.
 ie
Rebuilding the World
Economy, 1945-73

At the end of the war Europe lay prostrate, almost paralyzed. All belligerent countries
except Britain and the Soviet Union had suffered military defeat and enemy occupa-
tion. Large areas of the Soviet Union had been effectively occupied by the Germans
and fought over foot by foot, twice or even more often. Although Britain had not been
occupied (except by Americans), it suffered severe damage from aerial bombardment
of its densely populated cities and from acute shortages of food and other necessities.
Only the few European neutrals escaped direct damage, but even they suffered from
many war-induced shortages.
Before the war Europe had imported more than it exported, foodstuffs and raw
materials in particular, and paid for the difference with the earnings of its foreign in-
vestments and shipping and financial services. After the war, with merchant marines
destroyed, foreign investments liquidated, financial markets in disarray, and overseas
markets for European manufactures captured by American, Canadian, and newly
arisen firms in formerly underdeveloped countries, Europe faced a bleak prospect
merely to supply its population with basic needs. Millions faced the threat of death
from starvation, disease, and the lack of adequate clothing and shelter. Victors and
vanquished were alike in their misery. The urgent need was for emergency relief and
reconstruction.
Relief came through two main channels, most of it originating in America. As the
Allied armies advanced across western Europe in the winter and spring of 1944—45
they distributed emergency rations and medical supplies to the stricken civilian pop-
ulation, enemy as well as liberated. Because the Allies had committed themselves to
a policy of unconditional surrender, after the cessation of hostilities they had to as-
sume the burden of policing defeated Germany, which included the continuation of
emergency rations for the helpless civilian population.
The other channel of relief was the United Nations Relief and Rehabitation Ad-
ministration (UNRRA). In 1945—46 it spent more than 1 billion dollars and distrib-
uted more than 20 million tons of food, clothing, blankets, and medical supplies. The
United States bore more than two-thirds of the cost, other United Nations members
the remainder. Altogether, between July 1, 1945, and June 30, 1947, by means of
grants to UNNRA and other direct emergency aid, the United States made available
about $4 billion to Europe and almost $3 billion to the rest of the world. After 1947

362
 Rebuilding the World Economy, 1945—73 363

the work of UNRRA was continued by the International Refugee Organization, the
World Health Organization, and other specialized agencies of the United Nations, as
well as by voluntary and official national agencies.
In contrast to Europe, the United States emerged from the war stronger than ever.
To a lesser extent, Canada, the other Commonwealth nations, and several countries
of Latin America did as well. Spared from direct war damage, their industries and
agriculture benefited from high wartime demand, which permitted full use of capac-
ity, technological modernization, and expansion. Many American economists and
government officials feared a severe depression after the war, but after the removal
of rationing and price controls, which had held prices at artificially low levels during
the war, the pent-up consumer demand for war-scarce commodities created a postwar
inflation that doubled prices by 1948. In spite of the hardships that the inflation
brought to people living on fixed incomes, it kept the wheels of industry turning and
enabled the United States to extend needed economic aid for the rebuilding of Europe
and other war-devastated and poverty-stricken lands.

Planning for the Postwar Economy

One of the most urgent tasks facing the peoples of Europe after their survival re-
quirements were satisfied was to restore normal law, order, and public administration.
In Germany and its satellites Allied military governments assumed these functions
pending peace settlements. Most of the countries that had been victims of Nazi ag-
gression had formed governments in exile in London during the war. These govern-
ments returned to their homelands in the wake of Allied armies and soon resumed
their normal functions.
Their return, however, did not imply a mere “return to normalcy,” the chimera of
the 1920s. Memories of the economic distress of the 1930s lingered through the or-
deal of war, and no one wanted a repetition of either experience. On the Continent the
leadership of the underground opposition to Nazi Germany played a large role in post-
war politics, and the comradeship of those movements, in which Socialists and Com-
munists had figured prominently, did much to overcome prewar class antagonisms
and bring new men and women to positions of power. In Britain the participation of
the Labour party in Churchill’s wartime coalition government gave its leaders great
prestige and influence, and enabled them to lead it to its first clearcut electoral vic-
tory soon after the end of the war in Europe. Finally, the very magnitude of the task
of reconstruction indicated a much larger role for the state in economic and social life
than had been characteristic of the prewar period. Further, the bureaucratic expertise
acquired during the war could now be applied to reconstruction.
In all countries the consequence of these various tendencies was widespread pub-
lic demand for political, social, and economic reforms. The response to these demands
in the economic sphere took the form of nationalization of key sectors of the econ-
omy, such as transportation, power production, and parts of the banking system; ex-
tension of social security and social services, including retirement pensions, family
allowances, free or subsidized medical care, and improved educational opportunities;
and assumption by governments of greater responsibilities for maintaining satisfac-
364 A CONCISE ECONOMIC HISTORY OF THE WORLD

tory levels of economic performance. Even the United States passed the Employment
Act of 1946, which created the President’s Council of Economic Advisers and
pledged the federal government to maintain a high level of employment.
At the international level planning for the postwar had begun during the war it-
self. Indeed, as early as August 1941, at their dramatic meeting on board a battleship
in the North Atlantic (actually, Placentia Bay in Newfoundland), Franklin Roosevelt
and Winston Churchill signed the Atlantic Charter, which pledged their countries (and
subsequently other members of the United Nations) to undertake restoration of a mul-
tilateral world trading system in place of the bilateralism of the 1930s. Of course, this
was only a statement of intentions and did not commit the parties to any concrete ac-
tions; but at least it was a statement of good intentions.
Subsequently, in 1944, at an international conference at the New Hampshire re-
sort of Bretton Woods in which the American and British delegates played the lead-
ing roles, the bases were laid for two major international institutions. The Interna-
tional Monetary Fund (IMF) was to have the responsibility for managing the structure
of exchange rates among the various world currencies, and also for financing short-
term imbalances of payments among countries. The International Bank for Recon-
struction and Development (IBRD), also known as the World Bank, was to grant long-
term loans for reconstruction of the war-devastated economies and, eventually, for
the development of the poorer nations of the world. These two institutions did not be-
come operational until 1946 and, for reasons to be noted later were not fully effective
for several years after that; but at least a beginning had been made toward rebuilding
the world economy, and a vision of its institutional architecture was agreed on.
The conferees at Bretton Woods also envisaged the creation of an International
Trade Organization (ITO) that would formulate rules for fair trade among nations.
Further conferences were held to this end, but the best that could be obtained was a
much more limited General Agreement on Tariffs and Trade (GATT), signed at
Geneva in 1947. The signatories pledged themselves to extend most-favored-nation
treatment to the others (i.e., not to discriminate in trade), to seek to reduce tariffs, not
to resort to quantitative restrictions (quotas), and to remove those that existed, and to
consult mutually before making major policy changes. These provisions were much
less than had been hoped for from ITO, and they were not always observed 1n prac-
tice; but a number of international tariff reduction conferences were held under
GATT’s auspices, which did much to reduce trade barriers. Membership in GATT
grew from twenty-three in 1947 to more than eighty two decades later. Eventually, in
1994, a World Trade Organization (WTO) replaced GATT.

The Marshall Plan and Economic ‘‘Miracles’”’

By the middle or end of 1947 most nations of western Europe except Germany had
regained their prewar levels of industrial production. (Germany will be dealt with
later.) But of course the prewar levels of production had been far from satisfactory.
Moreover, the winter of 1946—47 was extremely severe, and was followed by a long
drought over the greater part of Europe, making the agricultural harvest of 1947 the
worst in the twentieth century. Clearly, much remained to be done.
 Rebuilding the World Economy, 1945-73 365

In the monetary and financial chaos of the 1930s virtually all European and many
other countries adopted exchange controls; that is, their currencies were not convert-
ible into others except with a license issued by the monetary authorities. A counter-
part of this was the bilateral balancing of commodity trade, a major cause of its greatly
reduced volume. These controls, to which others were added, were of necessity con-
tinued during the war. After the war shortages of all kinds—foodstuffs, raw materi-
als, replacement parts, and so on—seemed to dictate the continuance of the controls.
The remedy for the shortages was to be found mainly overseas, especially in North
and South America, but dollars were required for their purchase, and in Europe the
greatest shortage of all was dollars.
American relief and rehabilitation grants, noted previously, helped ease the “‘dol-
lar shortage” during the first two postwar years. In addition, the United States and
Canada jointly loaned Great Britain $5 billion in December 1945, which helped not
only that country but, through its expenditures on the Continent, other countries as
well. (In addition, much of the loan was spent redeeming the sterling balances accu-
mulated by Britain’s trading partners in the sterling area during the war.) It was nev-
ertheless becoming clear in the late spring of 1947 that the immediate postwar re-
covery was in serious danger of aborting. Moreover, the growing “cold war” between
the United States and the USSR, and the role of Communist parties in the politics of
several west European countries, notably France and Italy, gave American authorities
cause for concern over the political stability of western Europe. On June 5, 1947, Gen-
eral George C. Marshall, who had been named U.S. secretary of state by President
Truman, gave acommencement address at Harvard University in which he announced
that if the nations of Europe would present a unified, coherent request for assistance
the U.S. government would give a sympathetic response. This was the origin of the
so-called Marshall Plan.
The French and British foreign ministers immediately conferred and invited their
Soviet counterpart to meet with them in Paris to discuss a European response to Mar-
shall’s proposal. (Marshall had specifically included the Soviet Union and other coun-
tries of eastern Europe in his proposal. He may or may not have expected that the So-
viet Union would refuse to cooperate. In any case, the Soviet foreign minister,
although he came to Paris, soon left, charging that Marshall’s proposal was an “‘im-
perialist plot.”) With unaccustomed alacrity for diplomatic affairs, representatives of
sixteen nations met in Paris on July 12, 1947, dubbing themselves the Committee of
European Economic Cooperation (CEEC). These included all the democratic nations
of western Europe (and Iceland), even neutral Sweden and Switzerland, as well as
Austria (still under military occupation), undemocratic Portugal, and Greece and
Turkey (to which the United States had already granted military aid to fight Com-
munist subversion). Finland and Czechoslovakia indicated an interest in participat-
ing, but were called to heel by the Soviet Union; neither the Soviet Union nor any
other East European country was represented. Franco’s Spain was not invited and
Germany, still subject to military occupation, had no government to be represented.
The American people and Congress still had to be persuaded that further eco-
nomic assistance to Europe was in their interest. The Truman Administration
launched a strong lobbying program to that end, and in the spring of 1948 Congress
passed the Foreign Assistance Act, which created the European Recovery Program
366 A CONCISE ECONOMIC HISTORY OF THE WORLD

Administration (ECA). At
(ERP), to be administered by the Economic Cooperation
goals of the pro-
the same time there was less than total unanimity in Europe on the
the United States,
gram. British officials had hoped to get more bilateral aid from
(That is probably
rather than having it channeled through a European organization.
; they also
the main reason the Russians walked out of the initial planning meeting
aid.) The French were uneasy about the future role of Ger-
hoped, vainly, for bilateral
tion might be set up. The smaller countrie s also had their
many in whatever organiza
less, after the U.S. Congres s acted the CEEC convert ed
particular concerns. Neverthe
for Europea n Economi c Coopera tion (OEEC), which was
itself into the Organization
s of the
responsible, jointly with the ECA, for allocating the American aid. Member
art funds in their own currenci es to be allocate d
OEEC also had to put up counterp
with the consent of the ECA.
Altogether, including some interim aid sent to France, Italy, and Austria at the end
as-
of 1947 on an emergency basis, the ERP funneled about $13 billion in economic
sistance in the form of loans and grants from the United States to Europe by the be-
ginning of 1952. This enabled the OEEC countries to obtain imports of scarce com-
modities from the dollar zone. Almost one-third (32.1 percent) consisted of food,
feed, and fertilizer, mainly in the first year or so of the program. Thereafter the pri-
ority shifted to capital goods, raw materials, and fuel to enable European industries
to rebuild and export.
Germany at first occupied an anomalous position in the European Recovery Pro-
gram. After its defeat in May 1945 the heads of government of the United States, the
United Kingdom, and the USSR met in July at Potsdam, near Berlin, to determine
Germany’s fate, but decided merely to prolong the military occupation. (France, al-
though not represented at Potsdam, was allowed by Britain and the United States to
occupy parts of Germany immediately adjacent to its territory.) The decision was not
intended as a permanent division of the country, but simply for temporary conve-
nience. As events unfolded, the disagreements between Russia and the Western Al-
lies led the latter to give greater and greater measures of autonomy to the Germans in
their zones of occupation. The Soviet authorities responded with similar nominal con-
cessions in the eastern zone, although they maintained strict control through their pup-
pets and the presence of Soviet troops. The ultimate result was the division of Ger-
many into two separate states: the German Federal Republic (West Germany) and the
German Democratic Republic (East Germany). Berlin, although deep inside the So-
viet zone, was also divided into four sectors, later reduced to two: East Berlin, the
capital of the GDR, and West Berlin, affiliated with the FRG. In the absence of a Ger-
man government the Allied Control Council served as the nominal supreme author-
ity, although in fact each occupying power administered its zone independently.
The Potsdam Conference had condoned the dismantling of German armaments
and other heavy industries (already begun by the Russians), reparations to the victors
and to the victims of Nazi aggression, strict limitations on German productive ca-
pacity, and a vigorous program of denazification, including the trial of Nazi leaders
as war criminals. In fact, only the last aim was realized as originally intended. The
Soviet authorities dismantled many factories in their zone and carried them to Russia
as reparations. After a brief attempt by the Western powers to collect physical repa-
rations and to break up large industrial combines in their zones, they realized that the
 Rebuilding the World Economy, 1945-73 367

German economy would have to be kept intact not only to support the German peo-
ple but also to assist in the economy recovery of western Europe. They reversed their
policy and, instead of limiting German production, took steps to facilitate it.
One
means of doing this was to provide for economic reunification, a process initiated with
the creation of Bizonia, a union of the American and British zones of occupation
at
the end of 1946, to which the French zone was subsequently added. Just as the Zoll-
verein served as the precursor of the German Empire, the economic unification of the
western zones of occupation delineated the future German Federal Republic.
Meanwhile new difficulties arose. To ensure the survival of the population in their
zones of occupation (which swelled rapidly with the influx of refugees from the east),
the American military government between 1945 and 1948 financed about two-thirds
of the essential imports, mainly food, of the western zones of occupation. To stimu-
late economic recovery in their zones, the Western powers carried out a reform of the
German currency in June 1948, replacing the debased and despised Nazi Reichsmarks
with Deutschemarks at a ratio of | new for 10 old marks. (The reform was facilitated
by the fact that the populace had virtually deserted the old currency and returned to a
barter system of exchange, with coffee, silk stockings, and especially cigarettes ful-
filling the functions of both standards of value and media of exchange.) The response,
immediate and overwhelming, was referred to as a Wirtschaftswunder (economic mir-
acle). Goods previously hoarded or traded on the black market came into the open;
stores were restocked, factories restarted, and western Germany began its remarkable
economic revival.
The Soviet Union, which had not been consulted about the monetary reform, and
which regarded it as a contravention of the Potsdam agreement (which it was), retal-
iated by closing off all road and rail links between the western zones of occupation
and West Berlin. It hoped to force a withdrawal of Western forces from Berlin, or at
least to secure concessions on disputed points; instead, the Western Allies responded
promptly with a large-scale airlift of strategic supplies. In a tremendous operation
lasting more than a year the U.S. Air Force and the RAF flew almost 300,000 flights
into Berlin, transporting at its peak more than 8,000 tons of supplies daily. The airlift
supplied not only Western troops but also the 3 million inhabitants of West Berlin.
Meanwhile western Germany was being integrated into the European Recovery
Program. At first, in 1948, aid for the western zones of occupation was received and
allocated by the American military government. Subsequently the West German states
were allowed to elect representatives to a constitutional convention, and in May 1949
the Federal Republic of Germany came into existence. Not to be outdone, the Soviet
Union soon afterward set up the so-called German Democratic Republic. In Septem-
ber it lifted the Berlin blockade.
With West Germany now fully integrated into the OEEC and the Marshall Plan,
the economic recovery of western Europe could be considered complete, but more
and still better things were in store. The Marshall Plan came to an end in 1952: it had
succeeded beyond the expectations of several of its participants and even those of
some of its creators. It did not create a United States of Europe, as some had hoped,
and many serious problems remained. But, beyond the fact that western Europe had
not only recovered and exceeded prewar levels of production, the OEEC and other
newly created institutions remained and stimulated the economy to new heights.
 A CONCISE ECONOMIC HISTORY OF THE WORLD
368

European Pay-
One of the most important of those other new institutions was the
s to increased
ments Union (EPU). As recounted earlier, one of the major obstacle
, especially
trade in the immediate postwar years was the shortage of foreign exchange
Some attempts
dollars, and the consequent necessity for bilateral balancing of trade.
and not very
had been made to break out of this constraint, but they were awkward
of a $500-
effective. At length, in June 1950, the OEEC nations, with the assistance
device al-
million grant from the United States, inaugurated the EPU. This ingenious
all
lowed for free multilateral trade within the OEEC; precise accounts were kept of
.
intra-European trade, and at the end of each month balances were struck and canceled
their deficits
Nations with deficits overall were debited on the central accounts, and if
were large they had to pay a portion in gold or dollars; creditors, on the other hand,
received credits on the central accounts; if their credits were very large they received
a portion in gold or dollars, enabling them to import more from so-called hard-cur-
rency areas (mainly the dollar zone). This provided incentives for OEEC countries to
increase their exports to one another and to lessen their dependence on the United
States and other overseas suppliers.
The results were spectacular. In the two decades or so after the formation of the
EPU world trade grew at an average annual rate of 8 percent, the highest in history
apart from a few years after the trade treaties of the 1860s. Most of that growth, of
course, took place in Europe, both within Europe and between Europe and overseas
nations. The EPU was so successful that, in conjunction with the overall growth of
trade, the OEEC countries were able to restore free convertibility of their currencies
and full multilateral trade in 1958. In 1961 the OEEC itself metamorphosed into the
Organization for Economic Cooperation and Development (OECD), to which the
United States and Canada (and later Japan and Australia) adhered: an organization
of advanced industrial countries to coordinate aid to underdeveloped countries, to
seek agreement on macroeconomic policies, and to discuss other problems of mu-
tual concern.

The Era of High Growth

The quarter-century or so after World War II witnessed the longest period of uninter-
rupted growth among the industrial countries of the world and at the highest rates in
history (Fig. 15-1). For the industrial countries as a group (OEEC, the United States,
Canada, and Japan) the average increase in gross domestic product per person em-
ployed from 1950 to 1973 amounted to about 4.5 percent per year. Rates for individ-
ual countries ranged from 2.2 percent for the United Kingdom to 7.3 percent for Ja-
pan. Growth was most rapid in those countries that had abundant supplies of labor,
either from the reduction of the agrarian population (e.g., Japan, Italy, France) or from
an influx of refugees (West Germany). Growth in the United States, Canada, and
Great Britain, which had the highest per capita incomes at the end of the war, was
slower than that of continental western Europe and Japan, but more rapid than in any
prolonged period in their previous histories. At the same time countries with relatively
low per capita incomes within the industrial group—lItaly, Austria, Spain, Greece, and
Japan—grew more rapidly than the average.
 Rebuilding the World Economy, 1945-73 369

A. INDEX NUMBERS OF NATIONAL PRODUCT PER PERSON IN

CONSTANT PRICES (1963 = 100)
Index Eo 1950
number
1972
150'=

100—

20—

Belgium France German Italy Netherlands Sweden Switzerland United United

Fed. Rep. Kingdom States
°Data for France, Italy, and the Netherlands from 1970; Dota for Switzerland from 1969.

B. NATIONAL INCOME, ANNUAL AVERAGE GROWTH RATE

Percent
Ce

Belgium France German Italy Netheriands eneies Swiizerions United United

Fed. Rep. Kingdom States

C. INDEX OF GENERAL INDUSTRIAL PRODUCTION (1963

= 100)

Index — heats
number
150) =

100 —

Belgium France German Italy Netherlands Sweden Switzerland United United

Fed. Rep. Kingdom States
° Data for Switzerland from 1958

D. FOREIGN TRADE (IMPORTS PLUS EXPORTS)

Millions of dollars ["J1948

40,000—

20,000—

Belgium France German Italy Netherlands Sweden Switzerland United United

Fed. Rep. Kingdom States

FiGurE 15-1. The economic recovery and growth of western Europe, 1948-71. (From
United Nations Statistical Yearbook, various years.)
370 A CONCISE ECONOMIC HISTORY OF THE WORLD

The term “economic miracle,” as noted earlier, was first applied to the remark-
the
able spurt in growth in West Germany after the currency reform of 1948. When
t the 1950s and 1960s it was used to refer
high rates of growth continued throughou
to the entire era. It was then noted that several other nations, notably Italy and Japan,
had growth rates as high as or higher than the German. Miracles abounded! Or did
they? The high growth rates in most of the industrial countries were certainly re-
markable, and unprecedented in history, but they were scarcely miraculous. There
were solid reasons for them in every case.
American aid played a crucial role in sparking the recovery. Thereafter Europeans
kept it going with high levels of savings and investments. At times the competition be-
tween consumption and investment spending caused severe inflationary pressures, but
none so disastrous as the hyperinflations after World War I. Much of the investment
went into equipment for new products and processes. During the depression years and
the war a backlog of technological innovations had built up that only awaited capital
and skilled labor to be employed. In effect, the European economies had stagnated for
an entire generation. In addition to having forfeited their potential increment of growth,
they operated with obsolete equipment and lagged behind the United States in tech-
nological progress. Thus, technological modernization both accompanied and was an
important contributory factor to the so-called economic miracle.
Other major factors were the attitude and role of governments. They participated
in economic life both directly and indirectly on a much larger scale than previously.
They nationalized some basic industries, drew up economic plans, and provided a
wide range of social services. Nevertheless, private enterprise was responsible for by
far the largest part of economic activity. On average, between one-fourth and one-
third of national income in western Europe originated in the government sector.
Though this proportion was much greater than it had been before the war, it was less
than half the contribution of the private sectors of the economy. The economic sys-
tems of postwar western Europe were equally far from the stereotyped old-style cap-
italism of the nineteenth century and from the doctrinaire socialized economies of
eastern Europe. In the mixed or welfare state economies that became characteristic
of the Western democracies, government assumed the tasks of providing overall sta-
bility, a climate favorable to growth, and minimal protection for the economically
weak and underprivileged, but it left the main task of producing the goods and ser-
vices desired by the population to private enterprise.
At the international level the relatively high degree of intergovernmental cooper-
ation deserves major credit for the effectiveness of the economic performance. The
cooperation was not always spontaneous—prodding by the United States was some-
times necessary to elicit it—and some promising projects failed for lack of it; but on
the whole the contrast to the interwar years is conspicuous.
Finally, in the long term, much credit must go to Europe’s wealth of human cap-
ital. Its high rates of literacy and specialized educational institutions, from kinder-
gartens to technische Hochschulen, universities, and research establishments, pro-
vided the skilled personnel and brainpower to make the new technology work
effectively. In the first flush of the success of the Marshall Plan many observers in-
correctly deduced that physical or financial capital alone would suffice to bring about
development, and several grandiose projects based on that false premise, such as the
 Rebuilding the World Economy, 1945-73 371

Alliance for Progress between the United States and the nations of Latin America,
were undertaken, only to end in failure and disillusionment. Moreover, European suc-
cess in maintaining historically high and smooth rates of economic growth during the
1950s and 1960s made their policymakers overconfident about their ability to sustain
export-led growth and the wrenching structural changes in employment and residen-
tial patterns that were required. Labor strikes became more frequent and more wide-
spread by the end of the 1960s as unions demanded redistribution of profits in favor
of workers. Much depended on the U.S. dollar remaining overvalued so that Euro-
pean manufacturers could displace U.S. imports within Europe, compete successfully
with U.S. products in third markets, and even penetrate the U.S. market itself. When
the United States unilaterally devalued the dollar in August 1971, it took most of Eu-
rope over a decade to adjust to the new international trade environment, which will
be described in the next chapter.

The Emergence of the Soviet Bloc

The Soviet Union suffered the greatest damage, in an absolute sense, of any nation
engaged in the war. Estimates of the number killed, both military and civilian, range
from a minimum of 10 million to more than 20 million. Twenty-five million were left
homeless. Large areas of the most fertile agricultural land and some of the most heav-
ily industrialized regions had been devastated. According to official estimates, 30 per-
cent of the prewar wealth had been destroyed.
In spite of the sufferings of its people, the Soviet Union emerged as one of the two
superpowers in the postwar world. Although it was poor on a per capita basis, its vast
territory and population allowed it to play this role. To restore the devastated econ-
omy and boost output to new levels the government launched the Fourth Five-Year
Plan in 1946. As previous plans had done, it emphasized heavy industry and arma-
ments, with particular attention to atomic energy. The new plan also made extensive
use of physical reparations and tribute from the former Axis countries and the USSR’s
new Satellites.
Stalin, more powerful than ever, instituted a number of changes in the high of-
fices of both government and the economy in the immediate postwar years. A con-
stitutional revision in 1946 replaced the Council of People’s Commissars with a
Council of Ministers, in which Stalin assumed the position of chairman or prime min-
ister. The ministries charged with the supervision and control of industry and agri-
culture experienced drastic purges of personnel on grounds of incompetence and dis-
honesty. Other high officials of government and party were dismissed on similar
grounds, although there is reason to believe Stalin’s real motive was distrust of their
personal loyalty to him.
Stalin died in 1953. After two years of “collective leadership” and shifting alliances
among the top leadership of the Communist party Nikita Krushchev, who had suc-
ceeded Stalin as first secretary of the party, emerged as the paramount leader. At the
Twentieth Party Congress in February 1956 Krushchev gave a long speech in which
he denounced Stalin as a ruthless, morbid, almost insane tyrant who had ordered the
execution of countless innocent people, whose egotism had led him to make mistakes
372 A CONCISE ECONOMIC HISTORY OF THE WORLD

for which all citizens had suffered, who had caused the government to lose touch with
the people, and who had established the “cult of personality” to glorify himself. Khru-
shchev carefully pointed out, however, that Stalin’s despotism represented an aberra-
tion from an essentially correct policy and claimed that the new collective leadership
had returned to proper Leninist principles. Supposedly secret, Khrushchev’s speech
leaked to the public, both within and outside the Soviet Union. It caused much confu-
sion and ferment among the peoples of the Communist countries and did serious dam-
age to the cause of Communism by confirming the evils of Stalin’s regime. The gov-
ernment began an official program of “de-Stalinization” that included the removal of
his body from the famed Lenin Tomb in Moscow’s Red Square.
In spite of the change of leadership and a few superficial reforms, the basic na-
ture of the Soviet economic system did not change. In 1955 the government an-
nounced the “fulfillment” of one five-year plan and the inauguration of another, even
though high officials complained of widespread inefficiency and the failure of one-
third of the industrial enterprises to meet their production targets. Soviet heavy in-
dustry continued to increase its output, but fell far short of the expressed intention to
overtake the United States. The production of consumer goods, always given low pri-
ority in Soviet planning, continued to lag so that consumers were plagued by short-
ages and inferior goods.
Soviet agriculture remained in a condition of almost unrelieved crisis throughout
the postwar period, despite massive efforts of the government to increase productiv-
ity. The collective farm system did not offer enough incentive for the peasants. In-
stead, they concentrated their energies on the small private plots of up to one-half
hectare (1.2 acres) that they were allowed to cultivate, part of whose produce they
could sell on the market. These plots formed little more than 3 percent of the USSR’s
cultivated land, but produced as much as one-fifth of the country’s milk and one-third
of its fresh meat, as well as much fruit and vegetables. In 1954 Khruschev started a
“virgin lands” project to bring great stretches of arid land in Soviet Asia into cultiva-
tion. The next year he launched a drive to increase the production of corn, and in 1957
he announced a campaign to overtake the United States by 1961 in the production of
milk, butter, and meat. None of these programs came anywhere near reaching their
stated goals. Despite threats of punishment and wholesale dismissals of agricultural
officials, Khrushchev and his planners could not overcome bad weather, bureaucratic
mismanagement, fertilizer shortages, and above all the peasants’ lack of enthusiasm.
Food shortages continued to characterize Soviet life. Russia, historically an exporter
of grain, was obliged in the 1960s to begin importing grain from Western countries
(Australia, Canada, the United States), for which it paid in gold.
Although the Allies found it inexpedient at first and subsequently impossible to
agree on the terms of a peace treaty with Germany, they did succeed in signing treaties
with Germany’s satellites and in agreeing on the treatment of the victims of Nazi ag-
gression in eastern Europe. The general terms of the East European settlement had
been foreshadowed in wartime conferences, notably the one at Yalta. They had en-
visaged a major role for the Soviet Union—made more concrete by the occupation
of the area by Soviet troops—although Stalin had promised to allow free elections
and “broadly representative governments,” a promise that proved to be meaningless.
 Rebuilding the World Economy, 1945-73 373

After a year and a half of postwar negotiations treaties were signed in February 1947
with Romania, Hungary, Bulgaria, and Finland.
The resurrection of Czechoslovakia and Albania was taken for granted. Since
those countries had never been at war with the Allies—had, in fact, been among the
first victims of Axis aggression—there was no problem in restoring their indepen-
dence. The manner in which they were liberated, however, guaranteed that they would
be within the Soviet sphere of influence.
Czechoslovakia was liberated by Soviet troops and Eduard Benes, the interna-
tionally respected prewar president, was returned as president of the provisional gov-
ernment. In a relatively free election in May 1946 the Communists polled a third of
the votes and seated the largest delegation in the new constituent assembly. Klement
Gottwald, the Communist leader, became prime minister, but the assembly unani-
mously reelected Benes as president. The country continued under a coalition gov-
ernment, with Benes hoping to make Czechoslovakia a bridge between the USSR and
the West, until the Communists seized power in February 1948.
During the war Churchill and Stalin, without consulting Roosevelt, agreed to ex-
ercise equal spheres of influence in Yugoslavia after the war. In fact, Yugoslav parti-
sans led by Marshal Tito liberated the country with very little help from Russia and
negligible aid from Britain, thus allowing the country a measure of independence.
Elections in November 1945 gave Tito’s Communist-dominated National Liberation
Front a substantial majority in the new constituent assembly, which promptly over-
threw the monarchy and proclaimed a Federal People’s Republic. On paper the new
constitution closely resembled that of the Soviet Union, and Tito governed the coun-
try in a manner similar to that of Stalin. He refused to accept dictation from the So-
viet Union, however, and in 1948 publicly broke with the latter and its other Com-
munist satellites.
The determination of Poland’s postwar boundaries and form of government con-
stituted one of the thorniest problems of peacemaking. In the closing phases of the war
there had been two Polish provisional governments, one in London and one in Rus-
sian-occupied Poland. At Russian insistence and with Western acquiescence, the two
groups merged to form a Provisional Government of National Unity, with a promise
of early “free and unfettered elections.” The coalition lasted until 1947, when the Com-
munists ousted their partners and assumed complete control. The territorial settlement
agreed on provisionally at Potsdam in effect moved Poland 300 miles to the west. The
language of the agreement provided only that Poland should have “temporary admin-
istration” of the area east of the Oder-Niesse line, or about one-fifth of the area of pre-
war Germany, but the Poles, with Soviet support, regarded the settlement as definitive
compensation for their cessions to the Soviet Union, which constituted almost half of
prewar Poland. They forthwith expelled the millions of Germans who resided in the
area to make room for other millions of Poles streaming in from the Soviet-occupied
zone. These enormous transfers of population, together with similar transfers in other
parts of eastern Europe, returned the ethnic boundaries to something resembling “the
status quo ante 1200 A.D.,” in the words of Arnold J. Toynbee.
The peace treaties with Germany’s East European satellites, Romania, Bulgaria,
and Hungary, contained territorial provisions that fell into a well-established histori-
374 A CONCISE ECONOMIC HISTORY OF THE WORLD

cal pattern. Romania regained Transylvania from Hungary, but had to return Bessara-
bia and northern Bukovina to the Soviet Union and southern Dobrudja to Bulgaria.
Hungary lost the most, for it gained nothing and had to cede a small area to Czecho-
slovakia, which lost Ruthenia to the Soviet Union. All three defeated nations had to
pay reparations: $300 million for Hungary and Romania and $70 million for Bulgaria
(all calculated at 1938 prices, so the real amount was greater), the bulk of which went
to the USSR. Under the protection of Soviet troops the Moscow-trained Communists
in their popular front governments had few difficulties in disposing of their Liberal,
Socialist, and Agrarian collaborators and soon established people’s republics in the
Soviet pattern. Finland lost some territory to Russia and had to pay $300 million in
reparations, but it escaped the fate of other popular front governments on Soviet bor-
ders and maintained a precarious neutrality.
The peace treaties had nothing to say about the disappearance of the Baltic coun-
tries of Latvia, Lithuania, and Estonia. Part of the tsarist empire before 1917, they
had been incorporated in the Soviet Union in 1939—40, then overrun by Germany
in 1941. Reoccupied by the Red Army in 1944—45, they were quietly annexed to the
Soviet Union as so-called autonomous republics. That they were not mentioned in
the peace negotiations implied recognition that they again formed parts of the new
Soviet empire.
In January 1949, following the initial successes of the European Recovery Pro-
gram, the Soviet Union created the Council for Mutual Economic Assistance (COME-
CON) in an attempt to mold the economies of its East European satellites into a more
cohesive union. It included Albania, Bulgaria, Romania, Hungary, Czechoslovakia,
Poland, and East Germany. Ostensibly intended to coordinate the economic develop-
ment of the Communist countries and promote a more efficient division of labor
among them, it was actually used by the Soviet Union to make its satellites more eco-
nomically dependent on it. Instead of developing a multilateral trading system, as in
western Europe, most trade both with the Soviet Union and between the other coun-
tries remained bilateral, much as it had with Nazi Germany during World War II.
When Stalin died in 1953 the Soviet bloc in Europe presented an appearance of
monolithic unity. Each of the satellites was more or less a small-scale replica of the
Soviet Union, and all danced to the same tune—called in Moscow. Nevertheless, di-
visive tendencies hid behind the facade of unity. When Yugoslavia had earlier broken
away from the Soviet bloc, although remaining a Communist nation, many people in
the other satellites would have liked to do the same. Soon after Stalin’s death a wave
of restiveness swept over the satellite states. Strikes and riots broke out in several
countries, and became so serious that the Soviet authorities still in occupation had to
use military force to suppress them.
In 1956 in Hungary Imre Nagy, a “national Communist,” became prime minister,
promising widespread reforms including free elections. He also announced that Hun-
gary would withdraw from the Warsaw Pact, a Soviet-sponsored military alliance, and
requested that the United Nations guarantee the perpetual neutrality of Hungary on
the same basis as that of Austria. That was too much for the Soviet Union. On No-
vember 4 at 4 A.M., Soviet tanks and bombers began a synchronized attack on Hun-
gary that inflicted destruction as horrible as that of World War II. For ten days Hun-
garian workers and students fought heroically against overwhelming odds, with
 Rebuilding the World Economy, 1945-73 375

weapons furnished by their own soldiers. Even after the Russians regained control
and established a new puppet government many continued guerilla activity in the
hills, while more than 150,000 escaped across the open border to Austria and even-
tually sought refuge in the West. The Hungarian revolt showed clearly that even a de-
Stalinized Russia was not prepared to give up its Communist empire.
The movement for genuinely democratic socialism went furthest in Czechoslo-
vakia. In January 1968 the Czech Communist party under Alexander Dubcek dis-
missed the old-guard Stalinist leaders and instituted a far-reaching program of re-
forms that included a greater reliance on free markets in place of government-dictated
prices, the relaxation of press censorship, and a considerable measure of personal
freedom. The rulers in the Kremlin at first tried to persuade the Czech leaders to re-
turn to orthodox Communist policies, but without success. At length, in August 1968,
the Soviet army and air force invaded Czechoslovakia and established martial law.
Once again, as in East Germany in 1953 and Hungary in 1956, events proved that
Russia’s Communist empire could be held together only by force.
Although not a member of the Soviet bloc, the People’s Republic of China was
briefly allied with the Soviet Union. China, a poor country to begin with, had suffered
enormously in World War II. During the war the Chinese Communists cooperated
with the Nationalist leader, Chiang Kai-shek, in his resistance to the Japanese, but
maintained an independent army in northern China, supplied by local requisitions and
equipped by the Soviet Union. They also won a large following among the war-weary
peasants. After the war they turned on Chiang and in 1949 drove him and his fol-
lowers off the mainland to Taiwan. On October 1, 1949, the Communists under Mao
Zedong and Zhou Enlai formally proclaimed the People’s Republic of China (PRC)
with the capital in Peking (Beijing).
Relying on the techniques of modern one-party dictatorships, the Communists
quickly extended their control over the entire country, achieving a degree of central-
ized power unprecedented even in the long history of Chinese despotism. With polit-
ical control firmly established, the new government undertook to modernize the econ-
omy and restructure the society. At first it tolerated both peasant proprietorship in
agriculture and limited private ownership of commerce and industry, but in 1953 it
began to encourage the collectivization of agriculture and engaged in widespread na-
tionalization of industry. Although significant results were achieved, they were not
enough to satisfy the party leadership, which in 1958 embarked on a “great leap for-
ward”—an intensive effort to catch up with the advanced industrial economies.
Within a short time this ambitious program proved a catastrophic failure. The popu-
lation was unable to sustain the effort and sacrifices demanded by its rulers, and a
manmade famine cost millions of lives. In 1961 the government revised its objectives
and growth resumed at a less frenzied pace.
A major objective of the Chinese Communist leadership was to restructure soci-
ety and reform thought processes, behavior, and culture. The vestiges of “feudal” and
“bourgeois” class structure were eliminated by the simple expedients of expropria-
tion and execution. Enforcing loyalty and obedience within the vast bureaucracy,
which still clung to ancient mandarin traditions, and among the thin stratum of intel-
lectuals, scientists, and technicians, most of whom had been educated in the West,
proved more difficult. At length, in 1966, Mao launched a “great cultural revolution”
376 A CONCISE ECONOMIC HISTORY OF THE WORLD

marked by three years of terrorism and violence, during which many intellectuals
were obliged to work as peasants and common laborers.
The Soviet Union had extended economic, technical, and military assistance to
the PRC from the beginning, but the Chinese refused to accept Soviet dictation. In
1960 the USSR cut off all aid and withdrew all of its advisers and technical assistants.
Within a few years, after a series of border clashes, the two superpowers of the Com-
munist world were on the verge of open warfare. In spite of the withdrawal of Soviet
technicians and assistance China scored its greatest technological triumph in 1964
with the explosion of an atomic bomb.
To compensate for the hostility of the Soviet Union the Chinese undertook a rap-
prochement with the West, climaxed in 1971 when the United States withdrew its ob-
jections to the admission of the PRC to the United Nations. After the death of Mao in
1976 Western contacts increased, and in the 1980s, under the leadership of Deng X1-
aoping, the government allowed a limited reintroduction of free markets and free en-
terprise.
The Soviet Union had three other satellites or client states in Asia. In 1924 the
Mongolian People’s Republic became the first Communist state outside the USSR.
(Formerly known as Outer Mongolia, it had won independence from China in 1921
with Soviet assistance.) Semiarid and sparsely populated, its economy was primarily
pastoral, although after World War II it began to exploit its mineral resources (copper
and molybdenum) with aid from the Soviet Union and other Communist countries. It
became a member of COMECON in 1962. In 1978 the first secretary of the Com-
munist party announced that it had been transformed from an agricultural—industrial
country to an industrial—agrarian one.
After the defeat of Japan American and Soviet armies occupied Korea jointly.
Their zones were separated only by the thirty-eighth parallel of latitude. Efforts to
unite the country under a single regime failed, and in 1948 the Soviet and American
authorities organized separate regimes in their respective zones and shortly thereafter
withdrew their armed forces. The Democratic People’s Republic of Korea, or North
Korea, was established in September 1948, modeled on Soviet-style central planning
focused on the military forces. In June 1950, North Korean troops invaded South Ko-
rea, seeking to reunify the country under Communist control. With substantial U.S.
aid, South Korea eventually repelled the invasion, but both parts of the country were
devastated by the war, lasting until the armistice of 1953. North Korea’s mining and
manufacturing capacity was rebuilt with Soviet and Chinese aid and agriculture was
collectivized. Under the authoritarian regime of Kim Il-sung, North Korea became
one of the most repressive and regimented societies in the world, consistently failing
to produce adequate food or consumer goods for its people, althought it had been the
most advanced part of the Korean economy before World War II.
The Socialist Republic of Vietnam was the outgrowth of the Democratic Repub-
lic of Vietnam, established on September 2, 1945, by Ho Chi Minh, the leader of the
resistance movement against the Japanese, who had occupied the country during
World War II. After the war the French attempted to reinstate themselves, but were
defeated by the Vietnamese in 1954. The country was then divided into a Communist
North Vietnam and an anti-Communist South Vietnam. In the tragic civil war that fol-
lowed in the 1960s and 1970s the south was defeated in spite of massive military sup-
 Rebuilding the World Economy, 1945—73 Sy

port and economic aid from the United States. The economy was traditionally agrar-
ian, with rice and rubber its principal exports, but the French also developed a sig-
nificant industrial area in the north based on the processing of mineral resources. In-
dustrialization has been pushed by the government, which owns and operates virtually
all enterprises.
The only avowedly socialist state allied with the Soviet Union in the Western
Hemisphere was the Republic of Cuba. Fidel Castro, the revolutionary leader who
overthrew the oppressive dictator Fulgencio Batista on January 1, 1959, did not at
first overtly proclaim himself a Marxist; but the anti-Castro policy of the United
States, culminating in support for the disastrous invasion of the Bay of Pigs in 1961,
drove him into the arms of the Soviet Union, delighted to find a base to spread its doc-
trines in the Western Hemisphere. Cut off from its traditional markets, principally in
the United States, but still dependent on its traditional export, sugar, Cuba received
the greater part of its manufactured goods (including armaments) from the Soviet
bloc. In 1972 it became a member of COMECON.

The Economics of Decolonization

World War II dealt a death blow to European imperialism. The Philippines, the Dutch
East Indies, French Indochina, and British Burma and Malaysia fell under the tem-
porary control of Japan. Elsewhere in Asia and Africa the defeat of France, Belgium,
and Italy and the preoccupation of the British with the war effort left their colonial
dependencies largely on their own. Some dependencies proclaimed their indepen-
dence at once; others witnessed the rise of independence parties that agitated against
continued colonial rule. The wartime slogans of the Western Allies, calling for liberty
and democracy throughout the world, strengthened the appeal of the independence
movements by highlighting the contrast between Western ideals and the realities of
colonialism. They also undermined the willingness of Europeans to tax themselves
in order to dominate others. In the immediate postwar years the imperial powers tem-
porarily regained control in most of their former colonies, but their own war-induced
weaknesses, the growing strength of native independence movements, and the am-
bivalent position of the United States led to gradual abandonment of imperial con-
trols. In a few cases colonial areas fought successful wars of independence against
their former masters. Increasingly the imperial powers relinquished dominion volun-
tarily, if reluctantly, rather than experience the costs and hazards of war.
When Great Britain granted independence to the Indian subcontinent in 1947, not
one but two new nations emerged—then a third and a fourth. India and Pakistan, the
first predominantly Hindu in religion, the latter Islamic, both became independent on
August 15, 1947. The following year the island of Ceylon also obtained indepen-
dence, renaming itself Sri Lanka in 1972. Pakistan as originally constituted was di-
vided into two widely separated parts: Urdu-speaking West Pakistan, along the Indus
River, and Bengali-speaking East Pakistan across India on the Ganges River. The
West Pakistanis dominated the more numerous East Pakistanis politically until 1971,
when the latter revolted and established the independent state of Bangladesh. All four
countries have extremely dense populations, few and poor natural resources, and low
 378 A CONCISE ECONOMIC HISTORY OF THE WORLD

levels of literacy. They are also subject to racial and religious disturbances and un-
stable, frequently dictatorial governments. Most of the labor force in all is engaged
in low-productivity agriculture. Not surprisingly, all of these countries are extremely
poor. India is the least unprosperous. In the 1960s and 1970s it took advantage of the
“green revolution” in agriculture and is now virtually self-sufficient in food supply.
It also has more industry than the others. None of the countries is a doctrinaire so-
cialist state, but in all the government plays a substantial role in the economy.
Burma, renamed Myanmar, governed before the war as a part of British India,
gained independence from the British in 1948, Indonesia from the Dutch in 1949, and
Laos and Cambodia, along with North Vietnam, from the French in 1954. In 1963 the
former crown colonies of Singapore, Sarawak, and North Borneo joined the Federa-
tion of Malaya as the Federation of Malaysia, a fully self-governing dominion within
the Commonwealth of Nations; but in 1965 Singapore, populated overwhelmingly by
ethnic Chinese, withdrew and became an independent republic. The Philippines,
slated for independence from the United States before World War II, actually became
independent as the Republic ofthe Philippines on July 4, 1946. All of these countries,
except Singapore, have many characteristics in common, including climate and
topography. All are predominantly rural and agrarian, with the labor force divided be-
tween subsistence peasant farms and plantation agriculture producing for export.
Some also have strategic minerals valued in world markets—oil in Indonesia and tin
in Malaysia. All have low rates of literacy and high rates of population growth. Al-
though nominally republics, the forces of democracy are weak; most have endured
prolonged periods of dictatorship. And most are desperately poor. Singapore, how-
ever, is highly urbanized, highly literate, and relatively wealthy. Situated at the con-
fluence of major trade routes, it has developed a sophisticated economy like Hong
Kong, with commerce as its mainstay as well as related banking and financial ser-
vices and even some industry.
The political map of Africa at the end of World War II differed little from that of
the interwar years. The imperial powers of the past still ruled almost all of the conti-
nent. Superficially, the momentous events of the two previous decades appeared to
have had little effect. Underneath the surface, however, powerful currents of change
had been set in motion, which in the next two decades completely altered the face of
the continent.
The former Italian colony of Libya became the first African nation to gain inde-
pendence. The United Nations made the decision in 1949, and the new state came
into
existence at the end of 1951 as a constitutional monarchy. With its sparse population
,
apparent lack of natural resources, and backward economy, the future
of the new na-
tion was far from promising, but Western subsidies helped it to survive until
the dis-
covery of oil strengthened its economic base. In 1969 a junta of young military
offi-
cers overthrew the aging pro-Western king and set up a fanatically nationalist
Arab
republic, which in the 1980s and 1990s aided and abetted international
terrorists.
Great Britain formally terminated its protectorate over Egypt in 1922,
but retained
control of its military and foreign affairs. In 1952 a military junta
overthrew the in-
dolent and pleasure-loving British puppet and set up a military dictator
ship in the
guise of a republic. In 1956 the dictator forced out the last British
troops, ostensibly
guarding the Suez Canal, and shortly afterward nationalized the
canal. Although in-
 Rebuilding the World Economy, 1945—73 379

sisting on full independence for themselves, the Egyptians wished to maintain con-
trol of the Sudan, which they had administered jointly with the British. In a plebiscite
in 1955, however, the Sudanese voted heavily in favor of an independent republic,
which they proclaimed on January 1, 1956. With a large area but poor resources, and
a mostly illiterate population, the Sudan has been unable to make either democracy
or the economy function and has been ruled by a series of military regimes.
French North Africa engaged in a long, difficult struggle for independence.
Tunisia and Morocco had retained their traditional governments under French direc-
tion. Algeria, on the other hand, where the French had been established for more than
a hundred years and which had more than a million inhabitants of European ancestry
(about one-tenth of the population), was treated as part of France for some purposes.
Strong nationalist and pan-Arab movements developed in all three countries after the
war. The French government responded with nominal concessions for Tunisia and
Morocco, but attempted to integrate Algeria more firmly with France. Neither policy
worked.
France eventually granted Tunisia and Morocco full independence, but strength-
ened its control in Algeria. The Algerians replied with an intensive guerrilla war be-
ginning in 1954, in which they frequently engaged in acts of terrorism against both
the European population and Algerian collaborators. Unable to locate and destroy the
top leadership of the rebels, who frequently took refuge in other Arab countries, the
French army responded with terrorism of its own. The government in Paris neither
gave the army full support nor exercised firm control over it. In May 1958, faced with
the threat of an army coup d’état, the government of the Fourth French Republic ab-
dicated its powers to General de Gaulle, who assumed virtually dictatorial power. At
first de Gaulle seemed intent on keeping Algeria French, but after further years of
bloodshed and fruitless attempts to reach an understanding with Algerian leaders for
autonomy within the “French Community,” he agreed in 1962 to full independence.
All three North African countries were predominantly agrarian, with Mediter-
ranean-type agriculture (cereals, olives, citrus fruit, etc.), but they also contain im-
portant mineral deposits. In particular, Algeria’s oil and natural gas deposits, discov-
ered shortly after independence, have given it the means both to develop industry and
to play a role in world politics. Before their independence all three countries were
commercially oriented to France, and that orientation continued, although a trade
agreement with the European Community in 1976 broadened their external markets.
Algeria exported much of its liquid natural gas to the United States.
In the early 1950s most observers expected that a generation or more would be
required for the black peoples of Africa to obtain independence; yet within a decade
more than a score of new nations had arisen from the former British, French, and Bel-
gian empires. The strength of the native independence movements only partly ac-
counted for this striking development. Equally important were domestic difficulties
of the imperial powers, which made them unwilling to bear the high cost (economic,
political, and moral) of continuing to rule alien peoples against their will. Once the
process of emancipation had begun, it continued like a chain reaction, with each new
day of independence hastening the next.
After World War II the British government realized it would have to do a better
job of preparing its African wards for self-government if it were to avoid costly colo-
 380 A CONCISE ECONOMIC HISTORY OF THE WORLD

nial wars and a total loss of the economic benefits of empire. It began by establish-
ing more schools, creating universities, and opening the civil service to Africans. In
1951 the Gold Coast and Nigeria obtained some local autonomy. The British intended
more, perhaps after several decades. In the Gold Coast, however, Kwame Nkrumah,
a remarkable political leader, demanded immediate independence and showed deter-
mination to win it even from his prison cell. Rather than risk a full-fledged revolt, the
British agreed to most of Nkrumah’s demands, and in 1957 the state of Ghana (named
for a medieval African empire) emerged as the first black nation in the British Com-
monwealth. Ghana also became a member of the United Nations. With this precedent
before it, Nigeria achieved independence in 1960, and other former British posses-
sions followed suit in later years.
Paradoxically, the first British colonies in Africa to achieve full independence
were among the least advanced economically and politically. Because they were pop-
ulated almost entirely by black Africans, there was no problem of white minorities.
In East Africa and the Rhodesias, however, British settlers had acquired vast tracts of
property and enjoyed substantial local self-government. Deprived of political rights
and economic opportunity, the Africans constituted sullen, rebellious majorities who
sometimes resorted to violence, as in the Mau Mau terrorism in Kenya in the 1950s.
By 1965 Britain had granted independence to all its African colonies except
Southern Rhodesia (or Rhodesia as it was known after Northern Rhodesia became
Zambia in 1964). The exception resulted from the refusal of Rhodesia’s white popu-
lation to accord equal status to their black fellow citizens, who greatly outnumbered
the whites. In 1965 the white-dominated government of Prime Minister Ian Smith
made a unilateral declaration of independence—the first in the British Empire since
1776. The United Nations attempted to apply economic sanctions, but Rhodesia, with
some assistance from South Africa and Portugal, successfully resisted them for sev-
eral years. At length, in 1979, after free elections, the black majority triumphed and
renamed the country Zimbabwe.
When announcing the constitution of the Fifth Republic in 1958, de Gaulle of-
fered the French colonies, except Algeria, the option of immediate independence or
autonomy within the new French Community, with the right to secede at any time.
Although de Gaulle realized that it would probably be impossible to hold the colonies
against their will, this remarkably liberal offer stands in marked contrast to the stub-
born unrealism and blunders of earlier French colonial policy. Of fifteen colonies
in
black Africa (including Madagascar) only Guinea, led by the Communist Sekou
Touré, chose independence. The others organized their own governments, but
allowed
France to retain control of defense and foreign policy in return for economic
and tech-
nical assistance. In 1960 a further constitutional change granted them
full indepén-
dence while permitting them special economic privileges. In 1963, under
the Yaoundé
Convention (see later), those privileges were extended to include all
members of the
European Community.
The sudden achievement of freedom by France’s colonies stirred
the formerly
placid subjects of the Belgian Congo to riot, pillage, and demand
similar treatment.
The Belgians had made no provision for self-government in the
Congo, much less for
independence. The disturbances took them by surprise, but early
in 1960 the Belgian
government decreed that the Congo was to become independent
on June 30. Elections
 Rebuilding the World Economy, 1945—73 381

were hastily arranged, a constitution was drawn up, and the largely illiterate Con-
golese, none of whom had ever voted before, were called on to choose a complete set
of government officials. When the day arrived many of them expected their standard
of living to be magically raised to the level enjoyed by their affluent former masters.
In their disappointment they again resorted to pillage and wanton destruction. The
Congolese army mutinied, rival political groups attacked one another, and the min-
eral-rich Katanga province tried to secede from the new nation. The central govern-
ment called for assistance from the United Nations to restore order, but rebellion and
wild outbursts of violence continued to occur sporadically. Not until 1965 did a mil-
itary dictator, General Mobutu, succeed in restoring order. After consolidating his
control he changed the name of his country to the Republic of Zaire.
By the mid-1960s the former European colonial powers, except Portugal, had
granted independence to almost all their Asian and African dependencies. Portugal
scornfully rejected all suggestions that it prepare its colonies for eventual liberation.
In 1974, however, a coup in Portugal overthrew the dictatorial regime and the new
government promptly negotiated independence for its African colonies, Angola and
Mozambique, the following year.
Although colonialism was dying, if not dead, it left a rueful legacy. With few ex-
ceptions, confined largely to areas of European settlement, the new nations were des-
perately poor. In three-quarters of a century of colonialism the nations of Europe had
extracted vast fortunes in minerals and other commodities, but shared little of their
wealth with the Africans. Only belatedly had some colonial powers made any effort
to educate their subjects or prepare them for responsible self-government. Neverthe-
less, most new nations made at least a pretense of following democratic forms, and
some made a valiant effort to achieve true democracy. As in many other parts of the
world, however, the social and economic bases for stable, viable democracies did not
exist. Many former colonies succumbed to one-party governments, frequently influ-
enced by Russian or Chinese Communists. Some fell victim to anarchy and civil war,
during which thousands of innocent civilians, especially children, died of malnutri-
tion and disease as well as from hostilities. Most governments of the new nations were
plagued by inefficiency and corruption. Even when their intentions were benign, few
had the resources, especially in human capital, to carry them out successfully.

The Travails of the Third World

In many cases, the former colonies tried to imitate the apparent successes of Latin
America in establishing economic independence as well as political independence
from their former colonial masters. In the late nineteenth century and the first half of
the twentieth the countries of Latin America had been important participants in the
international division of labor, based on their comparative advantage in primary prod-
ucts. As late as the midtwentieth century some of them, notably the countries of the
“southern cone” (Argentina, Uruguay, and Chile), enjoyed per capita incomes com-
parable with those of western Europe. Thereafter, under the misguided assumption
that they were somehow second-class citizens of the world because of their special-
ization in primary products, most of them continued on programs of “import substi-
382 A CONCISE ECONOMIC HISTORY OF THE WORLD

tution industrialization,” attempting to produce for themselves the manufactured

goods they had previously imported. While this strategy had worked well for them
during the depression of the 1930s and the disruptions caused by World War II, it
proved counterproductive compared to the export-promotion policies taking root first
in Europe and then in Japan. Almost without exception the Latin American programs
failed, for several reasons: domestic markets were too small, in both numbers and pur-
chasing power, to justify the most economical methods of production; lack of inter-
national cooperation in the region (e.g., the Latin America Free Trade Association,
LAFTA, never really got off the ground); and, unlike Japan, the region lacked the hu-
man capital to use effectively the new technology developed elsewhere, much less to
develop its own. Moreover, savings rates remained low compared to the Asian newly
industrializing countries, and population growth rates remained high. The result was
that by the time the oil shocks of the 1970s disrupted the international economy, the
levels of per capita income in Latin America had fallen even farther below those in
the advanced industrial countries of the West. Given that Latin American economic
policies were generating no better results than the similar policies of the former
colonies of Western powers in Africa and Asia, it was natural for them to make com-
mon cause. In multilateral organizations from the United Nations and its specialized
agencies to the International Monetary Fund and the World Bank, they called them-
selves the Third World, neither communist nor capitalist, and equally willing to ac-
cept foreign aid from the United States, western Europe, or the Soviet Union.
Already in the 1960s, however, remarkable growth and industrialization was
taking place in certain economies of Southeast Asia, especially in Japan’s former
colonies, South Korea and Taiwan. At the time, their growth was dismissed asjust the
result of being a military-client state of the United States, so that huge sums of for-
eign aid from the United States were justified by its Cold War with the Soviet Union.
In retrospect, however, it appeared that they had succeeded in imitating J apan’s state-
directed and export-led industrialization, and in some cases actually improved upon
the Japanese strategy by allowing higher rates of growth of domestic consumption.

The Origins of the European Union

The dream of a united Europe is as old as Europe itself. Charlemagne’s Holy Roman
Empire closely approximated the boundaries of the ori ginal Common Market.
Napoleon’s French Empire and its satellites in the Continental System encompassed
almost all of continental Europe. The concert of Europe, which grew out of the Vi-
enna Congress of 1815, represented an attempt to coordinate policy at the highest ley-
els of government. The League of Nations was a concert of the European victors
in
World War I. Hitler very nearly succeeded in creating a Festung Europa under Nazi
domination. All such efforts failed, however, because of the inability of the
would-be
unifiers to maintain a monopoly of coercive power and the unwillingness of the mem-
bers to submit voluntarily to their authority. In earlier times the difficulties
of com-
munication contributed to the fractionation of Europe. Then the idea of nationalism
became so deeply entrenched in European thought, especially after the French
Rey-
olution, that sovereignty, that is, supreme authority or dominion, and
nationhood be-
 Rebuilding the World Economy, 1945-73 383

came almost synonymous. Prior to World War II modern nations zealously opposed
all proposals or attempts to infringe on or in any way diminish their sovereignty.
It is important to bear in mind the distinction between international and suprana-
tional organizations. International organizations depend on the voluntary cooperation
of their members and have no direct powers of coercion. Supranational organizations
require their members to surrender at least a portion of their sovereignty and can com-
pel compliance with their mandates. Both the League of Nations and the United Na-
tions are examples of international organizations. Within Europe the OEEC and most
other postwar organizations of nations have been international rather than suprana-
tional. Continued successful cooperation may lead eventually to a pooling of sover-
eignties, which is the hope of proponents of European unity. Proposals for some kind
of supranational organization in Europe have become increasingly frequent since
1945 and have issued from ever more influential sources.
The proposals spring from two separate but related motives—political and eco-
nomic. The political motive is rooted in the belief that only through supranational or-
ganization can the threat of war between European powers be permanently eradicated.
Some proponents of European political unity further believe that the compact nation-
state of the past is now outmoded; if the nations of Europe are to resume their former
role in world affairs they must be able to speak with one voice and have at their com-
mand resources and a work force comparable to those of the United States. The eco-
nomic motive rests on the argument that larger markets will promote greater special-
ization and increased competition, thus higher productivity and standards of living.
(Some also argue that larger markets would bring economies of scale.) The two mo-
tives merge in agreeing that economic strength is the basis of political and military
power and that a fully integrated European economy would render intra-European
wars less likely if not impossible. Because of the deeply entrenched idea of national
sovereignty, most of the practical proposals for a supranational organization have en-
visaged economic unification as a preliminary to political unification.
The Benelux Customs Union, which provided for the free movement of goods
within Belgium, the Netherlands, and Luxemburg, and for a common external tariff,
grew out of the realization that under modern conditions of production and distribu-
tion the economies of the separate states were too small to permit them to enjoy the
full benefits of mass production. Belgium and Luxemburg had, in fact, joined in an
economic union as early as 1921, and the governments-in-exile of Belgium and the
Netherlands had agreed in principle on the customs union during the war. Formal rat-
ification of the treaty came in 1947. Statesmen of these countries have been the
warmest advocates of a European common market and have continued to work for a
closer economic integration of their own countries independently of broader Euro-
pean developments.
The OEEC resulted largely from American initiative and provided only for co-
operation, not full integration. In 1950 French Foreign Minister Robert Schuman pro-
posed the integration of the French and West German coal and steel industries and in-
vited other nations to participate. Schuman’s motives were as much political as
economic. Coal and steel lay at the heart of modern industry, the armaments industry
in particular, and all signs pointed to a revival of German industry. The Schuman Plan
was a device to keep German industry under surveillance and control. Anxious to be
 384 A CONCISE ECONOMIC HISTORY OF THE WORLD

admitted to the new concert of Europe, West Germany responded with alacrity, as did
the Benelux nations and Italy, afraid of being left behind if they did not participate.
Great Britain, with nationalized coal and steel industries at the time and still mindful
of its empire, replied more cautiously and in the end did not participate. The treaty
creating the European Coal and Steel Community (ECSC) was signed in 1951 and
took effect early the following year. It provided for the elimination of tariffs and quo-
tas on intracommunity trade in iron ore, coal, coke, and steel, a common external tar-
iff on imports from other nations, and controls on production and sales. To supervise
its operations several bodies of a supranational character were established: a High Au-
thority with executive powers, a Council of Ministers to safeguard the interests of the
member states, aCommon Assembly with advisory authority only, and a Court of Jus-
tice to settle disputes. The community was authorized to levy a tax on the output of
enterprises within its jurisdiction to finance its operations.
Soon after the community commenced operations the same nations attempted an-
other giant step forward on the road to integration with a treaty for a European De-
fense Community. Developments such as the Korean War, the formation of NATO
(North Atlantic Treaty Organization) in 1949, and the rapid economic recovery of
Germany had demonstrated the importance of including German contingents in a
western European military force, but proposals to do this naturally aroused the sus-
picion and hostility of people who had recently been victims of German aggression.
After prolonged debates the French National Assembly rejected the treaty outright in
August 1954. This setback to the movement for unification demonstrated once again
the difficulty in securing agreement on proposals for the limitation of national sover-
eignty. The proponents of unity then resorted to more cautious tactics, once again in
the area of economics.
In 1957 the participants in the Schuman Plan signed two more treaties in Rome,
creating the European Atomic Energy Community (EURATOM) for the development
of peaceful uses of atomic energy and, most important, the European Economic Com-
munity (EEC), or Common Market. The Common Market treaty provided for the
gradual elimination of import duties and quantitative restrictions on all trade between
member nations and the substitution of a common external tariff over a transitional pe-
riod of twelve to fifteen years. Members of the community pledged to implement com-
mon policies respecting transportation, agriculture, social insurance, and a number of
other critical areas of economic policy and to permit the free movement of persons and
capital within the boundaries of the community. One of the most important provisions
of the treaty was that it could not be unilaterally renounced and that, after a certain
stage in the transition period, further decisions would be made by a qualified majority
vote rather than by unanimous action. Both the Common Market and EURATOM
treaties created high commissions to oversee their operations and merged other
supra-
national bodies (councils of ministers, common assemblies, and courts
of justice) with
those of the ECSC. The Common Market treaty took effect on January
1, 1958, and
within a few years the community confounded the pessimists (of which
there were
many) by shortening instead of lengthening the transitional period. In
1965 the high
commissions of the three communities merged, providing a more effective
agency for
eventual political unification. On July 1, 1968, all tariffs between
member states were
completely eliminated, several years earlier than the date originally
foreseen.
 Rebuilding the World Economy, 1945—73 385

In the preliminaries to the treaties of Rome invitations were extended to other na-
tions to join the Common Market. Britain objected to the surrender of sovereignty im-
plied in the treaties and attempted to persuade the OEEC nations to create a free trade
area instead. After signature of the Common Market treaty Britain, the Scandinavian
nations, Switzerland, Austria, and Portugal created the European Free Trade Associ-
ation (EFTA), the so-called outer seven, in contrast to the inner six of the Common
Market. The EFTA treaty provided only for the elimination of tariffs on industrial
products among the signatory nations. It did not extend to agricultural products, it did
not provide for acommon external tariff, and any member could withdraw at any time.
It was thus a much weaker union than the Common Market.
In 1961 Britain signified its willingness to enter the Common Market if certain
conditions could be met. If effected, this move would have entailed the membership
of most of the EFTA partners also. Lengthy negotiations over the terms of entry en-
sued, but in January 1963 President de Gaulle of France in effect vetoed Britain’s
membership, an action he repeated in 1967. After de Gaulle’s resignation in 1969 the
French government took a more moderate attitude on the question of British mem-
bership, which other Common Market countries favored. Following further negotia-
tions Britain, Eire, Denmark, and Norway were accepted for membership in 1972, ef-
fective January 1, 1973. Although Norway applied for and was accepted for
membership, the government put the question to a popular referendum, which lost;
thus in 1973 the original six became nine.
The proponents of European unity had far more in mind than a mere common
market or customs union. For them the Common Market was but a prelude to the
United States of Europe, in much the same way that the Zollverein preceded the Ger-
man Empire. After the signature of the treaties of Rome they began to speak of the
“European Communities” and, after the merger of the high commissions in 1965, of
the “European Community.” The merged Common Assemblies became the European
Parliament. At first its members were elected by and from the members of the par-
liaments of the member states, and sat in national groupings. It had only consultative
powers until the community obtained an independent source of revenue from its cus-
toms duties. (Previously the communities had been financed by a portion of the value-
added taxes from each country.) Thereafter the Parliament had limited control over
the budget. In 1979, after long negotiations and several postponements, the members
of the Parliament were elected directly by the people and took their seats in party blocs
rather than according to nationality.
Nevertheless, European unity was far from an accomplished fact. In the 1950s
and 1960s, when the community was establishing itself and taking its first steps to-
ward integration, the world economy was robust and expansive, contributing to the
sense of optimism of the new endeavor and facilitating its progress. Subsequently,
during the period of expansion of membership, the world economy was much less
conducive to growth. Just as the negotiations were underway between the European
Community and Great Britain, the Bretton Woods system of fixed exchange rates
ended on August 15, 1971. This disrupted plans made in 1970 to create a common
currency among the original six member states, as each country found its currency
under speculative pressures that altered the previous parities. Then in 1973, after
Britain had joined the EEC along with Ireland and Denmark, the first oil shock dis-
386 A CONCISE ECONOMIC HISTORY OF THE WORLD

rupted the economic plans of all members, based as they had been on the premise of
continued supplies of cheap oil from the Middle East. Each nation pursued its sepa-
rate strategy for dealing with quadrupled price of oil. Meanwhile, the British entry
forced other changes in EEC policy. Regional policy funds were added to compen-
sate Britain in part for the high prices it would have to pay for food imports, but this
led to competition among the members for shares in the EEC’s disbursements.
Finally, British entry complicated further the EEC’s dealings with its former colo-
nial possessions. In 1963 it had signed a convention in Yaoundé, Cameroon, offering
commercial, technical, and financial cooperation to eighteen countries of black
Africa, mostly former French and Belgian colonies. In 1975, it signed a convention
in Lomé, Togo, with forty-six countries of Africa, the Caribbean, and the Pacific,
which now included former British colonies as well as additional former colonies of
France and the Netherlands. The Lomé agreement granted these countries free access
to the community for virtually all of their products, subject to quotas if they competed
with European products, as well as providing industrial and financial assistance. Dur-
ing the remainder of the turbulent 1970s, similar trade agreements were made with
Israel (1975); Tunisia, Algeria, and Morocco (1976); and Egypt, Syria, Jordan, and
Lebanon (1977). Overall, despite the apparent disunity of purpose that afflicted the
European Community during the mid-1970s, the common response to the sharply in-
creased cost of vital imports of fuel was to promote exports and to find cheaper
sources of imports of raw materials and foodstuffs. As a result, the importance of trade
increased sharply and permanently for all concerned, despite the slowdown in over-
all growth that occurred.
 16
The World Economy at the Beginning
of the Twenty-First Century

The year 2001 marked not only the beginning of the twenty-first century but also the
end of the first decade of experience with a truly global economy. Since the defini-
tive collapse of the Soviet Union in 1991, nearly every nation in the world has ac-
cepted the need to adjust its own economic policy and structure to the demands of the
emerging global marketplace. When President Boris Yeltsin of Russia pronounced the
Soviet Union dead and dissolved at the end of the failed coup against Mikhail Gor-
bachev in August 1991, he also proclaimed the definitive failure of the Communist
experiment with centrally planned, essentially self-sufficient economies. From that
time one, policymakers in each country, regardless of their political ideology, have
had to come to terms with market forces that have swept around the earth. The new
winds of change carry the consequences of startling advances in information and
communications technology, informing millions of people everywhere of new possi-
bilities for employment and consumption and thousands of firms of new opportuni-
ties for investment and growth. Small wonder that capital, labor, and product markets
respond with volatile prices and disconcerting quantity movements. Already, politi-
cal forces in some countries are reacting to insulate their constituencies from some of
the consequences of globalization. Malaysia maintains the capital controls it imposed
in 1998, pointing to the apparent success of mainland China in sustaining rapid
growth with strict capital controls. The European Union countries tighten their ac-
ceptance of refugees while the United States increases its Border Patrol on the Mex-
ican border. Non-tariff barriers arise everywhere in the industrialized countries on
new pretexts of environmental and human rights safeguards. No one can predict how
the various countries and regions of the world will adapt to this new historic epoch
of rapid technological change combined with the opening of new markets. Readers
of this textbook will recall that the previous examples of a global economy emerging
in the world have led to major disasters and setbacks, whether caused by natural ca-
tastrophes in the ancient world, plague in the medieval world, or wars in the modern
world. The current global marketplace is not immune to any of these threats to its ex-
istence, although awareness of their potential should help us guard against them.
How did this new global economy emerge in the first place? It seems clear that
the economic success of western Europe in recovering so quickly and definitively
from the devastation of World War II was instrumental by setting an example. Grad-

387
388 A CONCISE ECONOMIC HISTORY OF THE WORLD

ually, individual countries in other regions of the world found their own methods to
imitate the European success. The first, and most noteworthy, follower in Europe’s
footsteps was Japan. Indeed, the Japanese boom was both longer and stronger than
Europe’s long postwar boom. From the late 1940s to the early 1970s, the growth rate
of Japanese GDP was in excess of 10 percent annually, unique in the history of eco-
nomic growth. By 1966, Japan had become the second largest economy in the world,
which it remains to this day. In the relatively depressed 1970s and 1980s its growth
slowed somewhat but was still higher than that of most other areas of the world econ-
omy. Not until the 1990s did it suffer a prolonged slowdown and an increasing crisis
of confidence in its economic institutions. Although frequently referred to as a “mir-
acle,” there were, as in Europe, solid reasons for this performance. First was the phe-
nomenon of technological catch-up. From the late 1930s to the late 1940s, the Ja-
panese economy had been isolated from the rest of the world, and Japan could borrow
many technological innovations at minimal cost. That is scarcely a sufficient reason
for Japan’s high growth rate, however; if it were, many other countries would have
done likewise. More important was Japan’s high level of human capital, which en-
abled Japan to take advantage of superior technology. Moreover, after Japan made up
for its technological lag it became a leader in introducing new technology, especially
in such areas as electronics and robotics. For this it could draw on not only its stock
of human capital but also the high levels of saving and investment of the Japanese
people, as well as the sophistication of Japanese management, which realized the high
payoffs of industrial research and development. All this was combined under the di-
rection of a stable government that was committed to realizing and maintaining ex-
port-led growth, even more so than its European exemplars. Japan consistently ran
the largest export surpluses in the industrialized world. Finally (but not exhaustively),
and more speculatively, one might cite the spirit or mentality of the Japanese peo-
ple—more collectivist (in a general sense), more cooperative, more given to team
play. This is manifest in both the attitudes of employers toward their employees, with
lifetime employment the rule in most firms until the malaise of the 1990s forced un-
employment rates ever higher, and in government policy, which provoked the epithet
“Japan, Inc.,” as applied by some critical western observers.
Other Asian countries, led first by South Korea and Taiwan, also had extremely
high growth rates for both total output and foreign commerce. By 1990, they were
joined by Thailand, Malaysia, and even Indonesia as it reoriented its economic strat-
egy away from dependence on oil exports. Several of the reasons for Japanese eco-
nomic success could also apply to them—high savings rates, a well-educated popu-
lation, and stable governments that supported export-led growth. They had the further
advantage of an elastic supply of labor as their baby booms of the 1960s came of age
and migrated from the countryside into the major cities and the state-of-the-art fac-
tories built by Japanese or American multinational firms. Urbanization and factory
work also had the effect of reducing fertility rates remarkably quickly, so that the pro-
portion of the population in the prime working age groups rose sharply. Singapore and
Hong Kong, previously mentioned, occupied very special positions in the international
economy, although the provision of the 1964 treaty between the United Kingdom and
the People’s Republic of China, according to which Hong Kong reverted to Chinese
sovereignty in July 1997, caused much anxiety among that territory’s Westernized pop-
 The World Economy at the Beginning of the Twenty-First Century 389

ulation. Overall, the Pacific Basin area, including Australia and New Zealand, which
had been a marginal participant in the world economy before the midtwentieth cen-
tury, became a major actor in the last quarter of that century.
Such was not the case for Latin America, whose countries found it difficult to shift
course from import substitution industrialization to export-led industrialization. The
oil shocks of the 1970s led to increasingly unfavorable trade balances, especially
those of Argentina, Brazil, and Mexico. To finance the deficits, Latin American gov-
ernments found easy credit from international banks awash with deposits of oil rev-
enues from the OPEC cartel members. The alarmingly high levels of international in-
debtedness in the 1980s threatened the entire system of international payments when
the dollar strengthened sharply in the early 1980s. In the 1990s, however, some
progress began to be made as Mexico tried to follow the example of Chile in en-
couraging foreign investment and expanding exports, especially into the North Amer-
ican Free Trade Area. Despite the setback of the Mexican peso crisis in 1995, other
Latin American countries continued to switch toward apertura policies, gradually
opening up their economies and financial systems to the global markets. Argentina
stopped dead its bouts of inflation by establishing a currency board that made the peso
fully convertible with the U.S. dollar. If that experiment with “dollarization” proves
successful, one may expect other Latin American countries to follow, as did Ecuador
at the end of 1999.
As both trade and output rose to record levels for the world as a whole at the close
of the twentieth century, Africa remained a dark cloud on the horizon. The new na-
tions that emerged with the end of European colonialism lacked the necessary re-
sources, both natural and especially human, to cope with the complexities of a mod-
ern economy. Political circumstances likewise hindered efforts of economic
development; ethnic enmities engendered frequent civil wars and coups d’état; most
nations fell under the sway of one-party governments with varying degrees of dicta-
torial control. In the Republic of South Africa, long dominated by its white minority
of British and (mainly) Boer descent, the black majority finally obtained something
approaching political equality in the early 1990s; but ethnic rivalries and resorts to vi-
olence among factions of the majority threatened to vitiate any economic advantages
that might have resulted. The extreme ethnic and language diversity of the African con-
tinent appears to have stymied efforts to build the institutions of property rights and
contract enforcement necessary to obtain the benefits of market-based capitalism. The
poorest, and slowest growing, countries in the world continue to be in Africa, the con-
tinent most plagued by disease, civil war, genocide, and unstable governments.
Another region of the world that has acquired greatly increased economic signif-
icance in the latter part of the twentieth century is southwest Asia, or the Middle East.
The reason for its increased economic importance can be succinctly summarized in a
single word: oil.
Oil was discovered in Iran (then called Persia) in the first decade of the twentieth
century, and subsequently in several Arab states bordering the Persian Gulf—lIraq,
Saudi Arabia, Kuwait, and the smaller emirates—but as late as 1950 the region ac-
counted for little more than 15 percent of total world production. (The United States
at that time was still far and away the largest producer, with more than 50 percent of
the total.) In 1960 those countries, along with Libya and Venezuela, formed the Or-
390 A CONCISE ECONOMIC HISTORY OF THE WORLD

ganization of Petroleum Exporting Countries, OPEC, which, several other countries

later joined. By 1970 OPEC nations accounted for more than one-third of total world
energy production. In 1973, in the wake of the fourth Arab-Israeli war, they acted in
cartel fashion to increase sharply the price of crude petroleum, an action they repeated
later in the decade, with the result that the world price rose from $3 per barrel in 1973
to $30 in 1980, a ten-fold increase. Given the world economy’s high degree of de-
pendence on petroleum by that time, the effect on the economies of both highly in-
dustrialized and developing nations was devastating. The developing nations sud-
denly faced much larger deficits in their balance of payments, forcing them more
deeply into debt, whereas the industrial nations encountered “stagflation” —stagna-
tion of output and employment combined with inflationary price rises.
The situation persisted until 1985, when the U.S. dollar was reduced in value on
the foreign exchange markets by concerted action among the central banks of the in-
dustrialized economies. By 1986, the price of oil dropped dramatically, the dollar was
weaker, and inflation had been brought under control throughout the industrialized
world. Unemployment, nevertheless, remained high, although growth rates began to
pick up again. Despite the reduction in the price of oil, demand for it did not grow as
rapidly as total output, a marked change from the conditions of the 1950s and 1960s.
Even the short-lived invasion of Kuwait by Iraq’s dictator, Saddam Hussein, in 1990,
caused only a small and brief rise in the price of oil. It fell again as soon as Iraq’s
forces were ejected even though it took several years for Kuwait’s oil production to
come back to earlier levels. Thanks to the increased efficiency with which energy was
used in the industrialized world and the increased availability of alternative sources
of energy, when the price of oil suddenly tripled again in 2000, the effects were not
nearly as dramatic as in the 1970s.

The Collapse of the Soviet Bloc

In the latter half of 1989 a series of events unfolded in eastern Europe that was as mo-
mentous as it was unexpected: the (mostly peaceful) overthrow of Communist
regimes in one country after another. Poland and Hungary led the way, but few out-
side observers expected the other nations to follow suit. Amazingly, they did so:
Czechoslovakia, East Germany, Bulgaria, finally Romania, and, belatedly, Albania.
A mixture of political and economic motives underlay the revolt of the masses in
the once Communist-dominated lands. As recounted in the previous chapter, the
regimes in those countries had been imposed by the Soviet Union without the con-
sent—indeed, against the will—of the people. Had those regimes been able to de-
liver on their promises of improved material conditions and a higher standard of liv-
ing for the people, the latter probably would have accepted their deprivation of liberty;
but the regimes did not. On the contrary, the material circumstances, including living
and working conditions, of the masses steadily deteriorated, in contrast to the ease
and abundance that they could observe on television in their Western neighbors, and
to the lavish lifestyle of the new ruling class, the upper echelons of the Communist
parties, word of which gradually filtered out.
The masses had shown their displeasure on several occasions in the past: East
 The World Economy at the Beginning of the Twenty-First Century 391

Germany in 1953, Hungary in 1956, Czechoslovakia in 1968, and Poland more than
once. On those occasions the Soviet Union had used armed force to quell the rebel-
lions (or, in the case of Poland, that regime’s own armed forces). Why it did not do
so in 1989 is an interesting question that will be explored shortly; but it did not.
The roots of popular discontent were thus deep, and although the sudden success
of the revolts took the world—the Communist leaders as well as Western observers—
by surprise, some harbingers could be observed. In 1980 Polish workers led by Lech
Walesa, an electrician in the shipyards of Gdansk, formed a labor federation, Soli-
darity, independent of the state and of the Communist Party. The regime tolerated it
for a time, but in December 1981 the government proclaimed martial law—ostensi-
bly to prevent Soviet intervention—and imprisoned Solidarity’s leaders. Unrest con-
tinued; in April 1989, in an effort to defuse the unrest, the government again legal-
ized Solidarity and arranged for partially free elections in June. (Partially free,
because a majority of the seats in the Sejm, or parliament, were reserved for govern-
ment candidates.) When Solidarity won all but one of the seats that it was allowed to
contest, one of its leaders became prime minister under a Communist president in
September 1989. This opened the possibility for economic reform to make the tran-
sition from a centrally planned to a capitalist market economy. The strategy employed
by the finance minister, Lescek Balcerowitz, was dubbed “shock therapy.” This be-
gan in January 1990 with deflationary measures combined with liberalizing prices
and removing trade barriers. Unfortunately, his reduction of government expenditures
undermined his political support. Only proceeds from rapid privatization could keep
the government budget in balance. But several factors discouraged foreign investors
from buying into the large state enterprises, after small and medium-sized state en-
terprises producing for local markets had been privatized. The lack of proper cost ac-
counting records combined with the uncertainty of future markets for the output of
coal mines, steel mills, and shipyards made any investment risky. In addition, Poland
was reluctant to cede managerial control to foreign companies, who would have no
political constraint against laying off most of the labor force. Finally, Poland had ac-
cumulated a large stock of existing foreign debt owed to Western governments and
financial institutions, which it could no longer repay.
For all these problems, after ten years of rapid changes of government and rebuffs
by the European Union and foreign investors, Poland had become the first transition
economy to recover its pre- 1990 level of output and moreover achieve sustained eco-
nomic growth. In retrospect, it appears that the political confusion created by making
so many changes at once allowed Poland’s economic reformers to stay on track to-
ward creating a functioning market economy. It helped that Western governments and
international agencies arranged to defer repayment of Polish debts until 2001, which
allowed private banks also to reschedule debt payments in 1994. Whether Poland’s
economic success made other so-called “transition economies” willing to endure the
pain of Poland’s shock therapy, however, was another matter.
After the failure of the 1956 rebellion in Hungary the new government installed
by the Soviet Union cravenly followed the Soviet line in foreign policy—for exam-
ple, it provided some token forces in the 1968 invasion of Czechoslovakia—but in
return was given some limited freedom in domestic affairs. In 1968 it instituted a
“New Economic Mechanism” that was a compromise between strict central planning
392 A CONCISE ECONOMIC HISTORY OF THE WORLD

and a free market system. It also developed closer relations, political and economic,
with western Europe. It allowed the formation of opposition political parties which,
in 1989, negotiated with the government for a peaceful transition. In a free election
in May 1990 a coalition of three former opposition parties won a clear majority in the
new National Assembly. Hungary’s initial economic reforms were more rapid than
Poland’s, based on a longer period of introducing price liberalization under the Com-
munist regime and promoting exports to the West. This experience also allowed Hun-
gary to encourage rapid privatization of its state enterprises, principally by offering
excellent terms to foreign investors. As a result Hungary quickly garnered more for-
eign investment than any other transition economy. Unfortunately for its further
progress, many of the state enterprises were simply handed over to the politically
savvy apparatchiks who managed them. This entrenched their political influence in
the government. Exercising political influence proved to be their comparative ad-
vantage compared with modernizing their plants and marketing their products. Off to
a promising start, Hungary’s growth by the end of the 1990s turned out to be disap-
pointingly low. The explanation lies partly in the relatively poor performance of ex-
ports, but mainly in the failure of the privatized state enterprises to modernize.
With the example of the relatively peaceful transitions in Poland and Hungary be-
fore them, students and workers in Czechoslovakia stepped up their protests and mass
demonstrations. At first the government responded with violent repression, in which
hundreds were killed and injured; but eventually it agreed to negotiations. In De-
cember 1989 Alexander Dubcek, the leader of the “Prague spring” of 1968, was
elected chairman of the new parliament and Vaclav Havel, a writer who had been im-
prisoned for his human rights activism, became president. In July 1992 the Slovak
National Council (regional parliament) passed a “sovereignty declaration.” Shortly
thereafter the Czech Republic agreed to a separation, which became effective Janu-
ary 1, 1993. The peaceful dissolution of Czechoslovakia stood in marked contrast to
contemporary events in Yugoslavia. Czechoslovakia’s initial political stability made
it appear to be the country most likely to carry out the wrenching transition from plan
to market. It had no foreign debt, unlike Poland, and it had begun limited liberaliza-
tion of prices and encouragement of private plots following the Hungarian example.
Moreover, it had a skilled labor force and a reputation for high quality manufactures.
But then it delayed privatization because of conflict between the Czechs and the Slo-
vaks. When the two regions separated in 1993, the creation of separate currencies and
border controls for trade set back reform further. Then, the marketing scheme devised
in the Czech Republic for privatization via vouchers distributed to everyone, which
could be used to buy shares in investment funds focusing on different industries,
proved to be vulnerable to manipulation and fraud by opportunistic insiders. This ex-
perience discouraged foreign and domestic investors alike, especially after the Rus-
sian default in 1998, which is discussed later in this chapter.
The German Democratic Republic (East Germany) celebrated its fortieth an-
niversary in October 1989, an event attended by Soviet President Mikhail Gorbachev.
Shortly thereafter, however, the Central Committee of the East German Socialist
Unity (Communist) Party deposed its veteran leader, Erich Honecker, who was sub-
sequently charged with various crimes, including misappropriation of government
funds. Meanwhile thousands of East Germans, unable to migrate directly to the West,
 The World Economy at the Beginning of the Twenty-First Century 398

had begun to flee through Czechoslovakia to Hungary, hoping thereby to reach Aus-
tria and the West. The new Hungarian government obliged them by opening the bor-
der to Austria.
One of the most dramatic—and symbolic—events of 1989 was the destruction of
the Berlin wall. The wall had been erected around West Berlin by the East German
government in 1961 to prevent the escape of its subjects to the West. For almost three
decades it stood as a symbol of Communist tyranny and repression. Spontaneously,
on the night of November 9—10, without hindrance from the East German authori-
ties, demonstrators from both East and West Berlin began destruction of the wall, and
thousands of East Berliners streamed into the West.
Events moved rapidly thereafter. The West German authorities, caught by surprise
no less than those of the East, made emergency arrangements to care for the refugees,
but also sought to persuade the East Germans to stay where they were. In July 1990
they created an economic and monetary union with the German Democratic Repub-
lic, which ceased to exist as a separate state on October 3, when it was incorporated
with the German Federal Republic. The political urgency to complete reunification
as quickly as possible before Russia’s leadership changed its mind led to an expen-
sive economic gesture—converting the East German currency (ostmark) into the
West German currency (deutschemark) at a rate of 1 to 1. The market rate was at least
6 to | and possibly as high as 12 to 1, so that while East German workers (who voted
overwhelmingly in favor of reunification on West Germany’s terms in April 1990)
were made six to twelve times better off than before, unfortunately, this meant that
their employers, which became mostly West German firms after privatization of the
former state enterprises, could no longer afford to employ them. Consequently, un-
employment soared so that continued unemployment benefits to East German work-
ers were added to the expense of rebuilding the decayed and obsolete infrastructure
of East Germany. The increased tax rates on West German firms and workers required
to finance the reunification with East Germany, in turn, raised unemployment rates
in West Germany. The continued economic burden of reunification for Germany,
stemming from the original political decision to make monetary union as favorable
as possible for East Germans, slowed down Germany’s economic growth in the
1990s, with spillover effects on the rest of Europe.
As the remaining central and east European countries threw off their shackles with
the Soviet Union, the same set of problems that bedeviled the first four transition
economies occurred with different variations and complications. So, while all of them
had remarkably similar economic structures at the outset, thanks to Soviet policy in
dispersing heavy industry and collectivizing agriculture, and all of them sought to
achieve the economic structures of western Europe as quickly as possible, the paths
taken for the transition process varied considerably. Each country dealt with its par-
ticular set of political and cultural constraints in its own way. Bulgaria, for example,
obtained a new reform regime with elections in the spring of 1990, but found its agri-
cultural output devastated because the peasants who had only recently been collec-
tivized sought to reestablish their previous property rights. After experiencing corrupt
governments and widespread financial scandals, Bulgaria finally adopted a currency
board in 1999 to end inflation and financial uncertainties. Thanks to the previous tra-
vails, reform may now find continued political support, much as in the earlier Polish
394 A CONCISE ECONOMIC HISTORY OF THE WORLD

experience. Romania’s violent deposition of its idiosyncratic dictator, Nicolae

Ceaucescu, by executing him on Christmas Day in 1989, was followed by the same
slow
Communist party officials continuing to rule a demoralized population. The
Ro-
pace of reforms and lack of economic results for the first decade have kept the
manians demoralized. Albania’s peculiar version of Stalinism came to an end in 1991,
but initial economic reforms consisted of a series of Ponzi schemes that defrauded
most Albanians of whatever savings they had. Migration to Europe seemed the best
economic strategy for them or, failing that, running the western blockade of the for-
mer Yugoslavia.
Yugoslavia itself, although not a Soviet satellite, likewise endured several years
of turmoil associated with attempts at political and economic reform. As a federation
of distinct ethnic groups, its situation was complicated by separatist movements as
well as movements for economic reform. In 1991 the constituent republics of Slove-
nia and Croatia declared their independence from Yugoslavia, and the republics of
Macedonia and Bosnia-Herzegovina moved in the same direction. The republic of
Serbia, the largest and strongest of the federation members, attempted to prevent their
secession by armed force, leading to all-out civil war. The situation was further com-
plicated by the fact that many ethnic Serbs lived in the other republics, and formed
paramilitary forces to cooperate with Serbia. In the ensuing melee thousands of in-
nocent civilians on both sides were slaughtered in the name of “ethnic cleansing.”
The outbreak of horrors only too reminiscent of the worst genocidal atrocities dur-
ing World War II, in a region that caused the outbreak of World War I at the begin-
ning of the twentieth century, finally led to NATO intervention at the end of 1995.
While this stabilized the situation in Bosnia-Herzegovina, it did nothing to resolve
the underlying tensions among Serbs, Croats, and Muslims. Serbs continued to be
whipped into a nationalistic frenzy for achieving a Greater Serbia by their former
Communist leader, Slobodan Milosevic; Croats consolidated their territorial gains un-
der the leadership of their President Tudjman, who had allied them with Nazi Ger-
many during World War II; and Muslims found it possible to import freedom fight-
ers from sympathetic Muslim nations with the tacit agreement of Western powers.
Milosevic’s last gasp as a warlord led him into ethnic cleansing of Kosovo’s Mus-
lims, which finally provoked NATO into an air war against him in 1999. Finally, by
winter 2000, Serbs had elected a replacement as president, causing the Western pow-
ers to move quickly to begin the transition process, now complicated by the effects
of a decade-long blockade of what remained of Yugoslavia combined with the effects
of the more recent strategic bombing of Serbia. Transition won’t be made easier by
the ongoing repatriation of refugees from their European hosts to Croatia, Bosnia,
Kosovo, and now Serbia.
The desire for liberty wafted itself across the breadth of Asia. As noted in the pre-
vious chapter, the government of the People’s Republic of China had allowed a lim-
ited introduction of free markets and free enterprise in the 1980s. This policy had been
notably successful in the rural sector, and agricultural output increased substantially
along with the incomes of farmers and farm workers. The policy also generated de-
mands for greater political freedom and democracy. For seven weeks in April and
May 1989, students and others staged daily demonstrations in historic Tiananmen
Square in the heart of Beijing. For a time it appeared that China, like Eastern Europe,
 The World Economy at the Beginning of the Twenty-First Century 395

might undergo a peaceful transition toward more democratic forms, but in the end the
hard-liners won the upper hand, and on June 4 armored columns gunned down the
demonstrators by the hundreds or thousands, and smashed their symbol, a plastic
replica of the Statue of Liberty.
Nevertheless, the entrenched Communist leadership continued their policies of
economic reforms, taking advantage of their access to the trading facilities of Hong
Kong, which finally returned under Chinese sovereignty in July 1997. Its status as
Special Economic Region was intended to maintain the economic advantages of
Hong Kong for the Chinese mainland and serve as an example for the eventual re-
unification with Taiwan. Despite Western concerns about human rights in China and
its continued exercise of capital controls that should have limited foreign investment,
China continued to progress toward a market economy by expanding its exports to
the West and taking advantage of capital infusions from Hong Kong and Taiwan. Af-
ter years of negotiating with the United States and the European Union, China gained
accession to the World Trade Organization in 2000, which assured it of a permanent
place in the global marketplace regardless of its authoritarian regime. Meanwhile, its
economy continued to grow at spectacular rates similar to those achieved by Japan
earlier, albeit from a much lower base of per capita income.
Western observers—and no doubt many in the Soviet Union and Eastern Europe
as well—wondered why the Soviet Union did not use armed force to quell the rebel-
lions in the satellites, as it had done before and as the Chinese government did against
its own people in June 1989. A full explanation has not yet emerged, but when it does
it will probably feature the economic debility of the Soviet Union itself as well as con-
temporaneous political developments.
In 1964 conservatives in the Communist Party hierarchy deposed the ebullient
Khrushchey, putting in his place Leonid Brezhnev, who ruled for almost two decades.
Under Brezhnev the Soviet economy stagnated; inefficiency and corruption flour-
ished. A “reform” instituted in 1965 encountered the opposition of the entrenched bu-
reaucracy (which expanded by 60 percent between 1966 and 1977) and was quietly
shelved a few years later. Both the economic growth rate and productivity declined.
When Mikhail Gorbachev—the first Soviet leader born after the October Revolu-
tion—came to power in 1985 the economy was in a state of crisis. Gorbachev un-
doubtedly realized that the Soviet Union was no longer in a position to enforce its will
on its reluctant former satellites. Its greatest need was to reform itself, hence Gor-
bachev’s program of perestroika (restructuring) and glasnost (openness).
Although Gorbachev placed greater emphasis on perestroika—he even published
a book with that title that was translated into several languages—it was glasnost that
had the most immediate effect. G/asnost in the Soviet context meant greater freedom
of expression (for the press, in particular), an ability to discuss and debate both offi-
cial policies and their alternatives, and even (to some extent) an ability to act inde-
pendently of the party and the state in political matters. Partly as a consequence, the
Baltic republics of Latvia, Lithuania, and Estonia declared their independence, which
was confirmed in 1991. Others moved in the same direction, and even the huge Rus-
sian Republic under the popularly elected presidency of Boris Yeltsin began to act in-
dependently of the Communist Party.
One of the justifications of glasnost was to enlist the initiative and enthusiasm of
 A CONCISE ECONOMIC HISTORY OF THE WORLD
396

how-
the population for the tasks of perestroika, or economic restructuring. Nowhere,
restructur ing, beyond some
ever, did Gorbachev spell out precisely what he meant by
rather vague generalizations about improved cost accounting, devolution of decision
min-
making to the level of the enterprise (as against the planning authorities and
of subsidies) ,
istries), the necessity of enterprises to make profits (i.e., the abolition
” an
and similar matters. In his book he referred to the importance of ‘‘mass initiative,
apparent oxymoron, and described perestrotka as a “combination of democratic cen-
tralism and self-management,” a flat contradiction in terms.
Gorbachev apparently favored a return to something like Lenin’s New Economic
Policy, in which the state would retain control of the “commanding heights” of the
economy but allow limited private enterprise in the remainder. He was caught in a
bind, however, between the conservatives of the party hierarchy, who favored main-
tenance of the status quo, and radical reformers who wanted to abolish the system of
central planning altogether and move to a pure market economy. While the debate on
the ultimate nature of the reform raged, a few limited reforms were actually effected.
For example, many economic activities that had formerly taken place on black or gray
markets—private handicraft production, petty trading, the production of various per-
sonal services—were legitimated, provided that the producers also held full-time jobs
in state enterprises. Cooperatives could be formed to produce consumer goods or ser-
vices, subject to the same restrictions. Individuals or families could lease land for
agricultural production, again subject to some restrictions. The Soviet Union also al-
lowed some foreign capital to enter into joint ventures with state-owned enterprises.
In August 1991, on the eve of a new treaty between the Soviet Union and some
of its constituent republics that would have given far more power to the latter, a small
group of hard-liners in the Communist Party attempted a coup d’état. The coup lead-
ers, including Gorbachev’s handpicked vice president, the head of the KGB, and the
minister of defense, placed Gorbachev, then vacationing in the Crimea, under house
arrest, suspended press freedom, and declared martial law. The Russian populace,
however, especially the inhabitants of Moscow and Leningrad, refused to be cowed.
Under the leadership of Yeltsin, and with the support of some military units that came
to his defense, they openly defied the coup leaders, who quickly lost courage and fled,
only to be arrested.
Even though the coup attempt failed, Gorbachev’s vision of the future of the So-
viet Union was dashed by Yeltsin, now president of the Russian Republic. Focusing
his political talents on eliminating the power of the Communist Party, Yeltsin exper-
imented with an apparently endless variety of economic and political reformers, al-
ways somehow maintaining himselfinpower while the economy suffered all the woes
of the transition economies as described above. After narrowly winning reelection as
president in 1992 and 1996, he appointed a rapid succession of prime ministers, all
of whom failed to establish any control over the central bank’s accommodative fi-
nancing of Russia’s new robber barons. This new elite took over the privatized state
enterprises on terms most favorable to themselves and their cronies and managed
them to their personal benefit, extracting as many resources as quickly as possible
and investing the proceeds abroad. With the Russian default in August 1998 on ruble
bonds owed to its own citizens, it became clear to all the world that Russia’s attempt
to become a capitalist democracy had merely ended in it becoming a Third World
 The World Economy at the Beginning of the Twenty-First Century
397

kleptocracy. Yeltsin responded by firing his prime ministers even more rapidly,
finally
settling on a former KGB spy, Vladimir Putin, who had spent much of his career in
East Germany. In his final act of political derring-do, Yeltsin resigned in favor
of his
latest protégé as acting president. Putin then managed to win election on
his own,
mainly by consolidating his authority over the secret police and the military while
di-
recting a savage war against the rebellious Muslim province of Chechnya. As the
new
century began, it appeared that Putin was determined to backtrack on the dismal path
followed by Russia since 1991 and try to strike out on a new path similar to that taken
the Chinese Communists, namely maintaining political power by force while allow-
ing market capitalism to develop in special areas. The rise in oil prices in 2000
was
making his task all the easier while keeping Russia fully engaged in the global trad-
ing economy.

The Evolution of the European Union

Meanwhile, the European Community itself was being transformed. In the early
1970s the Belgian prime minister, Leo Tindemans, at the invitation of his fellow heads
of government, prepared a report that envisaged “completion” of the union by 1980.
That proved much too ambitious a goal, given the fundamental differences between
the member states on the necessary reforms and the constitutional structure of the
eventual union—not to mention the effects of the oil shocks of the 1970s. The report
was never implemented. After a few years in the doldrums the movement to “re-
launch” Europe gained new force in the 1980s. Under the leadership of Jacques De-
lors, a former French government official and a strong proponent of European unity,
who became president of the EC Commission in 1985, the European Council (heads
of state or government) decided in principle to proceed to greater union, and in Feb-
ruary 1986 signed the “Single European Act” (SEA). Specifically, the SEA required
that the Community adopt more than 300 measures to remove physical, technical, and
fiscal barriers in order to complete the internal market by December 31, 1992. In fact,
the deadline was not met, but soon afterward all the necessary measures were in place,
and the EC became a Community “without frontiers.”
The movement for unity got a boost from another direction in 1986 when the gov-
ernments of France and the United Kingdom agreed to allow a railway tunnel to be
built under the English Channel. Such a tunnel, sometimes called a “chunnel,” had
been proposed as early as 1870, and periodically thereafter, but had never been real-
ized. A remarkable feature of the proposal was that it was to be financed entirely by
private capital, without government subsidies. The chunnel was completed in 1994,
shortly after the entry into force of the Single European Act.
The European Monetary System (EMS), with its associated Exchange Rate Mech-
anism (ERM), had been established in 1979, but the coordination of monetary poli-
cies—not to mention the creation of a single monetary policy—remained one of the
greatest hurdles in the way of complete economic unity. In 1991 the Community de-
cided to create its own central bank in 1994, to be followed by a single currency in
1999, but an exchange rate crisis in September 1992 forced the United Kingdom and
Italy out of the ERM, and postponed other measures. Instead of a central bank, a pos-
398 A CONCISE ECONOMIC HISTORY OF THE WORLD

created in 1994 with head-

sible forerunner, the European Monetary Institute, was
1999.
quarters in Frankfurt. It became the European Central Bank in
In spite of these setbacks, the propone nts of Europea n unity persevered. In De-
ht, the Netherlands, signed
cember 1991 the Council of Europe, meeting in Maastric
of Europe.”
a new treaty intending to create “an ever closer union among the peoples
until Novemb er 1, 1993, nearly two years
The new treaty, which did not take effect
name of the Europea n Commun ity to the
after the meeting in Maastricht, changed the
of the Europea n Parliame nt, called for
European Union. It also increased the power
with the eventual goal of a Common
“joint actions” in foreign and defense policy
arity,”
Foreign and Security Policy (CFSP), and introduced the principle of “subsidi
to “the lowest possible level of
under which policy-making power would devolve
provisio n for an Inter-Go v-
government.” Another feature of the treaty was explicit
any
ermmental Conference in 1996 to review progress under the treaty and to make
necessary adjustments.
Another favorable development in 1993 was the creation of a European Economic
Area (EEA) by a merger of the European Community with most members of the Eu-
ropean Free Trade Association (except Switzerland), which took effect January 1,
1994. Shortly afterward four members of EFTA—Austria, Finland, Norway, and
Sweden—applied for membership in the by then renamed European Union; they were
accepted, effective January 1, 1995. Each country, however, held a referendum on the
terms that had been agreed upon, which for most of them meant accepting a reduc-
tion in their level of agricultural subsidies compared to the Common Agricultural Pol-
icy. The referendums started with Finland, moved to Austria, then to Sweden, and fi-
nally to Norway. each passed with smaller and smaller majorities until Norway’s
electorate actually rejected membership, just as it had a generation earlier in 1972.
By coincidence, another large free trade area also came into existence on January
1, 1994. This was the North American Free Trade Agreement (NAFTA), consisting
of the United States, Canada, and Mexico. The agreement providing for NAFTA al-
lowed a fifteen-year transition period, during which it was likely that other nations in
the Western Hemisphere would become members. NAFTA, with a total population
of more than 360 million, had a combined gross domestic product of approximately
$7 trillion. For comparison, the EEA, which included Norway and Iceland as well as
the 15-member European Union, had a population of 372 million and a combined
gross domestic product of approximately $7.5 trillion.

Limits to Growth?

In 1972 a research team associated with the Massachusetts Institute of Technology

published a book, The Limits to Growth, in which they predicted that “the limits to
growth on this planet will be reached sometime within the next one hundred years.”
They invoked “five major trends of global concern”: accelerating industrialization,
rapid population growth, widespread malnutrition, depletion of nonrenewable re-
sources, and a deteriorating environment. The book received a great deal of public-
ity for a scholarly production, and was the subject of much public discussion. Al-
though many critics believed that the authors had overdramatized their conclusions—
 The World Economy at the Beginning of the Twenty-First Century
399

especially the one that predicted a rapid cessation of growth—almost all agreed
that
they had truly identified trends of “global concern,” notably population growth
and
environmental degredation.
Most critics also agreed that the trends were interrelated. Malnutrition,
for exam-
ple, is especially prevalent in those Third World countries that are experiencing
rapid
population growth (but it is not unknown even in affluent countries such as the United
States). An incidental aspect of the overthrow of Communist regimes in Eastern
Eu-
rope was the revelation of the extensive environmental damage occasioned by their
programs of headlong industrialization. Environmental damage is not confined to
so-
viet-style economies, as the controversy over “acid rain” testifies; but in the more
af-
fluent industrial economies there is greater awareness of it, and greater pressure
by
both public opinion and government to force polluters to cease or to pay the cost of
environmental clean-up.
The problems are serious, but they are not unprecedented, as many otherwise in-
telligent people ignorant of history tend to assume. Throughout human history the
pressure of population on resources condemned the great majority of people to live
at a bare subsistence level. Some 200 years ago T. R. Malthus provided a theoretical
explanation of why that would always be the case. Ironically, at the very time that
Malthus was writing a process—the process of rapid technological change—was un-
der way that vitiated his assumptions. As already indicated, the next 200 years wit-
nessed a rise in living standards in many parts of the world that Malthus and his con-
temporaries could not have imagined.
In terms of total numbers and the rate of growth over the last half-century, the
population problem is without historical precedent—but numbers and growth rates
are not the only relevant variables. As pointed out in Chapter 1, population must be
viewed in relation to the resources available to support it. The volume of resources—
animal, vegetable, and mineral—to support the world’s population is also at an all-
time high. During the last hundred years or so the affluent nations of the world have
experienced a demographic transition from a regime of high birth and death rates to
one much lower, with a consequent reduction in the rate of population growth. The
expectation is that as other, poorer nations increase their level of material well-being
they, too, will reduce birth rates and thus rates of population growth. Some experts
even believe that the world as a whole reached an inflection point—from a rising to
a declining rate of growth for total population—in the 1970s.
Figure 16-1 shows the effects of globalization on the major countries by region
of the world over the period from 1971 to 1998, the last full year for which reliable
statistics were available at the beginning of 2001. Despite the fears of pessimists, who
always get more attention at times of crisis such as the oil shocks of the 1970s, per
capita income grew everywhere to 1985 and then grew even more rapidly as the ef-
fects of globalization kicked in (and the world price of oil fell sharply). The one ex-
ception among major countries was the sad case of Russia, examined earlier, where
the transition from Communism to market capitalism lagged behind that of most other
transition economies. Despite the fears of neo-Malthusians, moreover, the growth of
population worldwide continued to slow down even as the rate of growth of per Capita
incomes picked up after 1985. The common feature for explaining the success stories
portrayed in Figure 16-1 is the increased importance of foreign trade for each of the
400 A CONCISE ECONOMIC HISTORY OF THE WORLD

100)
A. Index numbers of per capita income in constant prices (1985 =
GDP Per Capita

300% ;—
ae [1971 index
meu BH 1998 index
200%

150%

100%
level
of
1985
Percent

B. Index numbers of gross domestic product in constant prices and exchange

rates (1985 = 100)

Gross Domestic Product

aa

300%
“a - 1971 index
2 250% BH 1998 index

2 200%
S 150%
D 1985
5 100% na a a
a

50%

a 505 HO nich 2st AukaO ls Ene On SO Oe

ADIOS EI RES ES
C ~ . S

ES
“ »

EEE ENE
<
& - 2
~ se
se SS

FiGuRE 16-1. The economic progress of major economies during globalization, 1971-98.
[From World Bank, World Development Indicators, 2000 (Brazil, China, India, and Mexico);
International Monetary Fund, World Economic Outlook, October 2000; OECD, OECD Eco-
nomic Outlook, December 2000 (Canada, France, Germany, Italy, Japan, United Kingdom,
and United States).]
 The World Economy at the Beginning of the Twenty-First Century 401

C. Index numbers of population (1985 100)

SSSSSSMAA
Ss.

aaa
=a
Population

ern
SSS
Hennes
SOOO
Bis

ESSSSSSS
1971 index
BH 1998 index
OOS

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402 A CONCISE ECONOMIC HISTORY OF THE WORLD

countries shown. Indeed, over the period 1971 to 2000, the International Monetary
Fund estimates that world gross domestic product grew on an average Over 3.6 per-
cent annually, while world trade grew on an average over 5.7 percent annually. These
are truly exceptional rates historically, even as the world population approached the
figure of 6 billion, far above the limits imagined in Malthus’ time.
The “race” between population and resources leads to two related problems, the
rate at which resources are being used (and used up) and the inequality in the distri-
bution of resources. There is no doubt that the world—especially the affluent part of
the world—is utilizing resources at historically unprecedented rates. That in itself is
a measure of its “success” in mastering the environment and solving the economic
problem, but it has also given rise to fears of a total exhaustion of resources. Such
fears are not unreasonable, but they are not well-grounded historically. After all, it
was the shortage of timber for charcoal that led to the use of coke for smelting iron
ore. There are many other instances where temporary or localized shortages of par-
ticular resources have given rise to substitutes, which often turn out to be more effi-
cient or economical. In the nineteenth century coal replaced timber as a source of
inanimate energy. In the twentieth century petroleum has largely displaced coal. Elec-
tricity, generated by water power, coal, petroleum, and eventually nuclear power,
proved to be the most versatile and almost ubiquitous form of energy. Pessimists point
out that coal and petroleum exist in finite amounts, and their supply may eventually
be exhausted; water power is subject to physical limits on its use; nuclear power poses
serious environmental hazards. Yet optimists claim that solar energy—the original
source of both coal and petroleum—has scarcely been tapped directly. The technol-
ogy does not yet exist to exploit solar energy directly in more than trivial amounts.
But as the conventional sources of power become scarcer—that is, as their prices
rise—the inducement to engage in research directed to solar energy will increase.
That is the way the economic mechanism functions. The possibilities are limitless.
The inequality in the distribution of resources—among individuals, social groups,
and nations—is at the very heart of the problem of economic development, as men-
tioned in the first paragraph of this book. Its solution will not be easy. It will require
study, research, and widespread institutional change. That is the challenge currently
facing both developed and underdeveloped nations. The history recounted in this
book shows that the challenge can be met.
 ANNOTATED BIBLIOGRAPHY

This bibliography is intended as a supplement to the text, to enable readers to find further in-
formation on topics that, of necessity, are dealt with only summarily in the book itself. It is,
therefore, highly selective. It includes only books and a very few articles that are likely to be
easily accessible to students and average readers. Works in languages other than English are
generally excluded, as are rare and recondite works, although translations of important works
are included. With a few exceptions, items are listed only once, even though their contents may
be relevant to two or more chapters or parts. Advanced students and researchers should con-
sult the bibliographies in such general works as the Cambridge Economic History of Europe
and the Fontana Economic History of Europe as well as the specialized bibliographies in the
International Bibliography of Historical Sciences, the International Bibliography of the Social
Sciences—Economics, the New Palgrave: A Dictionary of Economics, the New Palgrave Dic-
tionary of Money and Finance, and the American Economic Association’s Index of Economic
Articles in Journals and Collective Volumes, all of which should be available in any moder-
ately good college or university library. Computer accessible “article databases” that will be
most helpful are Historical Abstracts and EconLit. JSTOR provides access to articles in major
history and economics journals as well. On the Web, in addition to their search engine of choice,
researchers may browse the sites of H-Net (http://www2.h-net.msu.edu/) for general history
and EH.Net (http://cs.muohio.edu/) for economic history. Both have full-length book reviews
as well as “ask the professor” features and discussion groups.
Although journal articles are usually not featured in this bibliography, browsing through
the specialized journals is recommended as a good way to become familiar with the scope and
nature of the literature. The leading English-language journals are the Economic History Re-
view (United Kingdom, since 1927), the Journal of Economic History (United States, since
1941), the Scandinavian Economic History Review (since 1953; contents broader than the ti-
tle suggests), Explorations in Economic History (United States, since 1963), the Journal of Eu-
ropean Economic History (published since 1972 by the Banco di Roma), and the European Re-
view of Economic History (published since 1996). Other journals, both more general and more
specialized, that publish articles of interest to economic historians are Agricultural History,
Business History (United Kingdom), Business History Review (United States), Enterprise and
Society (United States), Financial History Review (since 1994), Comparative Studies in Soci-
ety and History, Journal of Interdisciplinary History, Social Science History, and Technology
and Culture. This by no means exhausts the list of relevant journals, even in English.
No other work covering the full scope of this volume exists, although the enthusiasm for
and against “globalization” since 1971 has spawned a number of related works. For example,
David Landes, The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor
(New York, 1999), justifies the preeminence of Western industrial nations on the basis of su-
perior culture and political institutions. Angry responses have proliferated, the most coherent
of which is Kenneth Pomeranz, The Great Divergence: China, Europe, and the Making of the
Modern World Economy (Princeton and Oxford, 2000), which pursues a theme that military
conquest creates trade patterns that disrupt “normal” development. The Cambridge Economic
History of Europe, planned in the 1930s by Sir John Clapham and Eileen Power and edited by
various distinguished authorities, now consists of ten volumes spanning the period from the

403
404 A CONCISE ECONOMIC HISTORY OF THE WORLD

decline of Rome until the latter part of the twentieth century. The later volumes include chap-
ters on the United States and Japan as well as the major European countries. The contributors
are (or were) mostly well-known authorities on their subjects, but the quality of their contri-
butions is uneven, and there are some lapses in editorial planning and supervision. Comple-
menting this set of monographs is The Cambridge Economic History of the United States in
three volumes, edited by Stanley Engerman and Robert Gallman, which covers the pre-Euro-
pean contact period up to the end of the twentieth century, and The Cambridge Economic His-
tory of India, in two volumes edited by Dharma Kumar and Meghnad Desai (Cambridge, 1983).
The Fontana Economic History of Europe, planned and edited by Carlo M. Cipolla, con-
tains roughly the same chronological and geographical coverage as the Cambridge series, but
in nine somewhat smaller volumes. Authored by numerous specialists, it is aimed more directly
at a student readership. Essays in Economic History (3 vols., London, 1954—62), edited by E.
M. Carus-Wilson for the Economic History Society (United Kingdom), is a collection of out-
standing journal articles covering the period from the Middle Ages to the late nineteenth cen-
tury, but is heavily weighted toward Great Britain. In contrast, Essays in French Economic His-
tory edited by Rondo Cameron (Homewood, IL, 1970) consists entirely of articles translated
from French journals and dealing with all eras and aspects of French and francophone eco-
nomic history. Other similar anthologies dealing with shorter time spans or smaller areas are
mentioned later in this chapter.
The British can boast of two excellent series of small paperbacks of special interest to stu-
dents of economic history. The Economic History Society sponsors “Studies in Economic and
Social History” (formerly “Studies in Economic History”) originally edited by the late M. W.
Flinn, later by T. C. Smout, more recently by L. A. Clarkson, and published by the Macmillan
Press, Ltd. These consist of short essays, generally 50 to 100 pages, on significant topics,
mostly but not exclusively British, in which a recognized expert summarizes and synthesizes
the existing literature. The other series, “Debates in Economic History,” is published by
Methuen & Co., Ltd., with Peter Mathias as general editor. The volumes are slightly longer,
generally about 200 pages, and contain a selection of articles on debatable topics, also gener-
ally but not exclusively British, preceded by an introduction by a recognized authority placing
the issues in context. A number of titles from both series appear here, indicated, respectively,
by “Studies” and “Debates.” An even more recent series sponsored by the Economic History
Society is REFRESH: Recent Findings of Research in Economics & Social History; it is di-
rected especially to students.
Before reviewing the literature pertinent to individual chapters, it will be useful to consider
some general works devoted to the four major determinants of economic change, as discussed
in Chapter | and subsequently.

Population

Population and History, by E. A. Wrigley (London, 1969), is a relatively brief introduction to

historical demography. Wrigley has also written People, Cities, and Wealth: The Transforma-
tion of Traditional Society (Oxford and New York, 1987) and, with Roger Schofield, has edited
Population and Economy: Population and History from the Traditional to the Modern World
(Cambridge and New York, 1986). A sweeping overview of the historical demography find-
ings worldwide is now available in Tommy Bengtsson and Osamu Saito, eds., Population and
Economy. From Hunger to Modern Economic Growth (New York and Oxford, 2000), a col-
lection of twenty-seven essays by leading researchers. Major recent works on non-European
populations include A Population History of North America (Cambridge and New York, 2000),
edited by Michael R. Haines and Richard H. Steckel, and Asian Population History (New York
and Oxford, 2001), edited by Ts’ui-jung Liu et al. Massimo Livi Bacci, A Concise History of
 Annotated Bibliography 405

World Population (3rd ed., Oxford, 2001), gives a quick overview. In a much briefer compass,
Ester Boserup, Population and Technological Change: A Study of Long-Term Trends (Chicago,
1981), looks at the relation between population and technology from the ancient world to the
contemporary Third World. David Grigg does likewise in Population Growth and Agrarian
Change: An Historical Perspective (Cambridge, 1980).

Resources

Harold J. Barnett and Chandler Morse, Scarcity and Growth (Baltimore, 1963), is still a model
study of the changing role of natural resources with the process of economic growth. The pub-
lications of the International Energy Agency, especially the annual World Energy Outlook
(Paris, 2001), provide up-to-date information and projections, as does the annual Yearbook of
World Energy Statistics, published by the United Nations Statistical Office. In Dynamics of
Agricultural Change: The Historical Experience (New York, 1983), D. B. Grigg describes the
chief characteristics of the major agricultural regions of the world and explains historically how
they came into existence. Peter Lindert, Shifting Ground: The Changing Agricultural Soils of
China and Indonesia (Cambridge, MA, 2001), sets a standard for quantitative assessments of
soil quality over time and under different agricultural regimes. An even more thorough exam-
ination of the impact of economic development upon ecology is Philip D. Curtin, Grace S.
Brush, and George W. Fisher, eds., Discovering the Chesapeake: The History of an Ecosystem
(Baltimore, 2001).
Consideration of the historical aspect of resources inevitably leads one to the study of ge-
ography. An exciting presentation of a geographical interpretation of world history is the prize-
winning book by Jared Diamond, Guns, Germs, and Steel: The Fates of Human Societies (New
York, 1997). An older, but model study that reaches back to prehistory is C. T. Smith, An His-
torical Geography of Western Europe before 1800 (New York, 1967). Consideration of geog-
raphy inevitably leads one to the study of maps and atlases, indispensable for a proper under-
standing of the spatial aspects of economic development. There are many good historical
atlases; the best is probably the Times Atlas of World History, edited by Geoffrey Barraclough
(London, 1979). For up-to-date information, one should always check the World Bank Atlas
2001 (33rd ed., Washington, DC, 2001), which is updated annually.
The European Miracle: Environments, Economies, and Geopolitics in the History of Eu-
rope and Asia, by E. L. Jones (2nd ed., Cambridge, 1987), is an outstanding analysis of the in-
terrelations of resources, technology, and institutions that has much in common with this book.
The same author’s Growth Recurring: Economic Change in World History (Oxford, 1988) is
also highly recommended.

Technology
The most ambitious and comprehensive collection (although not without flaws) is A History of
Technology, edited by Charles Singer et al. (7 vols., Oxford, 1954-78). Ona slightly more mod-
est scale is Technology in Western Civilization, edited by Melvin Kranzberg and Carroll W.
Pursell, Jr. (2 vols., Madison, WI, 1967), designed especially for undergraduate students.
Among the better recent contributions on this subject are George Basalla, The Evolution of
Technology (Cambridge, 1988); Louis A. Girifalco, Dynamics of Technological Change (New
York, 1991); Joel Mokyr, The Lever of Riches: Technological Creativity and Economic
Progress (New York, 1990); and Arnold Pacey, Technology in World Civilization (Cambridge,
MA, 1990). Mokyr has also written a relatively brief book, Twenty-Five Centuries of Techno-
logical Change: An Historical Survey (New York, 1990). Two books based on BBC television
series, both lavishly illustrated, deal with “technology and its consequences”: Jacob
406 A CONCISE ECONOMIC HISTORY OF THE WORLD

Bronowski, The Ascent of Man (London, 1975), and James Burke, Connections (Boston, 1978).
A study of fundamental importance for the history of technology is A. P. Usher, A History of
Mechanical Inventions (rev. ed., Cambridge, MA, 1954), which contains a theory of invention.
Nathan Rosenberg, Perspectives on Technology (Cambridge, 1976), is a collection of essays
by one of the leading specialists on the economics of technological change. More recently,
Rosenberg has authored Exploring the Black Box: Technology, Economics and History (Cam-
bridge and New York, 1994).

Institutions

It is not easy to decide what titles to put in this category, not because there are so few candi-
dates but because there are so many—and so many different approaches. Sir John Hicks pre-
sents an economist’s view in A Theory of Economic History (Oxford, 1969). From a quite dif-
ferent perspective, that of the anthropologists, A. L. Kroeber, in Anthropology (rev. ed., New
York, 1948), and-also in An Anthropologist Looks at History (Berkeley, CA, 1963), relates the
economy to the larger culture. Douglass C. North, Structure and Change in Economic His-
tory (New York and London, 1981), and /nstitutions, Institutional Change and Economic Per-
formance (Cambridge, 1990), have much in common with the overall aim of this volume.
William N. Parker, one of the foremost economic historians of the second half of the twenti-
eth century, has presented his collected essays in Europe, America, and the Wider World: Es-
says on the Economic History of Western Capitalism (2 vols., Cambridge and New York,
1984-91). Clarence Ayres’ Theory of Economic Progress (Chapel Hill, NC, 1944; reprinted,
1978), cited in Chapter 1, elucidates the older “institutionalist” viewpoint on the relationship
of the economy to society. Thrainn Eggertsson presents an economist’s view of the New In-
stitutional Economics in Economic Behavior and Institutions (Cambridge and New York,
1990). A variety of empirical applications are presented in Lee J. Alston, Thrainn Eggertsson,
and Douglass C. North, eds., Empirical Studies in Institutional Change (Cambridge and New
York, 1996). Many other perspectives are possible; some are mentioned in the bibliographies
for individual chapters.

Chapter 1. Introduction

For further discussion of the definition, measurement, and spatial distribution of development
in the modern world, see Dan Usher, Rich and Poor Countries (London, 1966), and the nu-
merous writings of Simon Kuznets, especially Modern Economic Growth: Rate, Structure, and
Spread (New Haven, CT, 1966) and Economic Growth of Nations: Total Output and Produc-
tion Structure (Cambridge, MA, 1971). Angus Maddison has continued the work of Kuznets
by producing historical national income and gross domestic output series, total and per capita,
for a wide range of countries. His most recent work is The World Economy: A Millenial Per-
spective (Paris, 2001). There is a substantial literature on the methodology of economic his-
tory. Interesting comparisons can be drawn from the articles on “Economic History” in the orig-
inal Encyclopedia of the Social Sciences (1931-35) and in the more recent International
Encyclopedia of the Social Sciences (1969). The “achievements” of three distinct “schools”
can be compared in a series of articles in the March 1978 issue of the Journal of Economic His-
tory (vol. 38, no. 1): Donald N. McCloskey, “The Achievements of the Cliometric School”
(pp. 13-28); Jon S. Cohen, “The Achievements of Economic History: The Marxist School”
(pp. 29-57); and Robert Forster, “Achievements of the Annales School” (pp. 58-76). Mc-
Closkey has also contributed a brief introduction to Econometric History for noneconomists
(London, 1987; “Studies”). Further contrasts are evident in the debate between Robert W. Fo-
gel and G. R. Elton, in Which Road to the Past? Two Views of History (New Haven, CT, 1983).
 Annotated Bibliography 407

Chapter 2. Economic Development in Ancient Times

The evolution of humankind from its presapient ancestors is described in popular form with
abundant illustrations by the prominent paleoanthropologist Richard Leakey, in The Making of
Mankind (New York, 1981). R. B. Lee and I. DeVore, eds., Man the Hunter (New York, 1968),
is aseminal work, as is Barbara Bender, Farming in Prehistory: From Hunter-Gatherer to Food
Producer (London, 1975). Other works dealing with early agriculture are David Rindos, The
Origins of Agriculture: An Evolutionary Perspective (New York, 1984), and Graeme Barker,
Prehistoric Farming in Europe (Cambridge, 1985). Stone Age Economics, by Marshall Sahlins
(Chicago, 1972), presents the view of a Marxist anthropologist. Two books by the famous
archeologist V. Gordon Childe, Man Makes Himself (4th ed., London, 1965) and What Hap-
pened in History (rev. ed., Baltimore, 1964), remain among the most vivid accounts of the tran-
sition from prehistory to the first civilizations. Stuart Piggott, Ancient Europe, From the Be-
ginnings of Agriculture to Classical Antiquity (Chicago, 1965), focuses more closely on
Europe. Jacquetta Hawkes, The First Great Civilizations: Life in Mesopotamia, the Indus Val-
ley, and Egypt (New York, 1973), places economic life in a broad cultural setting. A fascinat-
ing example of market activity over five centuries in one of the first great civilizations is A. L.
Slotsky, The Bourse of Babylon: Market Quotations in the Astronomical Diaries of Babylonia
(Bethesda, MD, 1997). Two multivolume works by M. I. Rostovzeff, The Social and Economic
History of the Hellenistic World (3 vols., Oxford, 1941) and The Social and Economic History
of the Roman Empire (2nd rev. ed., 2 vols., Oxford, 1963), are deservedly regarded as classics.
Moses I. Finley, The Ancient Economy (2nd ed., London, 1985), is a recent, briefer account.
Finley has also contributed many other important works, notably The World of Odysseus (1954
and later editions) and Economy and Society in Ancient Greece (1981), all flawed by a belief
that ancient economies were not market economies. Revisionist works start with the quantita-
tive contributions of Richard Duncan-Jones, The Economy of the Roman Empire: Quantitative
Studies (Cambridge, 1982), Structure and Scale in the Roman Empire (Cambridge, 1990), and
Money and Government in the Roman Empire (Cambridge, 1994). All three flesh out themes
in A. H. M. Jones, The Roman Economy. Studies in Ancient Economic and Administrative His-
tory, ed. P Brunt (Oxford, 1974). K. D. White, Greek and Roman Technology (Ithaca, NY,
1984), is comprehensive, well illustrated, and has an excellent bibliography. Debating Roman
Demography, edited by Walter Scheidel (Leiden and Boston, 2001), continues the quantitative
revisionism underway on Roman history. Robin Osborne, Classical Landscape with Figures:
The Ancient Greek City and Its Countryside (New York, 1987), is an intriguing treatment of
the problems of food supply in ancient Greece. Joan M. Frayn, Markets and Fairs in Roman
Italy: Their Social and Economic Importance from the Second Century B.c. to the Third Cen-
tury A.D. (New York and Oxford, 1993), is a clear, useful introduction to an important subject.
Their counterpart in the breadbasket of the Roman Empire is analyzed in Jane Rowlandson,
Landowners and Tenants in Roman Egypt: The Social Relations of Agriculture in Oxyrhynchite
Nome (New York and Oxford, 1997). John Boardman, The Greeks Overseas: Their Early
Colonies and Trade (New York, 1980), is a well-illustrated history of the Greek diaspora. The
Economy and Society of Pompeii, by Willem Jongman (Amsterdam, 1988), is a methodologi-
cally sophisticated piece of revisionism, whereas Robert Sallares’ The Ecology of the Ancient
Greek World (Ithaca, NY, 1991) is a boldly revisionist work that contradicts many classical
sources.

Chapter 3. Economic Development in Medieval Europe

Robert S. Lopez, The Birth of Europe (Philadelphia, 1973), is a well-illustrated, magisterial

survey that places economic development in its social and cultural setting. A briefer, more
sharply focused treatment by the same author is The Commercial Revolution of the Middle
408 A CONCISE ECONOMIC HISTORY OF THE WORLD

Ages, 950—1350 (Englewood Cliffs, NJ, 1971). Harry A. Miskimin, The Economy ofEarly Re-
naissance Europe, 1300—1460 (Cambridge, 1975), provides a convenient survey of the later
Middle Ages. Gino Luzzatto, An Economic History of Italy from the Fall ofthe Roman Empire
to the Beginning of the 16th Century (London, 1961), is a brief synoptic history of the most
important region in Europe in that period by a past master of the economic historian’s craft. Of
similar importance are Feudal Society (Chicago, 1961) and French Rural History: An Essay
on Its Basic Characteristics (Berkeley and Los Angeles, 1966), by the famous French histo-
rian Marc Bloch, and The Medieval Economy and Society: An Economic History of Britain in
the Middle Ages (London, 1972), by M. M. Postan. Leopold Genicot, Rural Communities in
the Medieval West (Baltimore, 1990), is a general survey by a respected Belgian medievalist.
Frederic C. Lane, Venice: A Maritime Republic (Baltimore, 1973), is a masterly survey of the
history of that major medieval economy.
Population problems in that prestatistical era are wrestled with by J. C. Russell in British
Medieval Population (Albuquerque, 1948) and Medieval Regions and Their Cities (Bloom-
ington, IN, 1972). The progress of population was closely bound up with the fortunes of agri-
culture. A good introduction to that subject is B. H. Slicher van Bath, The Agrarian History of
Western Europe, A.p. 500-1850 (London, 1963). Another enlightening account is The Early
Growth of the European Economy: Warriors and Peasants from the Seventh to the Twelfth Cen-
turies (London, 1974), by the noted French scholar Georges Duby.
On commerce the best accounts are the chapters by M. M. Postan and Robert S. Lopez in
volume II of the Cambridge Economic History of Europe (2nd ed., Cambridge, 1987). Lopez
and I. W. Raymond edited Medieval Trade in the Mediterranean World (New York, 1955), a
collection of original documents. Philippe Dollinger, The German Hansa (Stanford, CA, 1970),
is the best study of that important institution.
The notion of a “static” Middle Ages in the field of technology was first challenged by Lynn
White, Jr., whose book Medieval Technology and Social Change (Oxford, 1962) is still the best
starting point for a study of medieval technology. Even more enthusiastic is Jean Gimpel’s The
Medieval Machine: The Industrial Revolution of the Middle Ages (New York, 1976), which
should be read critically but sympathetically. Steven A. Epstein, Wage Labor and Guilds in Me-
dieval Europe (Chapel Hill, NC, 1991), is wide-ranging and pertinent.
Monetary phenomena are dealt with in Peter Spufford, Money and Its Use in Medieval Eu-
rope (Cambridge, 1988). A. P. Usher, The Early History of Deposit Banking in Mediterranean
Europe (Cambridge, MA, 1943), is still a fundamental work. The Rise and Decline of the
Medici Bank, 1397-1494 (New York, 1966), by Raymond de Roover, is a good story about an
important enterprise. The monetary and financial innovations of Venice are analyzed in two
impressive volumes, the first coauthored by Frederic C. Lane and Reinhold C. Mueller, Money
and Banking in Medieval and Renaissance Venice (Baltimore and London, 1985), and the sec-
ond by Reinhold Mueller, The Venetian Money Market: Banks, Panics, and the Public Debt,
1200-1500 (Baltimore and London, 1997). Mark R. Cohen, Under Crescent and Cross: The
Jews in the Middle Ages (Princeton, NJ, 1994), is a thought-provoking comparative study of
Jews under Islamic and Christian rule. Joseph Shatzmiller, Shylock Reconsidered: Jews,
Moneylending, and Medieval Society (Berkeley, 1990), is a fascinating case study based on a
trial in Marseilles. Abraham Udovitch, Partnership and Profit in Medieval Islam (Princeton,
NJ, 1970), is a revealing account of the sophisticated business practices of Muslim merchants.
The realities of the medieval economy as they affected ordinary people come alive in Eileen
Power’s often-reprinted Medieval People (10th ed., New York, 1963), as they do
in a much
more recent work, David Herlihy’s Medieval Households (Cambridge, MA, 1985). In a simi-
lar vein but more detailed is David Herlihy and Christiane Klapisch-Zuber, Tuscans and Their
Families: A Study of the Florentine Catasto of 1427 (New Haven and London, 1985), an
abridged translation of a much longer work in French. Herlihy also contributed Opera
 Annotated Bibliography 409

Muliebria: Women and Work in Medieval Europe (Philadelphia, 1990). Heather Swanson, Me-
dieval Artisans: An Urban Class in Late Medieval England (Cambridge, MA, 1989), dealing
with workers and guilds in York (and Bristol and Norwich), also stresses the role of women
workers. Robert C. Davis, Shipbuilders of the Venetian Arsenal: Workers and Workplace in the
Preindustrial City (Baltimore, 1991), is a detailed study of a major medieval institution that
also extended into the early modern period.

Chapter 4. Non-Western Economies on the Eve of Western Expansion

A History of the Arab Peoples, by Albert Hourani (Cambridge, MA, 1991), is fundamental for
all aspects of its subject. André Wink, Al-Hind: The Making of the Indo-Islamic World (New
York, 1990), details the eastward expansion of Islam from the seventh to the eleventh centuries
A.D. Archibald Lewis, Naval Power and Trade in the Mediterranean, A.D. 5OO—1100 (Prince-
ton, NJ, 1951), is a competent survey emphasizing the interaction of Byzantine, Muslim, and
western Christian navies and merchants. Michael Adas, ed., Islamic and European Expansion:
The Forging of a Global Order (Philadelphia, 1993), contains material for a comparative study.
S. D. Goitein, Studies in Islamic History and Institutions (Leiden, 1966), contains three chapers
on the Islamic middle classes and workers in the Middle Ages. In A Mediterranean Society (4
vols., Berkeley, 1967-83), the same author, exploiting the abundant documentation of the
Cairo Geniza, has provided the most detailed account available of a medieval community, that
of the Jews within Islam, which stretched from Muslim Spain to India; volume I deals with
“The Economic Foundations (969—1250)”; volume II, “The Community”; volume IL, “The
Family”; and volume IV, “Daily Life.” An Economic and Social History of the Ottoman Em-
pire, 1300-1914, edited by Halil Inhalcik and Donald Quataert (Cambridge, 1994), is a mas-
sive compendium of information on its subject. Kemal H. Karpat, ed., The Ottoman State and
Its Place in World History (Leiden, 1974), assembles brief comments by distinguished au-
thorities on various aspects of Ottoman history, including a chapter by Charles Issawi on eco-
nomic structures before 1700.
In Before European Hegemony: The World System a.p. 1250-1350 (New York, 1989),
Janet L. Abu-Lughod paints an intriguing picture of financial and commercial networks en-
compassing Europe, the Eastern Mediterranean, the Persian Gulf, the Indian Ocean, Southeast
Asia, and China. Much the same area is the subject of two impressive books by K. N. Chaud-
huri: Trade and Civilisation in the Indian Ocean: An Economic History from the Rise of Islam
to 1750 (Cambridge, 1985), and Asia before Europe: Economy and Civilisation of the Indian
Ocean from the Rise of Islam to 1750 (Cambridge, 1990). Volume I of the Cambridge Eco-
nomic History of India, edited by Tapan Raychaudhuri and Ifran Habib (Cambridge, 1982),
covers the period a.p. 1200-1750, and has an excellent bibliography.
A History of East Asian Civilisation, vol. 1, The Great Tradition (Boston, 1960), by Edwin
O. Reischauer and John K. Fairbank, is the best place to begin study of that important area of
the world, both for its comprehensive treatment (see especially Chapter 6 on the economy) and
its bibliography. The multivolume Science and Civilization in China, by Joseph Needham and
his collaborators (Vols. I-VII, Cambridge, 1954—2000), is a treasure chest of information on
a variety of subjects, including Chinese technology, although imperfectly indicated by the ti-
tle. The Mongols, by David Morgan (Oxford, 1987), is a lively, brief, largely sympathetic ac-
count of a people that, in general, have not enjoyed good press. The founder of the Mongol
Empire is the subject of a definitive biography that has recently been translated into English
and presented in an accessible manner: see Paul Ratchnevsky, Gengis Khan: His Life and
Legacy (Oxford, 1991).
Charles F. W. Higham, The Archeology of Mainland Southeast Asia: From 10,000 B.c. to
the Fall of Angkor (Cambridge, 1989), is a treasure chest of information on that part of the
410 A CONCISE ECONOMIC HISTORY OF THE WORLD

world. Charnvit Kasetsiri, The Rise of Ayudhya: A History of Siam in the Fourteenth and Fif-
teenth Centuries (Kuala Lumpur and New York, 1976), and Michael Aung-Thwin, Pagan: The
Origins of Modern Burma (Honolulu, 1985), provide insightful sketches of their subjects.
The literature on Africa before the sixteenth century has recently been enriched by the open-
ing chapter of two general works by acknowledged masters of the subject: Roland Oliver, The
African Experience: Major Themes in African History from Earliest Times to the Present (Lon-
don and New York, 1991); and Ralph Austen, African Economic History (London, 1987). There
is also a collection of articles edited by Z. A. Konczacki and J. M. Konczacki, An Economic
History of Tropical Africa, vol. 1, The Pre-colonial Period (London, 1977). Philip Curtin,
Cross-Cultural Trade in World History (Cambridge, 1984), explores many incidents of cross-
cultural commerce, from Africa and ancient Mesopotamia to the North American fur trade, in-
cluding Southeast Asia before the Europeans and pre-Columbian America. In many ways,
Curtin updates the classic works of Harold Innis, The Fur Trade in Canada (New Haven, CT,
1930) and The Cod Fisheries: The History of an International Economy (New Haven, CT, and
Toronto; 1940).
On South America, the first six chapters of volume I of The Cambridge History of Latin
America, edited by Leslie Bethell (Cambridge, 1984), deal with “America on the Eve of the
Conquest.” Individual volumes on the two most famous pre-Columbian empires of the West-
ern Hemisphere include Aztecs, by Inga Clendinnen (Cambridge, 1991), and The Inca Em-
pire: The Formation and Disintegration of a Pre-Capitalist State, by Thomas C. Patterson
(New York and Oxford, 1991). Helen Perlstein Pollard’s Taracuri’s Legacy: The Prehispanic
Tarascan State (Norman, OK, 1993) provides a comprehensive view of a polity in western
Mexico that successfully resisted the Aztecs but fell to the Spanish. Pre-Columbian societies
in the area of the United States are dealt with by Claudia Gellman Mink in Cahokia, City of
the Sun: Prehistoric Urban Center in the American Bottom (Collinsville, IL, 1992) and by
James B. Stoltman in New Perspectives on Cahokia: Views from the Periphery (Madison, WI,
1991). Excellent overviews of the major economic issues can be found in Linda Barrington,
ed., The Other Side of the Frontier: Economic Explorations into Native American History
(Boulder, CO, 1999).

Chapter 5. Europe’s Second Logistic

Geoffrey Parker’s The Military Revolution: Military Innovation and the Rise of the West, 1500—
1800 (Cambridge and New York, 1988) is a modern classic. A worthy companion is Niels
Steensgard, The Asian Trade Revolution of the Seventeenth Century: The East India Compa-
nies and the Decline of the Caravan Trade (Chicago, 1975).
Carlo M. Cipolla, Before the Industrial Revolution: European Economy and Society, 1000—
1700 (2nd ed., New York, 1980), is an excellent textbook that covers both the medieval and
early modern periods. Ralph Davis, The Rise of the Atlantic Economies (Ithaca, NY, 1973), is
another good textbook that emphasizes the European discovery and peopling of the Americas
as well as the economies of western Europe. Two other texts that can be recommended are
Harry A. Miskimin, The Economy of Later Renaissance Europe, 1460-1600 (Cambridge,
1977), and Jan de Vries, The Economy of Europe in an Age of Crisis, 1600—1750 (Cambridge,
1976). Peasants, Landlords and Merchant Capitalists: Europe and the World Economy, 1500—
1800, by Peter Kriedte (Cambridge, 1983), is a short Marxist text. Economy and Society in
Early Modern Europe: Essays from Annales, edited by Peter Burke (London, 1972), and Es-
says in European Economic History, 1500—1800, edited by Peter Earle (Oxford, 1974), are
both collections of notable journal articles.
A major work by virtue of both its bulk and its scope is Fernand Braudel, Civilization and
Capitalism, 15th—18th Centuries (3 vols., New York, 1982-84); it contains a wealth of factual
 Annotated Bibliography 411

information, mostly correct, but the brilliance of its author’s rather idiosyncratic interpretation
has been exaggerated by the popular press. Braudel’s earlier work, which established his rep-
utation, is also available in English: The Mediterranean and the Mediterranean World in the
Age ofPhilip II (2 vols., New York, 1972; first published in French in 1949). Two books bet-
ter known for their controversial (and contradictory) interpretations of the economic history of
the early modern period than for their command of the facts are Douglass C. North and Robert
Paul Thomas, The Rise of the Western World: A New Economic History (Cambridge, 1973),
and Immanuel Wallerstein, The Modern World-System: Capitalist Agriculture and the Origins
of the European World Economy in the Sixteenth Century (New York, 1974). Wallerstein’s is
the first of a four-volume series, two more of which have been published: The Modern World-
System II: Mercantilism and the Consolidation of the European World-Economy, 1600—1750
(1980; more appropriate for Chapter 6) and The Modern World-System III: The Second Era of
Great Expansion of the Capitalist World-Economy. 1730—1840s (1989; for Chapter 7).
Textbooks and general works in English relating to individual countries are most plentiful
and satisfactory for England or Great Britain, of course. Three that can be recommended with-
out hesitation are D. C. Coleman, The Economy of England, 1450-1750 (Oxford, 1977); L. A.
Clarkson, The Pre-Industrial Economy in England, 1500-1750 (London, 1971); and Charles
Wilson, England’s Apprenticeship, 1603—1763 (London, 1965). These should be balanced with
T. C. Smout, A History of the Scottish People, 1560-1830 (Edinburgh, 1969). The closest
equivalents in English for France are Emmanuel LeRoy Ladurie, The Peasants of Languedoc
(Urbana, IL, 1974), and Pierre Goubert, The French Peasantry in the Seventeenth Century
(Cambridge, 1986); several of the essays in Cameron, ed., Essays in French Economic History,
mentioned earlier, and the volumes on France cited for Chapter 6 can also serve. For central
and eastern Europe there is Hermann Kellenbenz’s The Rise of European Economy: An Eco-
nomic History of Continental Europe from the Fifteenth to the Eighteenth Century (New York,
1976), the title of which is slightly misleading, for the focus is on central and eastern Europe.
Bob Blackburn, ed., provides English-language versions of the work of leading German his-
torians in Germany. A New Social and Economic History: 1450-1630 (vol. 1, New York and
Oxford, 1995). Sheilagh Ogilvie, ed., continues the coverage in volume 2, 1630—1800 (New
York and Oxford, 1996). For Russia, Richard Hellie provides excellent coverage in The Econ-
omy and Material Culture of Russia, 1600—1725 (Chicago, 1999) and his edited version of Ar-
cadius Kahan’s The Plow, the Hammer, and the Knout: An Economic History of Eighteenth His-
tory Russia (Chicago, 1985), published after Kahan’s death.
By far the best introduction to almost any aspect of Dutch economic history in the early mod-
ern period to 1815 is Jan de Vries and Ad van der Woude, The First Modern Economy: Success,
Failure, and Perserverance of the Dutch Economy, 1500-1815 (Cambridge and New York,
1997). Charles Wilson, The Dutch Republic and the Civilization of the Seventeenth Century
(London, 1969), is also excellent. Violet Barbour, Capitalism in Amsterdam in the Seventeenth
Century (Baltimore, 1950; reprinted, Ann Arbor, MI, 1963), contains a wealth of information in
small compass. Jonathan Israel, The Dutch Republic: Its Rise, Greatness, and Fall, 1477—1806
(London, 1995), with more than 1,100 pages, covers in detail many aspects of its subject beyond
the merely economic. The same author has also contributed Dutch Primacy in World Trade,
1585—1740 (Oxford, 1989). For other countries see the works listed for Chapter 6.
The population history of early modern Europe is felicitously encapsulated in Michael W.
Flinn, The European Demographic System, 1500-1820 (Baltimore, 1981), which also features
an excellent bibliography. Migration within Europe as well as overseas is dealt with in Nicholas
Canny, ed., Europeans on the Move: Studies in European Migration, 1500-1800 (Oxford,
1994). E. A. Wrigley and R. S. Schofield, The Population History of England, 1541-1871
(London, 1981), is a methodologically novel and detailed analysis. The interrelations of pop-
ulation and agriculture are dealt with by Ester Boserup, The Conditions ofAgricultural Growth:
412 A CONCISE ECONOMIC HISTORY OF THE WORLD

The Economics of Agrarian Change under Population Pressure (London, 1975) (which is not
limited to early modern Europe) and by B. H. Slicher van Bath, Agrarian History of Western
Europe, previously mentioned.
Other aspects of agriculture and rural life are considered by Ann Kussmaul, A General View
of the Rural Economy of England, 1538—1840 (New York, 1990); John Chartres and David
Hey, eds., English Rural Society, 1500—1800 (Cambridge, 1990); and by European Peasants
and Their Markets: Essays in Agrarian Economic History, edited by William N. Parker and
Eric L. Jones (Princeton, NJ, 1975). Jan de Vries, The Dutch Rural Economy in the Golden
Age, 1500—1700 (New Haven, CT, 1974), is a model of its kind. Agrarian life in eastern Eu-
rope is presented in marvelously detailed fashion by Jerome Blum in Lord and Peasant in Rus-
sia from the Ninth to the Nineteenth Century (Princeton, NJ, 1961), especially in Chapters 8—
14 for the sixteenth and seventeenth centuries. The same author’s The End of the Old Order in
Rural Europe (Princeton, NJ, 1978) deals with the transition to modern class society.
The literature on exploration and discovery is vast and has been greatly expanded by the
Columbian quincentenary. Typical is Columbus and the Age of Discovery (New York, 1991),
a lavishly illustrated companion volume to a television series by Zvi Dor-Ner. The Career and
Legend of Vasco Da Gama by Sanjay Subrahmanyam (Cambridge, 1998) deals with his Por-
tuguese rival. A handy earlier survey is Charles E. Nowell, The Great Discoveries and the First
Colonial Empires (Ithaca, NY, 1954). Great but still manageable detail is offered by J. H. Parry,
The Age of Reconnaissance: Discovery, Exploration, and Settlement, 1450—1650 (Cleveland,
1963). Samuel Eliot Morison’s The Great Explorers: The European Discovery of America (Ox-
ford, 1978) is a hefty abridgement of his two-volume The European Discovery of America and
is especially good on the personalities of the explorers. Kirkpatrick Sale paints an unflattering
portrait in The Conquest of Paradise: Christopher Columbus and the Columbian Legacy (New
York, 1990). Two books by Alfred W. Crosby likewise take a dim view of the discoveries: The
Columbian Exchange: Biological and Cultural Consequences of 1492 (Westport, CT, 1972)
and Ecological Imperialism: The Biological Expansion of Europe, 900-1900 (Cambridge,
1986). Experts at the Tenth International Congress of Economic History looked at the conse-
quences for Europe of the discoveries in Hans Pohl, ed., The European Discovery of the World
and Its Economic Effects on Pre-Industrial Society, 1500-1800 (Stuttgart, 1990). Focusing on
the slave trade that arose, Philip Curtin, The World and the West: The European Challenge and
the Overseas Response in the Age of Empire (Cambridge and New York, 2000), fleshes out the
ramifications of the so-called triangular trade. Portugal’s role is detailed in Christopher Bell,
Portugal and the Quest for the Indies (New York, 1974), and C. R. Boxer, Four Centuries of
Portuguese Expansion, 1415-1825: A Succinct Survey (Berkeley and Los Angeles, 1969),
which is precisely what its subtitle indicates. Carlo M. Cipolla, Guns and Sails in the Early
Phase of European Expansion (London, 1965), is a perceptive and stimulating exercise in his-
torical judgment.
The locus classicus of the so-called price revolution is Earl J. Hamilton, American Trea-
sure and the Price Revolution in Spain, 1501—1650 (Cambridge, MA, 1934; reprinted New
York, 1965), although the same author’s “American Treasure and the Rise of Capitalism,” Eco-
nomica, 9 (November 1929): 338-57, is both briefer and more pointed. A handy collection of
criticisms of the Hamilton thesis, from different points of view, is Peter H. Ramsey, ed., The
Price Revolution in Sixteenth-Century England (London, 1971).
Among works dealing with commerce and commercial organization in the early modern
period, Herman Van Der Wee, The Growth of the Antwerp Market and the European Economy
(3 vols., The Hague, 1963), is the definitive work on the rise and decline of Antwerp. Ralph
Davis, The Rise of the English Shipping Industry in the Seventeenth and Eighteenth Centuries
(London, 1962), relates problems of trade to those of transport. Douglas R. Bisson, The Mer-
chant Adventurers ofEngland: The Company and the Crown, 1474—1564 (Newark, DE, 1993)
 Annotated Bibliography 413

is a brief, up-to-date history of that regulated company stressing its relations with the govern-
ment. Philip D. Curtin, The Atlantic Slave Trade: A Census (London, 1969), was the definitive
work on that unusual branch of commerce. David Eltis, The Rise ofAfrican Slavery in the Amer-
icas (Cambridge and New York, 1999), is now the best economic history of the slave trade,
while Stanley Engerman, Robert Paquette, and Seymour Drescher, eds., Slavery (New York
and Oxford, 2001), have compiled an excellent reader on that subject. Other books dealing with
commerce are listed in the bibliography for Chapter 6. For industry, John Hatcher, The History
of the British Coal Industry, Volume I, before 1700 (Oxford and New York, 1993), has now re-
placed an earlier classic, J. U. Nef, The Rise of the British Coal Industry (2 vols., London,
1932). Thomas M. Safley and Leonard N. Rosenband, eds., The Workplace before the Factory:
Artisans and Proletarians (Ithaca, NY, 1993), highlights the experience and complexity of
prefactory manufacture, whereas Myron P. Gutmann, Toward the Modern Economy: Early In-
dustry in Europe, 1500-1800 (New York, 1988); Maxine Berg, The Age of Manufactures,
1700—1820 (London, 1985); and Jordan Goodman and Katrina Honeyman, Gainful Pursuits:
The Making of Industrial Europe, 1600-1914 (London, 1988), chart the transition to modern
industry.
Some older works on the early modern period that can still be recommended include George
Unwin, /ndustrial Organization in the Sixteenth and Seventeenth Centuries (1904; reprinted,
London, 1957); Richard Ehrenberg, Capital and Finance in the Age of the Renaissance: A Study
of the Fuggers and Their Connections (1928; reprinted, New York, 1963 and 1985); and H. M.
Robertson, Aspects of the Rise of Economic Individualism: A Criticism of Max Weber and His
School (1933; reprinted, New York, 1959).

Chapter 6. Economic Nationalism and Imperialism

Eli F. Heckscher’s classic Mercantilism (2nd English ed., 2 vols., London, 1965) is still the
starting point for discussions of economic policy in the early modern period. A collection of
some of the criticisms (and defenses) of Heckscher’s conception is contained in D. C. Cole-
man, ed., Revisions in Mercantilism (London, 1969). Joseph A. Schumpeter’s magisterial His-
tory of Economic Analysis (Oxford, 1954) should also be consulted, especially Part Il, Chap-
ter 7. Paul Kennedy, The Rise and Fall of the Great Powers: Economic Change and Military
Conflict from 1500 to 2000 (New York, 1987), contains a challenging thesis that encompasses
a wide time span. James D. Tracy, ed., The Rise of Merchant Empires: Long-Distance Trade in
the Early Modern World, 1350-1750 and The Political Economy of Merchant Empires (2 vols.,
Cambridge and New York, 1990-92), give a panoramic view.
The nature and consequences of economic policies can most usefully be surveyed on a
country-by-country basis. For Spain An Economic History of Spain, by Jaime Vicens Vives
(Princeton, NJ, 1969), is the best place to begin (see especially Part IV, Chapters 23—31). David
Ringrose, Madrid and the Spanish Economy, 1560-1850 (Berkeley and Los Angeles, 1983),
presents a challenging hypothesis on the reasons for the long economic stagnation of Spain,
which he updates in Spain, Europe, and the “Spanish Miracle,” 1700-1900 (Cambridge,
1999). Richard Herr, Rural Change and Royal Finances in Spain at the End of the Old Regime
(Berkeley, 1989) is a masterpiece. Julius Klein, The Mesta: A Study in Spanish Economic His-
tory, 1273-1836 (Cambridge, MA, 1920), has only recently been replaced by Carla Rahn
Phillips and Warren D. Phillips, Jr., Spain’s Golden Fleece: Wool Production and the Wool
Trade from the Middle Ages to the Nineteenth Century (Baltimore, 1997). C. H. Haring’s Trade
and Navigation between Spain and the Indies in the Time of the Hapsburgs (Cambridge, MA,
1918) can still be recommended. The same author has also contributed The Spanish Empire in
America (New York, 1947). Enrique Tandeter, Coercion and Markets: Silver Mining in Colo-
nial Potosi, 1692—1826 (Albuquerque, NM, 1993), is a comprehensive and systematic analy-
414 A CONCISE ECONOMIC HISTORY OF THE WORLD

sis of that important subject. Herbert C. Klein, The American Finances of the Spanish Empire:
Royal Income and Expenditures in Colonial Mexico, Peru, and Bolivia, 1680-1809 (Albu-
querque, NM, 1998), is the definitive study of the Spanish Empire until its breakup. His book,
The Atlantic Slave Trade (New Approaches to the Americas) (Cambridge, 1999) should also be
consulted.
For Portugal the best overall account is still C. R. Boxer, The Portuguese Seaborne Em-
pire, 1415—1825 (New York, 1969). See also C. R. Boxer, The Dutch in Brazil, 1624—1654
(Oxford, 1957), and the relevant chapters of the Cambridge History of Latin America. Sanjay
Subrahmanyam, The Portuguese Empire in Asia, 1500-1700: A Political and Economic His-
tory (London and New York, 1993), describes the rise and fall of Portugal’s domination of
Asian trade.
Herman Kellenbenz, in The Rise of the European Economy, previously mentioned, places
a heavy emphasis on the role of the state. The focus and emphasis are even more pronounced
in Hans Rosenberg’s Bureaucracy, Aristocracy, and Autocracy: The Prussian Experience
1660-1815 (Cambridge, MA, 1958). Both authors are masters of their subjects, as is Eli F.
Heckscher of Mercantilism fame, whose An Economic History of Sweden (Cambridge, MA,
1954) is an abridged translation of the four-volume Swedish original. For Italy, in addition to
Lane’s Venice: A Maritime Republic, previously mentioned, and his Venice and History: The
Collected Papers of Frederic C. Lane (Baltimore, 1966), there is Brian Pullan, ed., Crisis and
Change in the Venetian Economy in the Sixteenth and Seventeenth Centuries (London, 1968),
and Domenico Sella, Crisis and Continuity: The Economy of Spanish Lombardy in the Seven-
teenth Century (Cambridge, MA, 1979).
The role of the state in the French economy is unusually well documented, thanks to a trio
of works by Charles W. Cole: French Mercantilist Doctrines before Colbert (New York, 1931),
Colbert and a Century of French Mercantilism (2 vols., New York, 1939), and French Mer-
cantilism, 1683-1700 (New York, 1943). The drawback is that Cole’s conception of mercan-
tilism was quite conventional. A good antidote is Martin Wolfe, The Fiscal System of Renais-
sance France (New Haven, CT, 1972). Warren C. Scoville, The Persecution of the Huguenots
and French Economic Development, 1680-1720 (Berkeley and Los Angeles, 1960), also gives
a somewhat different picture of the role of government in France, as does J. F. Bosher, French
Finances, 1770-1795: From Business to Bureaucracy (Cambridge, 1970). Recent works on
French financial experiments that should be consulted are Antoin E. Murphy, John Law: Eco-
nomic Theorist and Policy Maker (Oxford, 1997), and Philip Hoffman, Gilles Postel-Vinay,
and Jean-Laurent Rosenthal, Priceless Markets: The Political Economy of Credit in Paris,
1660-1870 (Chicago and London, 2000). Fernand Braudel’s The Identity of France (2 vols.,
New York, 1990), the final, unfinished masterpiece of a great historian, deals with much more
than mere economic policy and covers a much longer period than other works mentioned here,
but it also deserves to be mentioned.
Kristof Glamann, Dutch-Asiatic Trade, 1620-1740 (Copenhagen and The Hague, 1958),
is the best work in English on the Dutch East India Company, but a comprehensive history is
now available in three volumes by a team of Dutch historians, J. R. Bruijn, F. S. Gaastra, and
I. Schoffer, Dutch-Asiatic Shipping in the 17th and 18th Centuries (The Hague, 1979-87). The
first volume gives the general history and the last two volumes detail each of the outbound and
inbound voyages by the Dutch fleets. Aspects of the company’s activities in Asia are dealt with
by John E. Wills, Jr., Pepper, Guns and Parleys: The Dutch East India Company and China,
1622—1681 (Cambridge, MA, 1974), and Om Prakash, The Dutch East India Company and the
Economy of Bengal, 1630-1720 (Princeton, NJ, 1985), as do the volumes by K. N. Chaudhuri
mentioned in the bibliography for Chapter 4.
Charles Wilson’s England’s Apprenticeship, 1603-1763, previously mentioned, contains
much material relevant to the formation and execution of economic policy. The same author’s
 Annotated Bibliography 415

Profit and Power: A Study of England and the Dutch Wars (London, 1957) is more narrowly
focused. His Economic History and the Historian (London, 1969), a collection of his essays,
contains several dealing with the formation, execution, and consequences of economic policy.
Specific episodes are dealt with by J. D. Gould, The Great Debasement: Currency and Econ-
omy in Mid-Tutor England (Oxford, 1970); Astrid Friis, Alderman Cockayne’s Project and the
Cloth Trade (London, 1927), good despite its age; and L. A. Harper, The English Navigation
Laws (New York, 1939). Joan Thirsk, Economic Policy and Projects: The Development of Con-
sumer Society in Early Modern England (Oxford, 1978), is brilliant. A worthy complement is
Carole Shammas, The Preindustrial Consumer in England and America (New York, 1990).

Chapter 7. The Dawn of Modern Industry

The literature on the so-called industrial revolution in Great Britain is enormous and still
rapidly growing. Much of it (mainly books) is listed in British Economic and Social History:
A Bibliographical Guide, compiled by W. H. Chaloner and R. C. Richardson (Manchester,
1976). What follows is extremely selective, limited to a few standard general works and some
others chosen for their felicitous style or seminal ideas.
A basic source is B. R. Mitchell (with the collaboration of Phyllis Deane), Abstract of
British Historical Statistics (Cambridge, 1962); also, Mitchell and H. G. Jones, Second Ab-
stract of British Historical Statistics (Cambridge, 1971). The Atlas of Industrializing Britain,
1780-1914, edited by John Langton and R. J. Morris (London, 1986), is extremely useful for
visualizing the spatial aspects of industrialization. Similarly, The Archaeology ofthe Industrial
Revolution, edited by Brian Bracegirdle (London, 1973), abundantly illustrated, enables the
student to visualize the technology of early industrialization. M. W. Flinn, British Population
Growth, 1800-1850 (‘“Studies,” London, 1970), summarizes and analyzes the essential infor-
mation in brief compass.
The literature on proto-industrialization is summarized by Franklin Mendels in “Proto-In-
dustrialization: Theory and Reality” in Eighth International Economic History Congress, Bu-
dapest 1982, “A” Themes, pp. 69-107. If that item is too difficult to locate, try idem, “Proto-
Industrialization: The First Phase of the Industrialization Process, Journal of Economic
History, 32 (March 1972): 241-61, in which the term was given an explicit definition (since
modified). See also Peter Kriedte et al., Industrialization before Industrialization (Cambridge,
1981). For a skeptical view, see D. C. Coleman, “Proto-Industrialization: A Concept Too
Many,” Economic History Review, 2nd ser., 36 (Aug. 1980): 435-48.
A recent text, informed by the insights and skills of the cliometricians, is The Economic
History of Britain since 1700, edited by Roderick Floud and Donald McCloskey (2nd ed., 3
vols., Cambridge, 1993). A standard text is Peter Mathias, The First Industrial Nation: An Eco-
nomic History of Britain, 1700-1914 (2nd ed., London, 1983). See also the same author’s The
Transformation of England (London, 1979), which focuses on the eighteenth century.
The best brief synopsis of the rise of modern industry in Britain is probably still T. S. Ash-
ton, The Industrial Revolution, 1760-1830 (Oxford, 1948). See also the same author’s An Eco-
nomic History of England: The 18th Century (London, 1955) and Economic Fluctuations in
England, 1700-1800 (Oxford, 1959). Covering the period of about 1750-1850 is Phyllis
Deane’s The First Industrial Revolution (2nd ed., Cambridge, 1979), which is based in part on
her pioneering work with W. A. Cole, British Economic Growth 1688-1959 (2nd ed., Cam-
bridge, 1967). N. F. R. Crafts, British Economic Growth during the Industrial Revolution (Ox-
ford, 1985), criticizes the Deane and Cole estimates; this book is also relevant for Chapter 9.
The Causes of the Industrial Revolution in England, edited by R. M. Hartwell (“Debates,” Lon-
don, 1967), is a collection of seminal articles by outstanding authors that, however, does not
answer the question implicit in the title. Hartwell has also edited another collection of articles
416 A CONCISE ECONOMIC HISTORY OF THE WORLD

by various authors entitled, simply, The Industrial Revolution (Oxford, 1970), and has pub-
lished a collection of his own articles under the title The Industrial Revolution and Economic
Growth (London, 1971). Hartwell has recently been honored by a “textschrift” by his former
students under the title The Industrial Revolution and British Society, edited by Patrick O’ Brien
and Roland Quinault (Cambridge, 1993); a similar volume was edited by Joel Mokyr, The
British Industrial Revolution: An Economic Perspective (Boulder, CO, 1993); both volumes
are subject to critical review by Rondo Cameron, “The Industrial Revolution: Fact or Fiction?”
Contention: Debates in Society, Culture, and Science (Fall 1994): 163-88.
The First Industrialists, by Frangois Crouzet (Cambridge, 1975) investigates the social ori-
gins of the pioneers of modern industry and concludes that “a large majority” came from the
middle classes. That enormous, ambiguous group is the subject of Peter Earle, The Making of
the English Middle Class: Business, Society, and Family Life in London, 1660—1730 (Berke-
ley and Los Angeles, 1989). Who was beneath the middle classes? John F. C. Harrison answers
that question in The Common People: A History from the Norman Conquest to the Present
(London, 1984); not limited to the eighteenth century, it is nevertheless highly recommended.
Adrian Randall, Before the Luddites: Custom, Community, and Machinery in the English
Woolen Industry, 1776—1809 (Cambridge and New York, 1991), is a study of England’s lead-
ing industry before extensive mechanization. Jane Rendall, Women in an Industrialising Soci-
ety: England, 1750—1880 (Oxford, 1990), traces the varied roles of women during the process
of industrialization. Deborah Valenze, The First Industrial Woman (Oxford, 1994), has a sim-
ilar theme. Sidney Pollard, The Genesis of Modern Management: A Study of the Industrial Rev-
olution in Great Britain (London, 1965), looks at the problems of managing the first large-scale
industrial enterprises. S. D. Chapman, The Cotton Industry in the Industrial Revolution (“Stud-
ies,” London, 1972), is a competent brief summary of a large literature on the single most im-
portant industry of the period. The Arkwrights: Spinners of Fortune, by R. S. Fitton (New York,
1989), is the definitive work on Richard Arkwright and his family. Clark Nardinelli, in Child
Labor in the Industrial Revolution (Bloomington IN, 1990), disputes the usual assumptions
that widespread exploitation of children characterized the period. Science, Technology, and
Economic Growth in the Eighteenth Century, edited by A. E. Musson (“Debates,” London,
1972), is a collection of important articles by various authorities. References for the so-called
standard of living question are listed under Chapter 9.
J. D. Chambers and G. E. Mingay, The Agricultural Revolution, 1750-1880 (London,
1966), is the standard work on agriculture in the early stages of industrialization; but see the
booklet by J. V. Beckett, The Agricultural Revolution (Oxford, 1990), for a recent questioning
of the utility of the term “revolution.” E. L. Jones, ed., Agricultural and Economic Growth,
1650-1815 (“Debates,” London, 1967), is a collection of important articles by various au-
thorities, whereas E. L. Jones, Agriculture and the Industrial Revolution (Oxford, 1974), is the
same scholar’s own mature reflections on the subject. G. E. Mingay, English Landed Society
in the 18th Century (London, 1963), is a substantial original work; Enclosure and the Small
Farmer in the Age of the Industrial Revolution (“Studies,” London, 1968), by the same author,
is an extremely useful brief summary of a large literature on an important question. His A So-
cial History of the English Countryside (London, 1990) covers a broader canvas. A revisionist
approach with substantial quantitative evidence and economic analysis is Robert C. Allen, En-
closure and the Yeoman: the Agricultural Development of the South Midlands, 1450-1850
(New York and Oxford, 1992).
General surveys on the role of transportation in the early stages of British industrialization
are contained in the initial chapters of P. S. Bagwell, The Transportation Revolution from
1770
(New York, 1974); T. C. Barker and C. I. Savage, An Economic History of Transport in
Britain
(3rd rev. ed., London, 1974); and H. J. Dyos and D. H. Aldcroft, British Transport:
An Eco-
nomic Survey from the Seventeenth Century to the Twentieth (London, 1969). More specialized
 Annotated Bibliography 417

topics are treated admirably by W. A. Albert, The Turnpike Road System of England, 1663—
1844 (Cambridge, 1972); A. R. B. Haldane, New Ways through the Glens (London, 1962),
about road building in the Scottish Highlands; J. R. Ward, The Finance of Canal Building in
Eighteenth Century England (Oxford, 1974); and T. S. Willan, The English Coasting Trade,
1600-1750 (1938; reprinted, with new preface, London, 1967).
Financial problems of the seventeenth and eighteenth centuries are studied by R. D.
Richards, The Early History of Banking in England (1929; reprinted, London, 1958). P. G. M.
Dickson, The Financial Revolution in England: A Study in the Development of Public Credit,
1688—1756 (London, 1967), invites comparisons with the financial histories of France—for
example, J. F Bosher, French Finances, 1770-1795: From Business to Bureaucracy (Cam-
bridge, 1970)—and other continental countries to understand why Great Britain was more suc-
cessful both militarily and economically in the eighteenth century. L. S. Pressnell, Country
Banking in the Industrial Revolution (Oxford, 1956), also contributes to that understanding,
whereas Francois Crouzet, ed., Capital Formation in the Industrial Revolution (“Debates,”
London, 1972), shows why capital formation was not a major obstacle to economic growth in
the eighteenth century. Larry Neal, The Rise of Financial Capitalism: International Capital
Markets in the Age of Reason (Cambridge, 1990), is a model study of economic and financial
history showing the interrelations of the capital markets of Amsterdam and London. Sir John
Clapham, The Bank ofEngland: A History, vol. | (Cambridge, 1944), is an authorized history
by a great historian that covers the period from the founding of the bank in 1694 until the
Napoleonic Wars. On the occasion of the tercentenary of the bank, an authoritative history was
produced by Forrest Capie, C. A. E. Goodhart, and Stanley Fischer, The Future of Central
Banking, The Tercentenary Symposium of the Bank of England (Cambridge and New York,
1994). Angela Redish, Bimetallism: An Economic and Historical Analysis (Cambridge and
New York, 2000), discusses the eighteenth century monetary experiments of Europe up through
the spread of the gold standard in 1880.

Chapter 8. Economic Development in the Nineteenth Century: Basic Determinants

The bibliographies in the Cambridge Economic History of Europe need to be supplemented by

more recent sources. The Bibliography of European Economic and Social History, compiled
by Derek H. Aldcroft and Richard Rodger (Manchester, 1984), is helpful in that respect, cov-
ering continental Europe for the period from 1700 to 1939. It can be used in conjunction with
the Bibliography of British Economic and Social History, cited in the previous chapter’s bib-
liography. A bibliography emphasizing the contributions of cliometricians is Deirdre Mc-
Closkey and George K. Hersh, Jr., eds., with the assistance of John Coatsworth, A Bibliogra-
phy of Historical Economics to 1980 (Cambridge and New York, 1990). The bibliographies in
the Cambridge History of Latin America are reasonably up to date; vols. III and IV cover the
nineteenth and twentieth centuries. Bibliographies of American history are legion.
The need for quantitative data is well served by B. R. Mitchell, /nternational Historical
Statistics: Europe, 1750-1988 (3rd ed., New York, 1992), a companion to his Abstract of
British Historical Statistics (he has also compiled data for other continents), and U.S. Depart-
ment of Commerce, Historical Statistics of the United States (various editions, Washington,
DC). The Dictionary of Statistics, compiled by Michael G. Mulhall (4th ed., London, 1899;
reprinted, Detroit, 1969), contains a mélange of quantitative data on a variety of subjects from
all over the world but, in view of the negligible information provided on either sources or meth-
ods, it should be used with great caution if at all. The U.S. Department of Commerce has pub-
lished Long Term Economic Growth, 1860-1965 (Washington, DC, 1966); Part IV contains
some international comparisons. A similar publication for the United Kingdom is C. H. Fein-
stein, Statistical Tables of National Income, Expenditure and Output of the U.K., 1855-1965
418 A CONCISE ECONOMIC HISTORY OF THE WORLD

(Cambridge, 1966). This is supplemented by C. H. Feinstein and Sidney Pollard, eds., Studies
in Capital Formation in the United Kingdom, 1750-1920 (Oxford and New York, 1988). The
Economist newspaper published One Hundred Years of Economic Statistics (New York and
Oxford, 1989) containing the principal indicators for nine OECD countries.
The “Essays” series of the Economic History Society includes Essays in European Eco-
nomic History, 1789-1914, edited by Frangois Crouzet et al. (New York and London, 1969);
Essays in Quantitative Economic History, edited by Roderick Floud (Oxford, 1974), most se-
lections of which deal with the last two centuries, but with a British bias; Essays in Social His-
tory, edited by M. W. Flinn and T. C. Smout (Oxford, 1974), with a similar coverage and bias;
and Essays in British Business History, edited by Barry Supple (Oxford, 1977). Economic De-
velopment in the Long Run, edited by A. J. Youngson (London, 1972), is also a collection of
essays by eminent scholars on the fundamental determinants of economic change (except pop-
ulation) with, in addition, chapters on Africa, India, and Japan. It should not be confused with
Economics in the Long View, edited by Charles P. Kindleberger and Guido di Tella (3 vols.,
London, 1982), which is a collection of Essays in Honour of W. W. Rostow, also containing
many items of interest on the nineteenth and twentieth centuries.
Rostow is one of the most celebrated economic historians of the second half of the twenti-
eth century, although in recent years his influence has been on the wane. Among his many
books, a few are of special relevance for this and subsequent chapters: The Stages of Economic
Growth: A Non-Communist Manifesto (Cambridge, 1960; 2nd ed., 1972), his most famous; The
Process of Economic Growth (Oxford, 1952; 3rd ed., 1991), more theoretical than historical;
and The World Economy: History and Prospect (Austin & London, 1978), his magnum opus.
For critical views and a defense, see W. W. Rostow, ed., The Economics of Take-Off into Sus-
tained Growth (New York, 1963), the proceedings of a conference of the International Eco-
nomic Association that Rostow was invited to edit.
Alexander Gerschenkron was another economic historian of the third quarter of the twen-
tieth century whose views on economic development in the nineteenth century were at one time
very influential. He expressed them mainly in essays: Economic Backwardness in Historical
Perspective: A Book of Essays (Cambridge, MA 1962), and Continuity in History and Other
Essays (Cambridge, MA, 1968). Patterns of European Industrialization: The Nineteenth Cen-
tury, edited by Richard Sylla and Gianni Toniolo (London and New York, 1991), contains es-
says by former students of Gerschenkron and also some of his critics. A pair of advanced text-
books by two other prominent economic historians are quite useful for topics covered in this
and subsequent chapters: Alan S. Milward and S. B. Saul, The Economic Development of Con-
tinental Europe, 1780-1870 (London, 1973), and The Development of the Economies of
Continental Europe, 1S50—1914 (Cambridge, MA, 1977). Sidney Pollard, Typology of Indus-
trialization Processes in the Nineteenth Century (Chur, Switzerland, 1990), is a brief, straight-
forward account dealing with the principal European countries, the United States, and Japan.
Dynamic Forces in Capitalist Development: A Long-Run Comparative View, by Angus Mad-
dison (Oxford, 1991), is a dynamic book dealing comprehensively with the world economy of
the last two centuries. See also the same author’s Phases of Capitalist Development (Oxford
and New York, 1982).
The basic data on population are presented in W. S. and E. S. Woytinsky, World Popula-
tion and Production (New York, 1953). Population Growth and Economic Development since
1750, by H. J. Habakkuk (Leicester, 1972), is a brief interpretive essay that relates the popula-
tion history of the industrialized West to the problems of contemporary underdeveloped
economies. Population in Industrialization, edited by Michael Drake (Debates, London,
1969), is a collection of notable articles relating mainly to British experience. E. A. Wrigley,
Industrial Growth and Population Change: A Regional Study of the Coalfield Areas of North-
 Annotated Bibliography 419

West Europe in the Later Nineteenth Century (Cambridge, 1961), on the other hand, is a sem-
inal study of the demographic history of the Australian coalfield. The role of resources in nine-
teenth century industrialization is highlighted by N. J. G. Pounds and W. N. Parker, Coal and
Steel in Western Europe (London, 1957), and by Pounds in The Ruhr: A Study in Historical and
Economic Geography (London, 1952).
The Unbound Prometheus: Technological Change and Industrial Development in Western
Europe from 1750 to the Present, by David Landes (Cambridge, 1969), is much more than a
mere history of industrial technology, relating technological change to the overall economic,
institutional, and political changes of the last two centuries and more. Favorites of Fortune:
Technology, Growth and Economic Development since the Industrial Revolution, edited by
Patrice Higonnet, David Landes, and Henry Rosovsky (Cambridge, MA, 1993), is a collection
of essays by notable authorities. A.G. Kenwood and A. L. Lougheed, Technological Diffusion
and Industrialization before 1914 (London, 1982), is more narrowly focused. Ian Inkster, Sci-
ence and Technology in History: An Approach to Industrial Development (New Brunswick, NJ,
1991), stresses the importance of international diffusion, as does David J. Jeremy, ed., Inter-
national Technology Transfer: Europe, Japan, and the U.S.A., 1700-1914 (Aldershot, En-
gland, 1991), with case studies by experts in each area. The Economics of Technological
Change, edited by Nathan Rosenberg (Baltimore, 1971), is a collection of major articles cov-
ering all aspects of its subject. Insight into the new phenomenon of the professional inventor
is provided by Andre Millard in Edison and the Business of Innovation (Baltimore, 1990).
Institutional Change and American Economic Growth, by Lance E. Davis and Douglass C.
North (Cambridge, 1971), is a seminal account of the interrelations of institutions and economic
change. The State and Economic Growth, edited by H. G. J. Aitken (New York, 1959), consists
of the papers presented at a conference of the Social Science Research Council on that subject;
most of them deal with the nineteenth century. Bishop C. Hunt, The Development of the Busi-
ness Corporation in England, 1800-1867 (Cambridge, MA, 1936); Charles E. Freedeman,
Joint-Stock Enterprise in France, 1807-1867: From Privileged Company to Modern Corpora-
tion (Chapel Hill, 1979); and Alfred D. Chandler, Jr., Strategy and Structure: Chapters in the
History of the Industrial Enterprise (Cambridge, MA, 1962), detail the development of modern
forms of enterprise in three important countries. Freedeman also wrote The Triumph of Corpo-
rate Capitalism in France, 1867-1914 (Rochester, NY, 1993), and Chandler has also authored
two other works of seminal importance on business organization: The Visible Hand: The Man-
agerial Revolution in American Business (Cambridge, MA, 1977) and Scale and Scope: Dy-
namics of Industrial Capitalism (Cambridge, MA, 1990). Leslie Hannah, The Rise of the Cor-
porate Economy (2nd ed., London and New York, 1983), is primarily concerned with the United
Kingdom in the twentieth century, but Mira T. Wilkins, ed., The Free-Standing Company in the
World Economy, 1830-1996 (New York and Oxford, 1999), has a much wider scope.
Two quite different books attempt to show the interrelations of resources, technology, and
institutions: Nathan Rosenberg and L. E. Birdzell, Jr., How the West Grew Rich: The Economic
Transformation of the Industrial World (New York, 1986), and Rondo Cameron, France and
the Economic Development of Europe, 1SO0O—1914 (Princeton, NJ, 1961).
Education and Economic Development, edited by C. Arnold Anderson and Mary Jean Bow-
man (Chicago, 1965), was a pioneering treatment of its subject. Literacy and Development in
the West, by Carlo M. Cipolla (Harmondsworth, England, 1969), is both succinct and compre-
hensive. A worthy recent contribution is Gabriel Tortella, ed., Education and Economic De-
velopment since the Industrial Revolution (Valencia, Spain, 1990). Education, Technology and
Industrial Performance in Europe, 1850-1939, edited by Robert Fox and Anna Guagnini
(Cambridge, 1993), is an excellent comparative study including Italy, Spain, Belgium, and
Sweden along with the “big three” and the United States.
420 A CONCISE ECONOMIC HISTORY OF THE WORLD

Chapter 9. Patterns of Development: The Early Industrializers

Good textbook treatments of the economic history of Britain in the nineteenth century include
Mathias, The First Industrial Nation, and Floud and McCloskey, eds., An Economic History of
Britain since 1700, both previously cited; also S. G. Checkland, The Rise of Industrial Society
in England, 1815—1885 (London, 1964); William Ashworth, An Economic History of England,
1870-1939 (London, 1960); J. D. Chambers, The Workshop of the World: British Economic
History, 1820-1880 (2nd ed., Oxford, 1968); and R. H. Campbell, Scotland from 1707: The
Rise of an Industrial Society (London, 1964). The older tradition is represented by Sir John
Clapham, An Economic History of Modern Britain (3 vols., Cambridge, 1926-38).
British Economic Growth, 1865—1973, by R. C. O. Mathews, C. H. Feinstein, and J. C.
Odling-Smee (Oxford, 1982), is the near-definitive account of more than a century’s economic
history. The Great Victorian Boom, 1850-1873 (‘“Studies,” London, 1975) is a brief, lively
treatment by Roy A. Church. Stung by some hostile criticism, the author organized a confer-
ence on The Dynamics of Victorian Business: Problems and Perspectives to the 1870s (Lon-
don, 1980), the participants of which provided succinct surveys of the principal industries,
which Church has edited. This appeared too late to be included in P. L. Payne’s succinct sur-
vey, British Enterprise in the Nineteenth Century (“Studies,” London, 1974), but another con-
ference provided another volume with a different approach—the cliometric—in Essays on a
Mature Economy: Britain after 1840, edited by Donald McCloskey (now found under Deirdre
McCloskey) (London, 1971), in which most authors gave a favorable assessment of British en-
trepreneurship. McCloskey has also published a number of his own essays under the title En-
terprise and Trade in Victorian Britain (London, 1981), in which he concluded that the British
economy (and entrepreneurs) in the late nineteenth century did about as well as could have
been expected. This conclusion has been sharply challenged by (among others) a British eco-
nomic historian, M. W. Kirby, in The Decline of British Economic Power since 1870 (London,
1981), and an American intellectual historian, Martin J. Wiener, in English Culture and the De-
cline of the Industrial Spirit, 1SSO—1980 (Cambridge, 1981). The latter book was the subject
ofa special conference, the results of which are presented in British Culture and Economic De-
cline, edited by Bruce Collins and Keith Robbins (London, 1990). David Cannadine deals with
a related subject in his delightfully written but heavy (800+ pages) The Decline and Fall of
the British Aristocracy (New Haven, CT, and London, 1990). Alan Sked, Britain’s Decline:
Problems and Perspectives (Oxford, 1987), is rather cautious, whereas Britain’s Prime and
Britain’s Decline: The British Economy, 1870-1914, by Sidney Pollard (New York, 1989), is
more forthright. New Perspectives on the Late Victorian Economy: Essays in Quantitative Eco-
nomic History, 1860—1914, edited by James Foreman-Peck (Cambridge, 1991), returns to the
cliometric mode of analysis. Business Enterprise in Modern Britain: From the Eighteenth to
the Twentieth Century, edited by Maurice W. Kirby and Mary B. Rose (London, 1994), is a
good recent textbook. In The Origins ofRailway Enterprise: The Stockton and Darlington Rail-
way, 1821-1863 (Cambridge, 1993), Kirby has also provided the definitive history of a pio-
neer railway.
The “standard of living question” in British industrialization has been one of the most hotly
debated topics since the 1830s. The Standard of Living in Britain in the Industrial Revolution,
edited by Arthur J. Taylor (“Debates,” London, 1975), presents views from both (or all) sides.
Jeffrey G. Williamson, in Did British Capitalism Breed Inequality? (Boston, 1985), uses clio-
metric methods to argue that the standard of living of British workers rose, but the distribution
of income became more unequal until about the middle of the century. Other volumes on re-
lated topics are Arthur J. Taylor, Laissez-Faire and State Intervention in Nineteenth-Century
Britain (“Studies,” London, 1972), and A. W. Coats, ed., The Classical Economists and Eco-
nomic Policy (“Debates,” London, 1971).
 Annotated Bibliography 421

Most readers of this book are already familiar with at least the outlines of American eco-
nomic history—or soon will be. In view of the immense literature on the subject, it is imprac-
tical to list more than a few general works and refer readers to them and their bibliographies.
Among the better recent textbooks are Sidney Ratner, James H. Soltow, and Richard E. Sylla,
The Evolution ofthe American Economy: Growth, Welfare, and Decision Making (2nd ed., New
York, 1993); Jeremy Atack, Peter Passell, and Susan Lee, A New Economic View of American
History, (2nd ed., New York, 1994); and Gary Walton and Hugh Rockoff, History of the Amer-
ican Economy (8th ed. Fort Worth, TX, 1998). Somewhat older, but valuable because of the dis-
tinction of its authors (twelve in all!) is Lance E. Davis et al., American Economic Growth: An
Economists History of the United States (New York, 1972). Two books prepared with British
readers in mind are A. W. Coats and R. M. Robertson, eds., Essays in American Economic
Growth in the Nineteenth Century (London, 1969), and Peter Temin, Causal Factors in Ameri-
can Economic Growth in the Nineteenth Century (“Studies,” London, 1975), with an excellent
select bibliography. William Cronon, Nature's Metropolis: Chicago and the Great West (New
York, 1991), is an outstanding recent example of urban history. Marc Egnal, Divergent Paths:
How Culture and Institutions Have Shaped North American Growth (New York and Oxford,
1996), adds French Canada to his comparative study of growth among North American regions.
The relative scarcity of books in English on the economic history of Belgium means that
more reliance must be placed on journal articles and chapters or passages in larger works. A
good overview can be obtained from the chapters on Belgium in Milward and Saul, The
Economic Development of Continental Europe, 1780-1870, and The Development of the
Economies of Continental Europe, 1850-1914 (Belgium is paired with Switzerland in the for-
mer and with the Netherlands in the latter). Jan Craeybeckx, “The Beginning of the Industrial
Revolution in Belgium,” in Cameron, ed., Essays in French Economic History, is informative
on the French period, and Chapter XI in Cameron, France and the Economic Development of
Europe, provides a general survey with special emphasis on the contributions of French entre-
preneurs, engineers, and capital. The chapter on Belgium in Cameron et al., Banking in the
Early Stages of Industrialization, gives more detail on the contribution of the Belgian banking
system to industrialization. Herman van der Wee and Jan Blomme, eds., have collected the best
English language treatments in The Economic Development of Belgium since 1870, part of the
Edward Elgar series on the economic development of Europe since 1870.
Frangois Caron, An Economic History of Modern France (New York, 1979), is a good book
badly translated. Guy P. Palmade, French Capitalism in the Nineteenth Century (Newton Ab-
bott, 1972), although perhaps not quite as good, had better luck with its translator (Graeme
Holmes), who also provided a useful, lengthy introduction on “The Study of Entrepreneurship
in Nineteenth-Century France.” Patrick O’Brien and Caglar Keyder inaugurated a new era in
the economic historiography of France with Economic Growth in Britain and France, 1780—
1914: Two Paths to the Twentieth Century (London, 1978), by arguing that the French transi-
tion to industrial society was “more humane and perhaps less efficient” than that of Britain. C.
P. Kindleberger, on the other hand, in Economic Growth in France and Britain, 1851-1950
(Cambridge, MA, 1964), accepted the conventional wisdom and tried to explain it. More re-
cently, Frangois Crouzet has argued for British superiority in Britain Ascendant: Comparative
Studies in Franco-British Economic History (Cambridge, 1990). A cliometric analysis of
French growth in the nineteenth century is found in Maurice Lévy-Leboyer and Francois Bour-
guignon, The French Economy in the Nineteenth Century: An Essay in Econometric Analysis
(Cambridge, 1990).
Agriculture remained a major sector of the French economy throughout the nineteenth cen-
tury. Some studies of it included L. M. Goreux, Agricultural Productivity and Economic De-
velopment in France, 1S50—1950 (New York, 1977); W. H. Newell, Population Change and
Agricultural Development in Nineteenth Century France (New York, 1977); and Roger Price,
422 A CONCISE ECONOMIC HISTORY OF THE WORLD

The Modernization of Rural France: Communications Networks and Agricultural Market

Structures in Nineteenth Century France (New York, 1983). A rather special branch of agri-
culture is treated by Leo Loubere in The Red and the White: The History of Wine in France and
Italy in the Nineteenth Century (Albany, NY, 1978), and The Wine Revolution in France: The
Twentieth Century (Princeton, NJ, 1990).
E. C. Carter et al., eds., Enterprise and Entrepreneurs in Nineteenth and Twentieth Century
France (Baltimore, 1976), and J. M. Laux, In First Gear: The F rench Automobile Industry to 1914
(Liverpool, 1976), demonstrate the poorly reported dynamic aspects of French entrepreneurship.
Michael S. Smith, Tariff Reform in France, 1860—1900 (Ithaca, NY 1980), restores the balance
to the often misrepresented protectionist stance of French entrepreneurs. Cameron, France and
the Economic Development of Europe, presents examples of French entrepreneurship abroad.
Val R. Lorwin, The French Labor Movement (Cambridge, MA, 1954), is a sympathetic but
balanced treatment of that subject. Other aspects of the labor movement are dealt with by M.
P. Hanagan, The Logic ofSolidarity: Artisans and Industrial Workers in Three French Towns,
1871-1914 (Urbana, IL, 1980); E. C. Shorter and Charles Tilly, Strikes in France, 1830-1968
(Cambridge, 1974); and Peter N. Stearns, Paths to Authority: The Middle Class and the In-
dustrial Labor Force in France, 1820—1848 (Urbana, IL 1978).
Helmut Boeheme, An Introduction to the Social and Economic History of Germany: Po-
litical and Economic Change in the Nineteenth and Twentieth Centuries (Oxford, 1978), is a
brief overview by a German “revolutionist” historian. Gustav Stolper et al., The German Econ-
omy, 1870 to the Present (New York, 1967), is an updated translation of a book by a well-known
anti-Nazi German economist. W. O. Henderson, The Zollverein (London, 1939; reprinted,
1959) is, unfortunately, the only reasonable complete account of that institution in English.
Martin Kitchen, The Political Economy of Germany, 1815-1914 (London, 1978), is a lively
but not very sophisticated history. Knut Borchardt, Perspectives on Modern German Economic
History and Policy (Cambridge, 1991), is a collection of essays by a leading German economic
historian. W. J. Mommsen provides a comparative perspective in Britain and Germany, 1SO0—
1914: Two Development Paths toward Industrial Society (London, 1986).
Frank B. Tipton, Regional Variations in the Economic Development of Germany during the
Nineteenth Century (Middletown, CT, 1976), provides a refreshing contrast to the usual text-
book treatments of uniform growth. Richard Tilly, Financial Institutions and Industrialization
in the Rhineland, 1815—1870 (Madison, WI, 1966), looks at the background of the “great
banks.” Fritz Stern, Gold and Iron: Bismark, Bleichroeder, and the Building of the German Em-
pire (New York, 1977), is a fascinating insider’s view of Bismarck’s personal, and the German
Empire’s semiofficial, banker. Paul Hohenberg, Chemicals in Western Europe, 1850-1914
(Chicago, 1967), is a good account of the rise of the organic chemical industry in which Ger-
many played such a crucial role. Ulrich Wengenroth, Enterprise and Technology: The German
and British Steel Industries, 1865-1995 (Cambridge, 1993), is the definitive comparative
study of these critical industries. For textiles, one must consult Herbert Kisch, From Domestic
Manufacture to Industrial Revolution. The Case of the Rhineland Textile Districts (New York
and Oxford, 1989). Thorstein Veblen, Imperial Germany and the Industrial Revolution (New
York, 1919; reprinted, 1939), although hopelessly misinformed and outdated, is nevertheless
interesting as an example of a contemporary view by an acute observer.

Chapter 10. Patterns of Development: Latecomers and No-Shows

It is ironic (or symptomatic?) that Switzerland, the wealthiest country in Europe, has the least
satisfactory literature in English on its economic history. It receives only scattered mention in
volume 6 of the Cambridge Economic History of Europe and virtually none in subsequent vol-
umes. Milward and Saul give it a half-chapter in the first of their two-volume text (to 1870),
 Annotated Bibliography 423

but do not even mention it in the second volume. The chapter on Switzerland in the Fontana
Economic History is the least satisfactory chapter in that collection. Readers of French or Ger-
man will appreciate Jean-Francois Bergier, Die Wirtschaftsgeschichte der Schweiz: Von den
Anfangen bis zur Gegenwart (Zurich and Cologne, 1983), also available in French as Histoire
économique de la Suisse (Lausanne and Paris, 1984), but others will have to be satisfied
with
Bergier’s brief synopsis, “Trade and Transport in Swiss Economic History,” in Cameron, ed.,
Essays in French Economic History, which deals more with the early modern period than with
the nineteenth century, and with gleanings from other works, such as the partial chapters on
Switzerland in Cameron, France and the Economic Development of Europe (for banks and rail-
ways), and Hohenberg, Chemicals in Western Europe (for chemicals). A welcome exception is
Eric Schiff, Industrialization without National Patents: The Netherlands, 1869—1912; Switzer-
land, 18SSO—1907 (Princeton, NJ, 1971), which finds that, for small, open economies, patent
systems were not terribly important. Aldcroft and Rodger, Bibliography of European Economic
and Social History, lists about thirty other items, more or less relevant. In 1991, in celebration
of the 700th anniversary of the Swiss Confederation, Jean-Francois Bergier and many others
published, in English, French, and German, a semipopular /29/—/991: The Swiss Economy, A
Trilogy (St. Sulpice, Switzerland, 1991).
English-language readers on the economic history of the Netherlands are slightly better
served than those on Switzerland. The limitations of the coverage of the Fontana Economic
History, and of the individual works by Mokyr and Van Houtte, mentioned in connection with
Belgium, apply here as well, but Milward and Saul, The Development of the Economies of Con-
tinental Europe, 1850-1914, has a succinct survey of the Dutch economy in the second half
of the century. H. R. C. Wright, Free Trade and Protection in the Netherlands, 1816—1830: A
Study of the First Benelux (Cambridge, 1955), is a good place to begin. R. T. Griffiths, Indus-
trial Retardation in the Netherlands, 1830-1850 (The Hague, 1979), is perhaps overly pes-
simistic, but a longer and broader view is given by Michael J. Wintle in An Economic and So-
cial History of the Netherlands, 1800-1920: Demographic, Economic, and Social Transition
(Cambridge and New York, 2000). Business history is useful for the Netherlands—for exam-
ple, the first two volumes of Charles Wilson, The History of Unilever (London, 1954); P. J.
Bouman, Phillips of Eindhoven (London, 1958); or the first two volumes of Frederick C. Ger-
retson, History of the Royal Dutch (Leiden, 1953-58). The Netherlands Economic History
Archive in 1989 began publication in English of a new journal, Economic and Social History
in the Netherlands.
The literature in English on Scandinavia is far more plentiful and of high quality. In addi-
tion to the excellent surveys by Karl-Gustaf Hildebrand in volume VII of the Cambridge Eco-
nomic History, Lennart Jorberg in volume 4 of the Fontana Economic History, and Milward
and Saul in The Economic Development of Continental Europe, there are a number of both
monographs and general studies: Jorberg’s Growth and Fluctuations of Swedish Industry,
1869-1912 (Stockholm, 1961); Sima Lieberman, The Industrialization ofNorway, 1800-1920
(Oslo, 1970); and Svend Aage Hansen, Early Industrialization in Denmark (Copenhagen,
1970). Additional bibliographical suggestions can be found in all of these. Finnish industry is
the subject of two books by Timo Myllyntaus: Finnish Industry in Transition, 1885-1920: Re-
sponding to Technological Challenges (Helsinki, 1989), and The Gatecrashing Apprentice:
Industrialising Finland as an Adopter of New Technology (Helsinki, 1990). Riitta Hjerppe, The
Finnish Economy, 1860—1985: Growth and Structural Change (Helsinki, 1989), provides a de-
finitive treatment in the Kuznets style.
Until fairly recently there was a dearth of good literature in any language on the economic
development of the Austro-Hungarian, or Habsburg, Empire. That gap has now been filled, es-
pecially in English, with several high-quality contributions. The best is undoubtedly David F.
Good, The Economic Rise of the Habsburg Empire, 1750-1914 (Berkeley and Los Angeles,
424 A CONCISE ECONOMIC HISTORY OF THE WORLD

1984). Others that merit comparison are John Komlos, The Habsburg Monarchy as a Customs
Union: Economic Development in Austria-Hungary in the Nineteenth Century (Princeton, NJ,
1983), and Thomas Huertas, Economic Growth and Economic Policy in a Multinational Set-
ting (New York, 1977). Komlos has also edited a collection of essays by a number of mostly
younger scholars of various nationalities, Economic Development in the Habsburg Monarchy
in the Nineteenth Century (New York, 1983). A larger work by two eminent Hungarian eco-
nomic historians, Ivan T. Berend and the late Gyorgy Ranki, includes the Habsburg monarchy
along with eastern Germany, Poland, and the former Balkan territories of the Ottoman Empire:
Economic Development of East-Central Europe in the 19th and 20th Centuries (New York,
1974). Berend and Ranki also contributed Hungary: A Century of Economic Development
(New York, 1974). Among older works that still merit citation is Jerome Blum, Noble
Landowners and Agriculture in Austria, 1815—1548 (Baltimore, 1948). Charles Issawi’s book,
The Fertile Crescent, 1800-1914. A Documentary Economic History (New York and Oxford,
1988), covers the nineteenth century history of the Ottoman Empire.
Berend and Ranki also authored The European Periphery and Industrialization, 1780—
1914 (Cambridge, 1982), in which they included Scandinavia with southern and eastern Eu-
rope in the “periphery.” The book is outstanding in concept, but synoptic and brief in execu-
tion; details for any given area must be sought elsewhere. For the Iberian peninsula (realisti-
cally, Spain, as there is virtually nothing on Portugal), details are found in the pertinent chapters
of Vicens Vives, An Economic History of Spain, with the best treatment now available from
Gabriel Tortella, The Development of Modern Spain: An Economic History of the Nineteenth
and Twentieth Centuries (Cambridge, MA, 2000), translated by Valerie J. Herr. For Italy the
standard reference is now Vera Zamagni, The Economic History of Italy, 1860-1990: Recoy-
ery after Decline (Oxford, 1993). Gianni Toniolo, An Economic History of Liberal Italy, 1850—
1918 (New York and London, 1990), is a good synoptic treatment by a well-known Italian
scholar. J. S. Cohen, Finance and Industrialization in Italy, 1894-1914 (New York, 1977), is
competent on its limited subject. These may be supplemented by the surveys in Fontana and
in Milward and Saul, which is also quite good on southeastern Europe. For the latter, the rele-
vant chapters of John R. Lampe and Marvin Jackson’s Balkan Economic History, 1550-1950
(Bloomington, IN, 1982) are by far the best available, but readers should also consult Michael
Palairet, The Balkan Economies ca. 1800 to 1914: Evolution without Development (Cambridge
and New York, 1998).
For Russia a good place to begin is M. E. Falkus, The Industrialization of Russia, 1700—
1914 (“Studies,” London, 1972). William L. Blackwell, The Beginnings of Russian Industri-
alization, 1800—1860 (Princeton, NJ, 1968), is a solid, comprehensive account of Russian in-
dustrialization to the eve of the Emancipation. The story is continued by Theodore von Laue,
Sergei Witte and the Industrialization of Russia (New York, 1963). Paul R. Gregory, Russian
National Income, 1885—19]3 (Cambridge, 1982) is of fundamental importance. Olga Crisp,
Studies in the Russian Economy before 1914 (London, 1976), is a collection of her essays that
deal with all aspects of the economy from the peasantry to public finance; the first, “The Pat-
tern of Industrialization in Russia, 1700-1914,” is especially noteworthy. Russian Economic
History: The Nineteenth Century, by Arcadius Kahan, edited by Roger Weiss (Chicago, 1989),
is also a collection of essays by a distinguished scholar. John P. McKay, Pioneers for Profit:
Foreign Entrepreneurship and Russian Industrialization, 1885-1913 (Chicago, 1970), is es-
pecially enlightening on the role of foreign entrepreneurs. The Corporation under Russian Law,
1800-1917: A Study in Tsarist Economic Policy, by Thomas C. Owen (Cambridge, 1991),
gives some clues as to why Russian entrepreneurs were not more dynamic. Theodore H.
Friedgut, in Inzovka and Revolution, vol. 1, Life and Work in Russia’s Donbas, 1869—1924
(Princeton, NJ, 1989), chronicles the growth of Russia’s largest mining and metallurgical re-
gion. In Road to Power: The Trans-Siberian Railroad and the Colonization of Asian Russia,
 Annotated Bibliography 425

1850-1917 (Ithaca, NY, 1991), Steven G. Marks concludes that the Trans-Siber
ian was built
more for political than economic reasons. Jacob Metzer, Some Economic
Aspects of Railroad
Development in Tsarist Russia (New York, 1977), calculates the
social savings nevertheless.
The Conquest of a Continent: Siberia and the Russians, by W. Bruce Lincoln
(New York, 1994),
is a panoramic chronicle from ancient times to the present. Works on Russian
agriculture, of
major importance in the nineteenth century, include Blum, Lord and Peasant; W.
S. Vucinich,
ed., The Peasant in Nineteenth Century Russia (Stanford, 1968); and Esther Kingston-
Mann
and Timothy Mixter, eds., Peasant Economy, Culture, and Politics in European
Russia, 1800—
192] (Princeton, NJ, 1991). Christine D. Worobec, Peasant Russia: Family
and Community in
the Post-Emancipation Period (Princeton, NJ, 1991), effectively replaces G. T. Robinson,
Rural Russia under the Old Regime (2nd ed., New York, 1962).
The literature in English on Japanese economic history and development, formerly minis-
cule, is now abundant. A pioneering venture was William W. Lockwood, The Economic
De-
velopment of Japan: Growth and Structural Change, 1568-1938 (Princeton, NJ, 1954). Al-
though still valuable, it has been superseded for quantitative data by Takafusa Nakamura,
Economic Growth in Prewar Japan, translated by Robert A. Feldman (New Haven, CT, 1983).
The same author has produced, with the collaboration of Bernard R. G. Grace,
a briefer but
more easily digestible Economic Development of Modern Japan (Tokyo, 1985). The most re-
cent textbook for a general overview of long-run Japanese development from 1603 to the end
of the twentieth century is David Flath, The Japanese Economy (New York and Oxford, 2000).
An excellent analysis of the pre-Meiji period is provided by Susan B. Hanley and Kozo Ya-
mamura, Economic and Demographic Change in Preindustrial Japan, 1600-1868 (Princeton,
NJ, 1977). Kazushi Ohkawa and Henry Rosovsky, Japanese Economic Growth: Trend Accel-
eration in the Twentieth Century (Stanford and London, 1973), although primarily concerned
with the twentieth century, has an excellent introduction on the Meiji period. Allen C. Kelley
and Jeffrey G. Williamson, Lessons from Japanese Development: An Analytical Economic His-
tory (Chicago, 1974), is an exercise in counterfactual cliometric history. Tessa Morris-Suzuki,
The Technological Transformation of Japan: From the Seventeenth to the Twenty-First Cen-
tury (Cambridge, 1994), is an outstanding contribution that has application to both earlier and
later centuries, as the subtitle indicates. Michio Morishima, a distinguished Japanese mathe-
matical economist, temporarily abandoned mathematics for history and sociology and, in Why
Has Japan “Succeeded”? Western Technology and the Japanese Ethos (Cambridge, 1982),
found the answer in Japan’s unique ideology.
The Edward Elgar Publishing Company has put economic historians in its debt by pub-
lishing a series of volumes containing reprinted journal articles and other miscellany in The
Economic Development of Modern Europe since 1870. Volumes that have already appeared
(with their editors) deal with France (two volumes; Francois Crouzet); Austria (Herbert Ma-
tis); Denmark and Norway (Karl Gunnar Persson); and Ireland (two volumes; Cormac
O’Grada). Others may be expected. Cormac O’Grada has also written extensively on the Irish
famine and its economic consequences up to the present in various books, including Ireland.
A New Economic History, 1780—1939 (New York and Oxford, 1995), The Great Irish Famine
(Cambridge and New York, 1995), A Rocky Road: The Irish Economy since Independence
(Manchester, 1998), and Ireland before and after the Famine: Explorations in Economic His-
tory, ISOO—1925 (2nd ed., Manchester, 1993).

Chapter 11. Strategic Sectors

Several general works relating to agriculture were listed earlier in this bibliography; others per-
tinent to specific countries were mentioned under Chapters 9 and 10 and are not repeated here.
E. L. Jones, The Development of English Agriculture, 1815-1873 (“Studies,” London, 1968),
426 A CONCISE ECONOMIC HISTORY OF THE WORLD

is a handy survey of an important period for English agriculture. It is complemented by P. He

Perry, ed., British Agriculture, 1875-1914 (“Debates,” London, 1973), a collection of perti-
nent articles. R. Trow-Smith, Life from the Land: The Growth of Farming in Western Europe
(London, 1967), and M. Tracy, Agriculture in Western Europe: Crisis and Adaptation since
1880 (London, 1964), deal more broadly with western Europe as a whole, as does David Grigg,
The Transformation of Agriculture in the West (Oxford, 1992), highly recommended as a con-
cise, readable summary of an important subject. J. W. Mellor, The Economics of Agricultural
Development (Ithaca, NY, 1966), is more analytical than strictly historical, but has historical
applications. M. W. Rossiter, The Emergence of Agricultural Science: Justus Liebig and the
Americas, 1840—1880 (New Haven, CT, 1975), deals with an often-neglected topic.
Charles P. Kindleberger, A Financial History of Western Europe (2nd ed., New York and
Oxford, 1993), is a compendium of information delightfully presented on a variety of sub-
jects—money, banking, public and private finance—mainly but not exclusively in the nine-
teenth and twentieth centuries. Keynesianism vs. Monetarism and Other Essays in Financial
History (London, 1985) is another collection of wit and wisdom by the same prolific author.
Rondo Cameron et al., Banking in the Early Stages of Industrialization (Oxford, 1967), is a
comparative study of England, Scotland, France, Belgium, Germany, Russia, and Japan. Rondo
Cameron, ed., Banking and Economic Development: Some Lessons of History (Oxford, 1972),
has chapters on Austria, Italy, Spain, Serbia, Japan, and the United States. /nternational Bank-
ing, 1870-1914, edited by Rondo Cameron and V. I. Bovykin (New York, 1991), is a massive
collection of case studies from all areas of the world. Banks as Multinationals, edited by Ge-
offrey Jones (London and New York, 1990), was the subject of a conference organized by the
editor. Jones has also written British Multinational Banking, 1S30—1990 (Oxford, 1993), awe-
some in scope and execution. For individual countries, see, in addition to the preceding: C. A.
E. Goodhart, The Business of Banking, 1S9/—1914 (Great Britain) (London, 1972); Richard
Tilly, Financial Institutions and Industrialization in the Rhineland, 1815—1870 (Madison, WI,
1966); Udo E. G. Heyn, Private Banking and Industrialization: The Case of Frankfurt am
Main, 1825—1875 (New York, 1981); Richard Rudolph, Banking and Industrialization in Aus-
tria-Hungary (Cambridge, 1976); Olle Gasslander, History of Stockholms Enskilda Bank to
1914 (Stockholm, 1962); and K.-G. Hildebrand, Banking in a Growing Economy: Svenska
Handelsbanken since 1871 (Stockholm, 1971), an abridged translation of a much larger work
in Swedish. On the important subject of industrial finance, see P. L. Cottrell, Industrial Fi-
nance, 1830-1914: The Finance and Organization of English Manufacturing Industry (Lon-
don, 1980); also Financing Industrialization, a collection of journal articles compiled and
edited by Rondo Cameron (Cheltenham, England, 1992). Forrest Capie and Alan Webber quan-
tify the development of British banking in A Monetary History of the United Kingdom, 1870—
1982 (London, 1985).
The role of the government, or the state, is dealt with more or less adequately in almost all
general and collective works. Volume VIII of the Cambridge Economic History is devoted en-
tirely to “The Development of Economic and Social Policies” in the industrial economies.
Aitken, The State and Economic Growth; Taylor, Laissez-Faire and State Intervention in Nine-
teenth-Century Britain; and Coats, The Classical Economists and Economic Policy, have al-
ready been mentioned. Manfred D. Jankowski, Public Policy in Industrial Growth: The Case
of the Ruhr Mining Region, 1776-1865 (New York, 1977), deals with the transition from the
Direktionsprinzip to the Inspektionsprinzip.

Chapter 12. The Growth of the World Economy

Two relatively brief textbooks that deal with the material of this chapter in somewhat greater
detail are William Ashworth, A Short History of the International Economy since 1850 (4th ed.,
 Annotated Bibliography 427

London, 1987), and A. G. Kenwood and A. L. Lougheed, The Growth of International Econ-
omy, 1820-2000 (4th ed., London, 1999). Even greater detail is found in James Foreman-Peck,
A History of the World Economy: International Economic Relations since 1850 (2nd ed., Lon-
don, 1995), which also contains theoretical explanations. Charles P. Kindleberger, World Eco-
nomic Primacy: 1500-1990 (New York and Oxford, 1996), gives a sweeping overview of the
changes in the international pecking order under European influence.
A fascinating account of the repeal of the Corn Laws, and of many other aspects of nine-
teenth-century international trade, is given in Charles P. Kindleberger, Economic Response:
Comparative Studies in Trade, Finance, and Growth (Cambridge, MA, 1978). Other aspects
of Corn Law repeal are dealt with by Lucy Brown, The Board of Trade and the Free Trade
Movement, 1830—1842 (Oxford, 1958), and William D. Grampp, The Manchester School of
Economics (Chicago, 1960). For the century as a whole, see A. H. Imlah, Economic Elements
in the Pax Britannica: Studies in British Foreign Trade in the Nineteenth Century (Cambridge,
MA, 1958). The economic analysis of its effects is dealt with in Kevin O’ Rourke and Jeffrey
G. Williamson, Globalization and History: The Evolution of a Nineteenth Century Atlantic
Economy (Cambridge, MA, and London, 2000), as are the larger aspects of tariff policy, trans-
portation improvements, and migration.
The standard source on the Cobden-Chevalier treaty is still A. L. Dunham, The Anglo-
French Treaty of Commerce of 1860 and the Progress of the Industrial Revolution in France
(Ann Arbor, MI, 1930). For a more concise and intelligible treatment, see Marcel Rist, “A
French Experiment with Free Trade: The Treaty of 1860,” in Cameron, ed., Essays in French
Economic History. The German experience is related in Ivo N. Lambi, Free Trade and Pro-
tection in Germany, 1868—79 (Wiesbaden, 1963). Further French experience is ably docu-
mented by Michael S. Smith, Tariff Reform in France, 1860-1900 (Ithaca, NY, 1980). For
Britain, see S. B. Saul, Studies in British Overseas Trade, 1870—19]4 (Liverpool, 1960). Gen-
eral trends are highlighted by W. Arthur Lewis, Growth and Fluctuations, 1870-1913 (Lon-
don, 1978), and, more briefly, by S. B. Saul, The Myth of the Great Depression, 1873-1896
(“Studies,” London, 1969).
A good introduction to the gold standard can be found in P. T. Ellsworth, The International
Economy: Its Structure and Operation (3rd ed., New York, 1964). Barry Eichengreen and Marc
Flandreau, eds., The Gold Standard in Theory and History (2nd ed., London, 1997), is a judi-
cious selection of articles on all aspects of the subject. Greater detail can be found in Arthur I.
Bloomfield, Monetary Policy under the International Gold Standard, 1880-1914 (New York,
1959). Peter H. Lindert, Key Currencies and Gold, 1900-1913 (Princeton, NJ, 1969), is a short
case study. Giulio Gallarotti, The Anatomy of an International Monetary Regime. The Classi-
cal Gold Standard, 1880-1914 (New York and Oxford, 1995), is an outstanding overview of
the political as well as economic aspects of the gold standard.
Migration statistics for the nineth century and earlier are being constantly revised and
reevaluated. The latest effort is Timothy Hatton and Jeffrey G. Williamson, The Age of Mass
Migration. Causes and Economic Impact (New York and Oxford, 1998). A succinct overview
is given by Dudley Baines, Emigration from Europe, 1815-1930 (Cambridge and New York,
1995). Brinley Thomas, Migration and Economic Growth: A Study of Great Britain and the At-
lantic Economy (Cambridge, 1954), is a classic, republished and expanded in 1973 and cri-
tiqued as far as the migration movements from England and Wales were concerned by Dudley
Baines, Migration in a Mature Economy. Emigration and Internal Migration in England and
Wales, 1861—1900 (Cambridge, 1985). Charlotte Erickson, American Industry and the Euro-
pean Immigrant, 1860-1885 (Cambridge, MA, 1957), was the first to delve into passenger lists
to analyze migration flows. She summarizes her lifetime of research in Leaving England: Es-
says on British Emigration in the Nineteenth Century (Ithaca, NY, 1994). One of the pioneer-
ing works on foreign investment is Herbert Feis, Europe, the World’s Banker, 1870-1914 (New
428 A CONCISE ECONOMIC HISTORY OF THE WORLD

Haven, CT, 1930; reprinted, 1965); its statistics need revision, but it still makes interesting read-
ing. Michael Edelstein, Overseas Investment in the Age of High Imperialism: The United King-
dom, 1850-1914 (New York, 1982), elaborates the causes and consequences of foreign in-
vestment for the United Kingdom. Most recently, Irving Stone, The Global Export of Capital
from Great Britain, 1865-1914: A Statistical Survey (New York, 1999), gives a comprehen-
sive, quantitative overview.
A view, not only of investment but also of migration, trade, and the diffusion of technol-
ogy, is William Woodruff, Jmpact of Western Man: A Study of Europe's Role in the World Econ-
omy, 1750-1960 (New York, 1967). The British experience as a lender is summarized by P. L.
Cottrell, British Overseas Investment in the Nineteenth Century (“Studies,” London, 1975), and
various incidents are detailed in A. R. Hall, ed., The Export of Capital from Britain, 1870-1914
(“Debates,” London, 1968). America’s experience as a borrower has received definitive treat-
ment in Mira Wilkins, The History of Foreign Investment in the United States to 1914 (Cam-
bridge, MA, 1989). For France, see Cameron, France and the Economic Development of Eu-
rope. The estimates of all of these references are criticized by D. C. M. Platt, Foreign Finance
in Continental Europe and the USA, 1815-1870 (London, 1984), and Britain ’s Investments
Overseas on the Eve of the First World War: The Use and Abuse of Numbers (London, 1986),
then defended by Charles Feinstein, in vol. 2 of Floud and McCloskey, Economic History of
Britain.
Books and articles on imperialism are legion. The best by far, as a supplement to the brief
discussion in this volume, is P. J. Cain and A. G. Hopkins, British Imperialism: Innovation and
Expansion, 1688—1914 (London and New York, 1993), displacing the earlier work by D. K.
Fieldhouse, Economics and Empire, 1830—1914 (Ithaca, NY, 1973). Africa and the Victorians,
by John T. Gallagher and Roland I. Robinson (New York, 1961), is a stimulating but contro-
versial reinterpretation. Henri Brunschwieg, French Colonialism, 1871-1914 (New York,
1966), shows the importance of nationalism as an explanation for French imperial expansion.
Daniel Headrick, in The Tools of Empire: Technology and European Imperialism in the Nine-
teenth Century (Oxford, 1981), argues for technological determinism; see also the same au-
thor’s The Tentacles of Progress: Technology; Transfer in the Age of Imperialism, 1850-1940
(Oxford, 1988). V. I. Lenin, /mperialism, the Highest Stage of Capitalism (1916; numerous
editions), is the standard Marxist text. A good antidote is Lance E. Davis and Robert A. Hut-
tenback, Mammon and the Pursuit of Empire: The Economics ofBritish Imperialism (Cam-
bridge, 1988; an abridged edition is available). David Landes, Bankers and Pashas: Interna-
tional Finance and Economic Imperialism in Egypt (London, 1958), reads like a novel.
Carl A. Trocki, Opium and Empire: Chinese Society in Colonial Singapore, 18SOO—1910
(Ithaca, NY, 1990), documents the Chinese diaspora. Loren Brandt, Commercialization and
Agricultural Development: Central and Eastern China, 1870—1937 (Cambridge and New
York, 1989), deals with the Chinese response to the expansion of foreign trade, effectively de-
molishing the Malthusian myth perpetuated by earlier historians. Philip C. C. Huang, The Peas-
ant Family and Rural Development in the Yangtse Delta, 1350—1988 (Stanford, CA, 1990),
takes a long view of Chinese poverty. Kenneth Pomeranz laid the basis for his positive view
of Chinese economic accomplishments and the disruptions caused by forced trade, mentioned
under the introduction, in The Making ofa Hinterland: State, Society, and Economy in Inland
North China, 1853-1937 (Berkeley and Los Angeles, 1993). Thomas Rawski and Lillian Li,
eds., Chinese History in Economic Perspective (Berkeley, 1992) collected the best work avail-
able on China at the time. The Economy of Modern India, 1860-1970, by B. R. Tomlinson
(Cambridge, 1993), is an outstanding recent contribution. See also The Economic History of
India, 1857—1947 (Oxford and New York, 2001) by Tirthankar Roy. Colin Newbury, The Di-
amond Ring: Business, Politics, and Precious Stones in South Africa, 1867—1947 (New York,
1989), exposes a shining scandal. Isaria N. Kimambo, Penetration and Protest in Tanzania:
 Annotated Bibliography 429

The Impact of the World Economy on the Pare, 1860—1960 (Athens, OH, 1991), provides
an
African point of view on the impact of trade on Africa.
Victor Bulmer-Thomas, The Economic History of Latin America since Independen
ce
(Cambridge, 1994), is a recent and reliable textbook. Rory Miller, Britain and Latin America
in the Nineteenth and Twentieth Centuries (London, 1993), is a convenient reference
for all as-
pects of that relationship. Hilda Sabato, Agrarian Capitalism and the World Market:
Buenos
Aires in the Pastoral Age, 1840-1890 (Albuquerque, 1991), tells the story of promising be-
ginning with a disappointing continuation. Marshall C. Eakin, British Enterprise in Brazil: The
St. John del Rey Mining Company and the Morro Velho Gold Mine 1830—1960 (Durham, NC,
1990), is a readable business history of a European company in Latin America. Paul J. Dosal,
Doing Business with Dictators: A Political History of United Fruit in Guatamala, 1899-1944
(Wilmington, DE, 1993), is a detailed, nonideological account of a major U.S. corporation
in
a “banana republic.”

Chapter 13. Overview of the World Economy in the Twentieth Century

The basic data on population in the first half of the twentieth century are given in Woytinsky,
World Population and Production. These are updated annually in the United Nation’s Demo-
graphic Yearbook. A closer look at Europe’s interwar population is provided by Dudley Kirk,
Europe’s Population in the Interwar Years (Geneva, 1946). Recent trends in the industrial na-
tions are summarized in National Bureau of Economic Research, Demographic and Economic
Change in Developed Countries (Princeton, NJ, 1976). The United Nations Department of Eco-
nomic and Social Affairs, The Population Debate: Dimensions and Perspectives (2 vols., New
York, 1975), presents the papers of the 1974 World Population Conference, which debated the
plight and prospects of Third World nations.
E. M. Kulischer, Europe on the Move: War and Population Changes, 1917-1947 (New
York, 1948), was an early look at the upheavals brought on by the wars. The same subject is
viewed in broader perspective in Human Migration: Patterns and Policies, edited by W. H.
MeNeill and R. S. Adams (Bloomington, IN, 1978). The downside of political upheavals for
many peoples is described in Norman M. Naimark, Fires of Hatred: Ethnic Cleansing in Twen-
tieth-Century Europe (Cambridge, MA, 2001).
The references for resources listed at the beginning of this bibliography and under Chap-
ter 8 are, for the most part, relevant here as well. J. Fredric Dewhurst et al., Europe’s Needs and
Resources: Trends and Prospects in Eighteen Countries (New York, 1961), is an encyclopedic
accumulation of data and analysis whose contents are even broader than the title indicates. Dew-
hurst earlier had led a team in a similar study of America’s Needs and Resources (New York,
1947). The United Nations and its affiliates have undertaken numerous studies of the interac-
tions of population, resources, technology, and environment; typical of the genre is The Future
of the World Economy: A United Nations Study, by Wassily Leontief et al. (Oxford, 1977). An-
gus Maddison, The World Economy in the Twentieth Century (Paris, 1989), highlights the in-
creasing disparity between rich and poor nations.
Volumes 6 and 7 of A History of Technology, edited by Trevor I. Williams (Oxford, 1978),
cover the first half of the twentieth century. Technology and Social Change in America, edited
by Edwin T. Layton, Jr. (New York, 1973), is a small collection of essays by eminent histori-
ans of technology. John G. Clark, The Political Economy of World Energy: A Twentieth Cen-
tury Perspective (Chapel Hill, NC, 1990), surveys all forms of energy for the entire century. R.
R. Nelson, M. J. Peck, and E. D. Kalacheck stress the interaction of technology and institutions
in Technology, Economic Growth, and Public Policy (Washington, DC, 1967). Harry G. John-
son notes the international dimensions of technology in Technology and Economic Interde-
pendence (London, 1975). The American National Science Foundation thought it important to
430 A CONCISE ECONOMIC HISTORY OF THE WORLD

n, DC,
stress the Interactions of Science and Technology in the Innovation Process (Washingto
Gabor, a distinguish ed physicist-e ngineer-inv entor, in Innovations : Scientific,
1976). Dennis
al and bi-
Technological, and Social (Oxford, 1970), predicts some 100 important technologic
ological innovations, a number of which have already been realized. Daniel Bell, a sociologist,
of technology
has also predicted a number of changes in society as a result of the interaction
and institutions in The Coming of Post-Indust rial Society: A Venture in Social Forecasting
(New York, 1973; reprinted, 1976).
the
The major institutional changes of the twentieth century are related, on the one hand, to
rapid development of science and technology and, on the other, to the massive type of warfare
they have made possible. The interrelations of all these forces are nicely captured by the French
sociologist Raymond Aron in The Century of Total War (New York, 1954) and, more recently,
by the British historian Arthur Marwick in War and Social Change in the Twentieth Century:
A Comparative Study of Britain, France, Germany, Russia, and the United States (London,
1974). The impact of war (and other changes) on economic policymaking in one country are
studied by Richard F. Kuisel, Capitalism and the State in Modern France: Renovation and
Economic Management in the Twentieth Century (Cambridge, 1981). T wentieth-century
changes in business organization and management are the subject of Managerial Hierarchies:
Comparative Perspectives on the Rise of the Modern Industrial Enterprise, edited by Alfred
D. Chandler, Jr., and Herman Daems (Cambridge, MA, 1980).

Chapter 14. International Economic Disintegration

Direct and Indirect Costs of the Great War, by E. L. Bogart (Oxford, 1919), represented an early
attempt by a famous American economist to measure the costs of World War I. A famous British
economist, A. L. Bowley, took somewhat more time to assess Some Economic Consequences
of the Great War (London, 1930). Historians’ views are represented by J. M. Cooper, Causes
and Consequences of World War I (London, 1975), and Gerd Hardach, The First World War,
1914-1918 (London, 1977). Charles Gilbert details American Financing of World War I
(Greenwood, CT, 1970). Avner Offer, The First World War: An Agrarian Interpretation (New
York and Oxford, 1989), presents a positive appraisal of the effects of the naval blockade on
the German population, suggesting why agricultural self-sufficiency became a European pri-
ority in the twentieth century. Niall Ferguson, The Pity of War (New York, 1999), argues it was
not only brutal for Britain, but senseless.
J. M. Keynes, The Economic Consequences of the Peace (London, 1919), written in a great
hurry by a talented writer in a high dudgeon, is nevertheless a historic document in itself and
still makes good reading. Etienne Mantoux, The Carthaginian Peace—or the Economic Con-
sequences of Mr. Keynes (New York, 1946), was written with equal or greater moral fervor by
a young Frenchman who died in World War II. A sort of reconciliation of the two points of view
can be found in Chapter 16 of Kindleberger, Financial History of Western Europe. An impor-
tant study of the 1920s in Europe is Charles S. Maier, Recasting Bourgeois Europe: Stabiliza-
tion in France, Germany, and Italy in the Decade after World War I (Princeton, NJ, 1975). A
work of similar importance, although mistitled, is Steven A. Schuker, The End of French Pre-
dominance in Europe: The Financial Crisis of 1924 and the Adoption of the Dawes Plan
(Chapel Hill, NC, 1976). An up-to-date overview of the economic issues for all of Europe is
given in Charles Feinstein, Peter Temin, and Gianni Toniolo, eds., The European Economy be-
tween the Wars (New York and Oxford, 1997). Of the many studies of Germany’s hyperinfla-
tion, the most recent and authoritative is Carl-Ludwig Holtfrerich, The German Inflation,
1914-1923: Causes and Effects in International Perspective (Berlin, 1986). The consequences
of the inflation on a specific (and important) industry are detailed by Gerald D. Feldman, /ron
and Steel in the German Inflation, 1916—1923 (Princeton, NJ, 1977). Feldman has also writ-
 Annotated Bibliography 43]

ten the massive and exhaustive The Great Disorder: Politics, Economics and Society in the
German Inflation, 1914—1924 (New York and Oxford, 1993). Theo Balder ston, The Origins
and Course of the German Economic Crisis: November 1923 to May 1932 (Berlin, 1993), is
excellent for specialists but difficult for beginners, Harold James, The German Slump: Politics
and Economics, 1924—1936 (Oxford, 1986), is a better read. Other economic aspects of the
peace settlement are covered in Derek H. Aldcroft’s general survey of the 1920s, From Ver-
sailles to Wall Street, 1919—1929 (London, 1977). Anne Orde deals with British Policy and
European Reconstruction after the First World War (Cambridge and New York, 1990).
The best, or at least the most readable, account of the 1930s is Charles P. Kindleberger, The
World in Depression, 1929-1939 (London, 1973). Another entertaining book on a dismal ex-
perience is John Kenneth Galbraith, The Great Crash, 1929 (Boston, 1955: reprinted, 1962).
One of the most influential interpretations of the causes of the depression, emphasizing the role
of the U.S. Federal Reserve System, is Milton Friedman and Anna J. Schwartz, The Great Con-
traction (Princeton, NJ, 1966), a reprint of one chapter of their monumental A Monetary His-
tory of the United States, 1867-1960 (Princeton, NJ, 1963). A contrary view is found in Peter
Temin, Did Monetary Forces Cause the Great Depression? (New York, 1976), although Temin
apparently changed his mind in Lessons from the Great Depression (Cambridge, MA, 1989),
emphasizing there the international aspects. Barry Eichengreen, Golden Fetters: The Gold
Standard and the Great Depression, 1919-1939 (New York and Oxford, 1992), lays the blame
squarely on the gold standard and the policies it engendered. The depression is set in a larger
context by Ingvar Svennilson, Growth and Stagnation in the European Economy (Geneva,
1954). The interwar British economy is the subject of both B. W. E. Alford, Depression and
Recovery? British Economic Growth 1918—1939 (“Studies,” London, 1972), and Forrest
Capie, Depression and Protectionism: Britain between the Wars (London, 1983). British Un-
employment, 1919-1939: A Study in Public Policy, by W. R. Garside (Cambridge and New
York, 1990), is a comprehensive study of its limited but important subject. Retrospective views
that treat the depression experience in a great many countries around the world are contained
in Herman Van der Wee, ed., The Great Depression Revisited: Essays on the Economics of the
Thirties (The Hague, 1972), and Ivan T. Berend and Knut Borchardt, eds., The Impact of the
Depression of the 1930s and Its Relevance for the Contemporary World (Budapest, 1986). The
important banking and financial events are covered by Charles H. Feinstein, ed., Banking, Cur-
rency, and Finance in Europe between the Wars (New York and Oxford, 1995).
A broad survey of the 1930s in America is Broadus Mitchell, Depression Decade: From
New Era through New Deal, 1929-1941] (New York, 1947; reprinted, 1969). An appraisal of
the broad range of policy reforms initiated over the course of the New Deal is found in Michael
Bordo, Claudia Goldin, and Eugene White, eds. The Defining Moment: The Great Depression
and the American Economy of the Twentieth Century (Chicago, 1998). The French experience
is illuminated by Stanley Hoffman, Decline or Renewal? France since the 1930s (New York,
1974). Charles F. Delzell, ed., Mediterranean Fascism 1919-1945 (London, 1971), contains
contributions on the Fascist regimes of Italy, Spain, and Portugal. An important work on the
advent of Nazism in Germany is Henry A. Turner, Jr., German Big Business and the Rise of
Hitler (Oxford, 1985). The rearmament program is dealt with by Burton H. Klein, Germany’s
Economic Preparations
for War (Cambridge, MA, 1959). Hitler’s Social Revolution: Class and
Status in Nazi Germany, 1933-1939, by David Schoenbaum (London, 1966), is of special in-
terest. R. J. Overy, War and Economy in the Third Reich (New York and London, 1995) is the
current revisionist view of Nazi economic policy.
Alec Nove, An Economic History of the U.S.S.R. (London, 1969; reprinted, 1975), is the
best introduction to its subject. Nove has also published The Soviet Economy (3rd ed., London,
1969) and Was Stalin Really Necessary? (London, 1964). An American perspective is provided
by James R. Millar, The Soviet Economic Experiment (Urbana, IL, 1990), a collection of his
432 A CONCISE ECONOMIC HISTORY OF THE WORLD

essays edited by Susan Linz. Of E. H. Carr’s multivolume History of Soviet Russia, those of
greatest interest to economic historians are Socialism in One Country (London, 1958) and
Foundations of a Planned Economy, 1926-29, with R. W. Davies (London, 1969-78). An
abridgement of the fourteen volumes on the 1920s is also available: E. H. Carr, The Russian
Revolution: From Lenin to Stalin (London, 1979). Also of interest: Alexander Erlich, The So-
viet Industrialization Debate, 1924—28 (Cambridge, MA, 1960); E. C. Brown, Soviet Trade
Unions and Labour Relations (Oxford, 1960); and Moshe Lewin, Russian Peasants and Soviet
Power (London, 1968). R. W. Davis, Mark Harrison, and S. G. Wheatcroft, eds., The Economic
Transformation of the Soviet Union, 1913-1945 (Cambridge, 1994), is strongly quantitative.
War, Economy, and Society, 1939-45, by Alan S. Milward (Berkeley and Los Angeles,
1977), is the most comprehensive and competent economic history of World War II. Other sig-
nificant works by the same author: The German Economy at War (London, 1965), The New
Order and the French Economy (Oxford, 1970), and The Facist Economy in Norway (Oxford,
1972). The Sinews of War: Essays on the Economic History of World War II, edited by Geof-
frey Mills and Hugh Rockoff (Ames, IA, 1993), has excellent up-to-date chapters on the eco-
nomic history of the war. Even more comprehensive is Mark Harrison, ed. The Economics of
World War II: Six Great Powers in International Comparison (Cambridge and New York,
1998). America’s role in the war is encapsulated in D. N. Nelson, The Arsenal of Democracy
(New York, 1946). For Japan, see J. R. Cohen, Japan’s Economy in War and Reconstruction
(Minneapolis, 1949), and F. C. Jones, Japan's New Order in East Asia: Its Rise and Fall, 1937—
45 (Oxford, 1954). Alec Cairncross, The Price of War: British Policy on German Reparations,
1941-1949 (London, 1986), is an insightful view on an important but neglected topic.

Chapter 15. Rebuilding the World Economy, 1945-73

The most comprehensive and authoritative history of the world economy since World War II
is Herman Van der Wee, Prosperity and Upheaval: The World Economy, 1945-1980 (Berke-
ley and Los Angeles, 1986). In The Reconstruction of Western Europe, 1945—51 (London,
1984), Alan S. Milward provides a richly detailed if somewhat controversial description of the
origins and exfoliation of the Marshall Plan, the European Payments Union, and the Schuman
Plan. Michael J. Hogan, The Marshall Plan: America, Britain, and the Reconstruction of West-
ern Europe, 1947-1952 (Cambridge, 1987), is reasonably up-to-date. The Netherlands and the
Economic Integration of Europe, 1945—1957 (Amsterdam, 1990), edited by R. T. Griffiths, is
a series of essays based on archival sources showing the important role of the Netherlands in
keeping the movement for European unity on track. André Mommen, The Belgian Economy in
the Twentieth Century, (London, 1994) is part of the Routledge series on contemporary eco-
nomic history of Europe. William James Adams, Restructuring the French Economy: Govern-
ment and the Rise ofMarket Competition since World War II (Washington, DC, 1989), is acom-
petent if somewhat controversial account of France’s amazing economic turnaround. Vera Lutz,
Italy, A Study in Economic Development (Oxford, 1962), convincingly accounts for Italy’s
equally amazing rebound, but readers should compare the account in Vera Zamagni’s more re-
cent study, The Economic History of Italy, 1860-1990: Recovery after Decline, previously
cited. The Fading Miracle: Four Decades of Market Economy in Germany, by Herbert Gier-
sch, Karl-Heinz Paque, and Holger Schmiedling (Cambridge, 1994), is a convenient summary
of West Germany’s recent economic history. Governments, Industries and Markets: Aspects of
Government-Industry Relations in the UK, Japan, West Germany and the USA since 1945
(Aldershot, England, 1990), edited by Martin Chick, provides useful accounts of industrial
policies in four major countries. Two comprehensive economic histories of European countries
since World War II are Bert van Ark and N. F. R. Crafts, eds., Quantitative Aspects of Post-War
 Annotated Bibliography 433

European Economic Growth (Cambridge, 1996), and N. F. R. Crafts and Gianni Toniolo, eds.,
Economic Growth in Europe since 1945 (Cambridge, 1996).
The economic problems of Third World countries are the subject of Angus Maddison, Eco-
nomic Progress and Policy in the Developing Countries (London, 1970); Gerald Helleiner, A
World Divided: The Less Developed Countries in the International Economy (Cambridge,
1976); J. N. Bhagwati, ed., The New International Economic Order: The “North-South” De-
bate (Cambridge, MA, 1977); and N. Islam, ed., Agricultural Policy in Developing Countries
(London, 1974).
The origins, operations, and problems of the European Union (formerly the European Com-
munity) are dealt with in Jeffrey Harrop, The Political Economy of Integration in the European
Community (2nd ed., Aldershot, England, 1992); Clifford Hackett, Cautious Revolution: The
European Community Arrives (New York, 1990); Neill Nugent, The Government and Politics
of the European Community (2nd ed., London, 1991); and David W. P. Lewis, The Road to Eu-
rope: History, Institutions and Prospects of European Integration, 1945—1993 (New York,
1993), among others. The economic history of the European Union and the individual coun-
tries of Europe since World War II is covered in Larry Neal and Daniel P. Barbezat, The Eco-
nomics of the European Union and the Economies of Europe (New York and Oxford, 1998).
The corresponding political history is vividly described in Desmond Dinan, Ever Closer
Union: An Introduction to European Integration (Boulder, CO, 1999).
Other international economic institutions also merit consideration. Harold James, /nterna-
tional Monetary Cooperation since Bretton Woods (New York and Oxford, 1996), is the offi-
cial history of the International Monetary Fund. Edward S. Mason and Robert E. Asher, The
World Bank since Bretton Woods (Washington, 1973), cover the period up to the breakup of the
Bretton Woods System. Michael D. Bordo and Barry Eichengreen, eds., provide A Retrospec-
tive on the Bretton Woods System: Lessons for International Monetary Reform (Chicago and
London, 1993), with no fewer than forty-three expert contributors! Jacob J. Kaplan and Gun-
ther Schleiminger, The European Payments Union: Financial Diplomacy in the 1950s (Oxford,
1989), is also an official history; although based on primary sources, it is authored by civil ser-
vants rather than scholars, and suffers accordingly. Barry Eichengreen, Reconstructing Eu-
rope’s Trade and Payments: The European Payments Union (Manchester, 1993) is much more
analytical and interesting. Brian Tew, The Evolution of the International Monetary System,
1945-1977 (New York, 1977), is more analytical, and F. L. Block, The Origins of International
Economic Disorder: A Study of United States International Monetary Policy from World II to
the Present (Berkeley and Los Angeles, 1977), is frankly critical. K. Kock, International Trade
Policy and the GATT, 1947-1967 (Stockholm, 1969), is also rather critical. Barry Eichengreen,
ed., Europe’s Postwar Recovery (Cambridge and New York, 1995), has a fascinating range of
perspectives on the institutional arrangements put into place immediately after World War II.
The measurement of economic growth is the subject of Edward S. Denison, Why Growth
Rates Differ: Postwar Experience in Nine Western Countries (Washington, DC, 1967). Deni-
son has also applied his growth-accounting technique to Japan and the United States in (with
W. K. Chung) How Japan’s Economy Grew So Fast: The Sources of Postwar Expansion (Wash-
ington, DC, 1976), and Accounting for Slower Growth: The United States in the I970s (Wash-
ington, DC, 1979). Angus Maddison is also interested in measuring economic growth, but fol-
lows a quite different technique and takes a much longer time span in Economic Growth in the
West: Comparative Experience in Europe and North America (New York, 1964) and Phases of
Capitalist Development (Oxford, 1982).
Changes in the nature of capitalism have attracted the attentions of a variety of scholars.
One of the early ones was A. A. Berle, Jr., with The 20th Century Capitalist Revolution (New
York, 1954). Another was J. K. Galbraith with The Affluent Society (London, 1958) and The
434 A CONCISE ECONOMIC HISTORY OF THE WORLD

New Industrial State (Boston, 1967). Andrew Shonfield weighed in with Modern Capitalism:
The Changing Balance of Public and Private Power (Oxford, 1965), and John Cornwall with
Modern Capitalism: Its Growth and Transformation (London, 1977). High-Tech Europe: The
Politics of International Cooperation, by Wayne Sandholtz (Berkeley, Los Angeles, London,
1992), describes some of the effects of the telematics revolution on industry and government
as well as on international politics. A broader overview of the successes and failures of indus-
trial policy is found in James Foreman-Peck and Giovanni Federico, eds., European Industrial
Policy. The Twentieth-Century Experience (New York and Oxford, 1999).

Chapter 16. The World Economy at the Beginning of the Twenty-First Century

The Japanese economy is appraised from a variety of viewpoints in Hugh Patrick and Henry
Rosovsky, eds., Asia’s New Giant: How the Japanese Economy Works (Washington, DC, 1976),
and again in Hugh Patrick with the assistance of Larry Meissner, eds., Japan’s High Technol-
ogy Industries: Lessons and Limitations of Industrial Policy (Seattle and London, 1987). One
of Japan’s leading economists, Shigeto Tsuru, has written an outstanding economic history of
the post-World War II era, Japan’s Capitalism: Creative Defeat and Beyond (Cambridge,
1993). The Japanese economy is placed in the context of other Asian economies in The Mech-
anism of Economic Development: Growth in the Japanese and East Asian Economies, edited
by Ken-ichi Inada et al. (Oxford and New York, 1992).
Economic and Social Development in Pacific Asia, edited by Chris Dixon and David
Drakakis-Smith (London and New York, 1993), surveys a number of countries in the area.
Global Adjustment and the Future of the Asian-Pacific Economy, edited by Miyohei Shinohara
and Fu-chen Lo (Tokyo, 1989), presents the papers and proceedings of a conference on the sub-
ject held in Tokyo in 1988. The Newly Industrializing Countries: Adjusting to Success, edited
by Neil McMullen et al. (London and Washington, DC, 1982), is also a general survey, whereas
Becoming an Industrialized Nation: ROC’s Development on Taiwan, by Yuan-li Wu (New
York, 1985), is a case study of the industrialization of Taiwan. Singapore's Authoritarian Cap-
italism: Asian Values, Free Market Illusions, and Political Dependency, by Christopher Lingle
(Fairfax, V A, 1996), questions the sustainability of Singapore’s rapid development.
Eric Jones, Lionel Frost, and Colin White open up new vistas in Coming Full Circle: An
Economic History of the Pacific Rim (Boulder, CO, 1993). In Australia in the International
Economy in the Twentieth Century (Melbourne, 1990), Barry Dyster and David Merideth pro-
vide a background for understanding the importance of a part of that area.
The International Debt Crisis in Historical Perspective (Cambridge, MA, 1989), edited by
Barry Eichengreen and Peter H. Lindert, was inspired by the international debt crisis of the
1980s, especially in Latin America. Jill Crystal, Oil and Politics in the Gulf: Rulers and Mer-
chants in Kuwait and Qatar (Cambridge, 1990), provides a historical background (not intended
by the author) for the Gulf War of 1991. A deep understanding of the continuing economic
problems of Egypt and Turkey, provided by a leading economist for the World Bank, is Bent
Hansen, The Political Economy of Poverty, Equity, and Growth: Egypt and Turkey (New York
and Oxford, 1992). A comparable study for the World Bank, but dealing with the intractable
problems of Africa, is Frederic L. Pryor, The Political Economy of Poverty, Equity, and
Growth: Malawi and Madagascar (New York and Oxford, 1991).
Economic reform in the People’s Republic of China is the subject of two recent books pub-
lished by the Cambridge University Press: Kate Hannan, China, Modernisation and the Goal
of Prosperity (1994), and Barry Naughton, Growing Out of the Plan: Chinese Economic Re-
form, 1978-1993 (1994). Gregory C. Chow, in Understanding China’s Economy (Singapore,
1994), provides an accessible introduction to that complex subject. Sukhan Jackson’s Chinese
Enterprise Management: Reforms in Economic Perspective (Berlin and New York, 1992) is
 Annotated Bibliography 435

somewhat more difficult. The Waning of the Communist State: Economic Origins of Political
Decline in China and Hungary, by Andrew G. Walder (Berkeley, CA, 1995), is an interesting
comparative study that is carried farther by Yu-shan Wu in Comparative Economic Transfor-
mations: Mainland China, Hungary, the Soviet Union, and Taiwan (Stanford, CA, 1994). The
general problem of reforming planned economies is studied by Barry Bosworth and Gur Ofer
in Reforming Planned Economies in an Integrating World Economy (Washington, DC, 1995).
The chaotic situation in the former Yugoslavia is expertly handled by Sabrina Petra Ramet
in Balkan Babel: The Disintegration of Yugoslavia from the Death of Tito to Ethnic War (2nd
ed., Boulder, CO, 1996). Further insight is provided by Crisis in the Balkans: Views from the
Participants, edited by Constantine P. Danopoulos and Kostas G. Messas (Boulder, CO, 1996).
The Edward Elgar Publishing Company has brought out several books on the recent changes
in Eastern Europe: Economic Reform in Eastern Europe, edited by Graham Bird; Industrial
Reform in Socialist Countries: From Restructuring to Revolution, edited by Ian Jeffries; and
Restructuring Eastern Europe: Towards a New European Order, edited by Ronald J. Hill and
Jan Zielonka. An interesting background to the process of transition in eastern Europe can be
found in M. C. Kaser and E. A. Radice, eds., The Economic History of Eastern Europe 1919—
1975. Volume III: Institutional Change within a Planned Economy (New York and Oxford,
1987). Likewise for the former Soviet Union is Russian Corporate Capitalism from Peter the
Great to Perestroika, by Thomas C. Owen (New York and Oxford, 1995). Insight into the struc-
ture of Soviet society and economy on the eve of the breakup is provided by James R. Millar,
ed., Politics, Life, and Daily Work in the USSR: A Survey of Former Soviet Citizens (Cambridge
and New York, 1987).
The trials and tribulations of the transition economies associated with the centrally planned
economies of the former Soviet Union and its COMECON satellites have spawned a growth
industry of monographs. The European Bank for Reconstruction and Development publishes
a semiannual Transition Report, which is the most comprehensive updating of economic sta-
tistics for all the individual economies. The International Monetary Fund regularly publishes
reports on its member countries in transition, easily searched on its Web site, www.imf.org.
The European Union, committed to monitoring the economic as well as social and political
progress of its candidates for membership, publishes a detailed annual assessment for the cen-
tral and east European countries. This is also available on its Web site: www.europa.eu.int/
comm/enlargement. The IMF’s World Economic Outlook, published semiannually, keeps track
of trade and growth in the new global economy and discusses the background of specific pol-
icy issues as they arise.
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 INDEX

Aachen region of Germany, 239 109-10, 133, 258, 272-74; specialization,

abacus, 327 111-12; technology and, 106-13, 328; in the
Abraham Schaaffhausen and Company, 280 United States, 224—25, 275-76, 328; World
absolute monarchies, 129—30, 154, 334 War I and, 340, 341
Abyssinia, 90 aides, 148
acid rain, 399 Air Force, U.S., 360, 367
Act of Parliament, 299 airplanes, 326, 329—30. See also aerial warfare;
Aden, 104 aviation
Aegean-Sea, 35 Akbar, 87
aerial warfare, 360, 362 Akkad, 29, 31
Afghanistan, 86 Alaska, 91, 296
Africa, 8, 14, 17, 77; agriculture, 90, 328; Albania, 261, 262, 373, 374, 390, 394
in ancient times, 20, 32, 33, 36, 39, 40; Albert (prince consort, Great Britain), 242
decolonization, 377, 378—81; emigration Albuquerque, Alfonso de, 103—4
from, 324; European Economic Community alcohol, European introduction of, 104
and, 386; on eve of western expansion, 89— Aldrin, Edwin, 331
91; explorations of, 98, 99-100; foreign Alexander the Great, 29, 31, 33, 36, 40
investment, 305, 306; imperialism, 307-11; Alexandria, 31, 36, 39, 62, 77, 89, 284, 310
international relations, 333; in medieval era, algebra, 80
45, 54, 62; Netherlands and, 120, 154, 307; Algeria, 309, 315, 333, 379, 380, 386
Ottomans and, 80; Portugal and, 106, 139, alkalis, 179—80, 241
140, 310; post-World War I, 342; railways, Alliance for Progress, 371
203; slave trade and, 122—23; twenty-first Allied Control Council, 366
century economy, 389; urbanization, 319; alloys, 206
World War I and, 341 Almadén, 258
agrarian reform, 258, 265, 271-72, 274 Almeida, Francisco de, 103
agriculture, 14—15, 29, 222; in Africa, 90, 328; alphabet, 33
in ancient times, 23—25, 26, 28, 31—32; in Alpine railway tunnels, 248
China, 82; in England, 110, 111, 112, 164—- Alsace, 233, 342
67, 271-72; in fifteenth-century Europe, 97; alum, 62
in France, 110, 111, 112, 235, 272-73; in aluminum, 197, 206, 223, 232, 235
Great Britain, 257, 270-71; Great Depression Amalfi, 59
and, 296, 297, 351; in India, 87, 328; Amalgamated Society of Engineers, 213
industrialization and, 164—67, 184; irrigation. amber, 36
See irrigation agriculture; in medieval American Federation of Labor (AFL), 214-15
Europe, 44, 47, 50-54, 55—56; in American Relief Agency, 344
Netherlands, 106, 107, 111-13, 151, 165, American Revolution, 155, 157, 276
273; in nineteenth century, 190; in Ottoman American System, 211
Empire, 80; patterns of development, 270— Americas, on eve of western expansion, 91—93
76; plantation, 378; post-World War II, 364; Amerindians, 91, 104
in pre-Columbia America, 91, 92—93;, Amiens, truce of, 232
production, 10; productivity, 106—13, 161, ammunition, 149
164—67, 190, 270-71; in Roman Empire, 39, Ampere, André, 196
41; in Russia, 108, 190, 263, 272, 274-75; in Amsterdam, 96, 97, 119, 120, 121, 125, 143,
Soviet Union, 357—58, 359, 372; in Spain, [S25153. 157. 167, 1912505279

437
438

Amsterdamsche Wisselbank. See Bank of asiento, 122

Amsterdam assembly line, 329, 330f
Anatolia, 24, 25, 26, 28, 29, 31, 36, 77, 80 Assyria, 29
Anatolian Railway, 303 astrolabe, 70
ancient times, 20—43; economic achievements Athens, 35, 36
and limits, 37-43; economic foundations of Atlantic Charter, 364
empire, 29-32; emergence of civilization, Atlantic Ocean, 153, 205
23-29 atomic bomb, 333, 360, 376
Andalusia, 97, 105, 109, 133, 138, 258 atomic energy. See nuclear power
Angkor Wat, 89 AT&T, 326
Anglesey, 182 Australasia, 315
Anglo-French treaty. See Cobden-Chevalier Australia, 4, 85, 184, 190, 296, 298, 300, 309; in
treaty ancient times, 23; foreign investment, 305—6;
Anglo-Persian Oil Company, 287 Great Depression, 349; imperialism, 314;
Angola, 181, 310, 381 Organization for Economic Cooperation and
animistic beliefs, 21 Development and, 368; Soviet Union and,
Annam, 313 372; stock market crash, 348; technology,
Anti-Corn Law League, 291, 293 326; twenty-first century economy, 389
Antwerp, 65, 76, 95—96, 119, 120, 121, 124, Austria, 8, 141, 142—43, 239, 244, 250, 253,
L252. 2277 254, 255, 256, 261, 263, 283, 300, 374, 375,
Antwerp Steamship Company, 231 393; agriculture, 274; banking, 281; Belgium
apertura policies, 389 and, 227; era of high growth, 368; European
apprenticeship system, 246 Economic Area and, 398; European Free
aqueducts, 42, 43f Trade Association and, 385; foreign
Arabia, 36, 77, 119 investment, 303; Great Depression, 349;
Arabian Sea, 79 industrialization, 160; Italy and, 145, 260;
Arabic language, 77 medieval, 57; nationalism in, 218; post-World
Arab-Israeli wars, 390 War I, 343, 346; post-World War II, 365, 366;
Arabs, 77-80, 87, 89, 103, 109, 333 railways, 202, 203, 281; smelting process in,
Aragon, 97, 133, 136 198; technology development, 195
Archangel (port), 125, 145 Austrian Creditanstalt, 281, 349
archbishops, 48 Austrian National Bank, 281
Archimedes, 43 Austrian State Railways, 281
arc lamp, 197 Austro-Hungarian Empire, 289; agriculture,
Arctic Ocean, 93 274; breakup of, 343; emigration from, 190,
Ardennes Mountains, 229 224, 301; foreign investment, 303;
Argentina, 190, 261, 296, 301, 307, 315, 381, imperialism, 314; industrialization, 244, 252—
389; Great Depression, 349; per capita 56; railways, 255, 289; trade, 254, 297; trade
income, 5; stock market crash, 348; trade, 389 unions in, 214
Aristotle, 43 Austro-Prussian War, 280, 289
Arizona, 93 Autarkie (self-sufficiency), 355
Arkwright, Richard, 177 automobiles, 8, 197, 232, 235, 326, 329, 348,
armada, Spanish, 133 349
armor, 53, 70 autonomous republics, 374
Armstrong, Neil, 331 aviation, 232
arquebusses, 116 Ayudhya, 89
Arsenal of Venice, 161 Azores, 101
artillery, 113, 116 Aztec Empire, 92, 104
artisans, 28, 70
artography, 98 Babar, 87
Artois, 96 baby food, 247
Ashton, T. S., 163-64 Babylon, 29, 35
Asia, 8; agriculture, 328; Central, 23, 77, 83; Babylonia, 29
East, 82-85; emigration from, 323; foreign Bacon, Francis, 72, 164
investment, 306; imperialism, 311—14; in Bacon, Roger, 72
medieval era, 54; South, 85—89; Southeast, Baden, 273
24, 26, 85, 307, 333, 382; trade, 122; Baghdad, 83
twenty-first century economy, 388; balance of payments, 299, 302
urbanization, 319; World War I and, 341 balance of trade, 129, 223, 268, 348, 365, 368,
Asia Minor, 35, 36, 62 389
Asian flu epidemic, 339 Balboa, Vasco Nufiez de, 103
 439

Balcerowitz, Lescek, 391 battery, 196

Balearic Isles, 33 Bauwens, Lievin, 228-29
Bali, 89 Bavaria, 57, 279
Balkan states, 46, 80, 244, 257, 262, 272, 287, Bay of Biscay, 120, 151
303 Bay of Pigs invasion, 377
Baltic Sea, 58, 64, 74, 76, 108, 120, 121, 145, beer, 54, 255, 267
151, 204 Beijing, 313, 375. See also Peking
Baltimore, Lord, 139 Belgian Congo, 90, 310, 311, 380-81
Baluchistan, 316 Belgian Revolution, 229
bananas, 90 Belgium, 68, 96, 195, 198, 218, 223, 238, 239,
Banca Commerciale Italiana, 283 246, 254; agriculture, 272, 273; banking, 229—
Banca di Credito Italiano, 283 31, 278; Benelux Customs Union and, 383;
Banca Nazionale, 283 creation of, 217, 250; decolonization, 377,
Banca Romaniei, 283 380-81; foreign investment, 303; France and,
Banco de Espaiia, 282 208, 227, 231, 272; gold standard in, 354;
Banco de San Carlos, 282 government role in, 289; immigration to, 324;
bandits, 64, 65 imperialism, 310, 311; industrialization, 221,
Bangladesh, 5, 85, 333, 377 227-31, 232, 244, 249, 257; post-World War I,
Bank Act of 1844, 277 345; railways, 202, 229, 231, 289; silver
Bank Act of 1845, 277 standard in, 300; trade, 293, 298; World War I
Bank fiir Handel und Industrie zu Darmstadt. and, 340
See Darmstadter Bell, Alexander Graham, 205
bank holidays, 351 bellows, 70, 117
banking, 125-26, 262; in Belgium, 229-31, benefices, 48
278; in England, 167-69, 276-77; free, 285; Benelux, 54
in Germany, 243, 278, 279-81, 283; Great Benelux Customs Union, 383, 384
Depression and, 349, 351, 352; in Italy, 260, Benes, Eduard, 373
283; in Japan, 266—67; in medieval Europe, Bentham, Jeremy, 210
66, 76; nationalization of, 363; patterns of Benz, Karl, 197
development, 276-85; in Russia, 263, 283— Bergen, 64
84; in Scotland, 183, 276-77; in Spain, 259, Bering Strait, 91
282; stock market crash and, 348; in the Berlin, 238, 279, 280; East, 366; West, 366, 367,
United States, 267, 284-85 393
banknotes, 167, 168, 277, 278, 279, 281, 283, Berlin blockade, 367
284, 299 Berliner Handelgesellschaft, 280
Bank of Amsterdam, 125-26, 279 Berlin wall, destruction of, 393
Bank of Egypt, 284 Bernard, Daniel, 152f
Bank of England, 155, 167—68, 277, 299, 347, Bernard of Clairvaux, 56
349 Berthollet, Claude, 179, 180
Bank of France, 277, 278, 353 Bessarabia, 374
Bank of Japan, 267 Bessemer, Henry, 198
Bank of Spain, 259 Bessemer process, 198, 199f, 205, 226, 234,
Bank of the United States, 285 241, 252
bankruptcies, 76, 135, 148, 149, 303 bilateral trade treaties, 344
Banque de Belgique, 231, 278 Bilbao, 135, 259
Banque Federale Suisse, 279 bills of exchange, 66, 67, 79, 125, 168, 208, 351
Banque Impériale Ottomane, 284 bimetallic standard, 299, 300
Banque Nationale de Belgique, 267, 278 Biolley family, 227
Banque Royale, 169 Birmingham, 181, 185
barbarians, 41, 44, 45, 82 birth rates, 6t, 55, 96, 184, 185, 261, 317, 319t,
Barcelona, 66, 123, 258, 282 388, 399
Bardi company, 66, 76 bishops, 48
Baring Brothers, 277 Bismarck, Otto von, 243, 289, 296, 300, 311,
barley, 24, 52, 82, 87, 90, 108, 112, 271 316, 335
Bar-sur-Aube, 65 Bizonia, 367
barter, 33 Black Country of England, 181, 191
basic process, 198, 222, 223, 241 Black Death. See bubonic plague
basketry, 25, 93 Black Sea, 35, 62
Basel, 248 blacksmiths, 222
Bastiat, Frederic, 292 Black Thursday, 348
Batista, Fulgencio, 377 Black Tuesday, 348
440

blast furnace, 70, 116—17, 172, 177, 194, 198, Burma, 86, 87, 89, 313, 316, 377, 378
229, 265 burse, 125
Blenkinsop, John, 181 business cycles, 295
blockade: Berlin, 367; World War I, 340, 355; butter, 251
World War II, 361 Byzantine Empire, 30, 42, 54, 57, 59, 62, 73, 80
bloomeries, 116, 241
Blum, Leon, 353 Cabot, John, 98, 101
bocage, 110 Cabot, Sebastian, 101
Boers, 307-9, 389 Cabral, Pedro de, 101
Boer War, 309 cacao beans, 92
Bohemia, 141, 160, 202, 244, 253, 255, 261, Cadiz, 138
274 Cahokia, 93
Bolivia, 5, 8, 307 Cairo, 77
Bolsheviks, 303, 356, 357, 358 Cairo Genizah, 79
Bonaparte, Napoleon, 208, 210, 217, 228, 232, Calais, 124
238727723025 382 calculating machine, 327
book printing, 119 calendar, Mayan, 92
Bordeaux, 64 Calico Acts, 159, 177
borrowing, 262, 342; France and, 148; Great calicoes, 159, 228
Britain and, 155; Portugal and, 141; Russia California, 104, 296, 300
and, 145; Spain and, 134—35 Caliphate, 77, 80, 83
Bosnia-Herzegovina, 394 Calvinism, 153
Boulton, Matthew, 175—77, 194 Cambodia, 89, 313, 378
bounties, 131 Cambridge University, 288
Boxer Rebellion, 313 camels, 79, 90
Brabant, 61, 115 cameralists, 142
Bradford, 181 Campagna, 97
Brahmans, 87 Canada, 4, 91, 121, 150, 296, 309; currency
brain drain, 328 devaluation in, 354; era of high growth, 368;
Brandenburg, 58 exploration and discovery, 103; foreign
brandy, 258, 262, 292, 293 investment, 305—6; immigration and
brass, 118 emigration in, 190, 224; Organization for
Brazil, 101, 104, 121, 132, 139, 140, 141; Economic Cooperation and Development
foreign investment, 306, 307; per capita and, 368; post-World War II, 362, 363, 365;
income, 5; trade, 389 Soviet Union and, 372; technology, 326;
Bretton Woods conference, 364, 385 trade, 298
brewing industry, 112, 181, 194, 271 canals, 79, 83, 85, 169, 172, 202, 226, 228, 255,
Brezhney, Leonid, 395 271, 278, 302
brick making, 25 canning, 206
Bridgewater, Duke of, 160—61 cannons, 116
Brindley, James, 160—61 Cano, Sebastian del, 103
British Postal Office, 326 canoes, 91
British Seas, 153 Canton, 100
British South African Company, 309 Cape Colony, 307, 309
Brittany, 49 Cape of Good Hope, 100
bronze, 26, 28, 33, 69, 82, 89 Cape Verde Islands, 101
Bruges, 64, 65, 66, 76, 95, 123, 125, 227 capital: as factor of production, 8, 9;
Bubble Act, 169, 209 productivity of, 13; surplus, 315
bubonic plague (Black Death), 16, 72-75, 98, capitalism, 106, 213, 354
189 caravans, 65, 79
Budapest, 255, 281 Caribbean Islands, 104, 121, 178, 323, 341, 386
Buddhism, 82, 86, 88, 338 Carlyle, Thomas, 211
building and loan societies, 277 Carolingian monetary system, 67
Bukovina, 374 Carpathians, 45
Bulgaria, 218, 261, 262; agriculture, 272; Carron Company, 183
post-World War I, 343, 346; Soviet Union cartels, 243, 390
and, 373-74, 390, 393; World War I and, 342 Carthage, 33, 89
bullion, 105—6, 127, 138 Cartier, Jacques, 103
bullionism, 130-31 Cartwright, Edmund, 178
Burgos, 135 Casa da India, 126
Burgundian knights, 57 Casa de Contratacio6n, 127, 135, 138
 Index 44]

Caspian Sea, 62 313, 332-33; medieval, 70; per capita

Cassa del Commercio e delle Industrie, 282 income, 5; petroleum in, 325; population, 16,
caste system, 87 83, 85; Portugal and, 85, 100, 104, 127;
Castile, 97, 127, 133, 136 Soviet Union and, 375-76; Tiananmen
Castro, Fidel, 377 Square uprising, 394—95; trade, 83, 85, 127;
Catalan forge, 70 twenty-first century economy, 387; World
Catalonia, 61, 258 War II and, 360, 375
Catherine the Great (empress of Russian), 145 chlorine, 206
Catholicism, 95, 153, 208, 214 chlorine bleach, 179, 180
Caucasus, 26, 28, 31 chocolate, 246, 247, 250, 298
caustic soda, 179-80 cholera, 185
cave paintings, 21, 22f Christianity, 37, 54—55, 56-57, 58-59, 79, 80,
Cavour, Camillo Benso, Count di, 202, 260, 338; in Africa, 90; Orthodox, 83; Ottoman
261, 282 Empire and, 82
Ceaucescu, Nicolae, 394 Christian trade unions, 214
cedars, 33 chromium, 206
CEEC. See Committee of European Economic chunnel, 397
Cooperation Churchill, Winston, 337, 347, 363, 364, 373
Celebes, 104 Cistercians, 56, 58, 88
cement, 267 cities. See urbanization
Central America, 91, 307, 323 Citroen, André, 197
Central Asia, 23, 77, 83 citrus fruits, 54, 79, 104, 108
central banks, 267, 277, 278, 281, 282, 285, 353 civilization, emergence of, 23—29
Central Europe, 17, 250; imperialism, 141—46; Civil War: American, 198, 204, 211, 224, 226,
medieval, 46 227, 267, 275, 285, 289, 294, 297, 300, 304,
cereal grains, 104, 107, 108, 112, 135-36 341, 352; English, 154; Spanish, 257, 258
Ceylon, 77, 85, 88, 104, 120, 333, 377. See also Clark, Colin, 40
Sri Lanka classical economics, 210—11, 334
chain migration, 321 class structure, 130, 212-15, 265
chain stores, 336 Clay, Henry, 211
Champagne, 65, 66, 76 clergy, 48, 212
charcoal, 70, 116, 117, 118, 161, 163, 172, 179, Clermont (ship), 203
191, 198, 229, 241, 252, 324, 402 climate, 23, 55—56, 74, 96, 108
Charlemagne, 57, 82, 382 clockmaking, 72, 73f, 113, 246, 247-48
Charles I (king of England), 154 cloth. See textiles
Charles I (king of Spain; Holy Roman Emperor clover, 53, 165
Charles V), 132-33, 135, 136 coal, 118, 143, 185, 191, 198, 227, 342, 353,
Charles II (king of England), 154, 156 402; agricultural income invested in, 271;
Charles X (king of France), 309 applications of, 194; competing energy
chartered companies, 66, 208 sources, 197, 324, 325, 328, 329; European
charters of freedom, 61 Coal and Steel Community and, 384; factory
Chartism, 213 system and, 178; importance of, 192;
Chechnya, 397 industrialization and, 160, 163, 169, 172, 174,
chemical industry, 206, 232, 234, 238, 247, 248, 179, 180, 181, 182, 184, 220, 221, 228, 229,
267, 268; expansion and diversification, 179— 232, 233, 234, 235, 236-37, 238, 239-41,
80, 241-42; twentieth century, 327 DAL DAS 247, 249% 252; 2535.2553 209202,
Cheng-ho, 85 263, 265, 267; miners strike, 347; post-World
Chesapeake Bay, 158 War I control of, 345; Schuman Plan and,
Cheshire, 182 383-84: in Soviet bloc, 391; trade in, 122;
Chevalier, Michel, 292-93 transportation industry and, 201
Chiang Kai-shek, 375 Coalbrookdale, 172
Chichimecs, 92 coal tar, 180, 206
chiefs, 30 Cobden, Richard, 291, 293
Child, Josiah, 128 Cobden-Chevalier treaty, 292—93, 294, 297
child labor, 50, 186 Cochin China, 313
Chile, 93, 104, 306, 307, 349, 381, 389 cochineal, 105
China, 86, 87, 88, 89, 139, 301; ancient, 24, 26, Cockerill, James, 229
32, 36; Arabs and, 79; on eve of western Cockerill, John, 229
expansion, 82-85; Hong Kong and, 388-89; Cockerill, William, 228, 229
imperialism, 307, 311-13, 314; international Cockerill works, 228, 229, 230f
relations, 332—34; Japan and, 85, 268, 269, cocoa, 105
442

code civile, 208—9 condensed milk, 247

Code de Commerce, 209 condenser, 175, 180, 194
codes of fair competition, 352 Confederation of the Rhine, 208, 238
coffee, 104, 105, 179, 292, 307, 341 Confucianism, 82, 83, 86
coined money, 35-36, 37f, 67—68, 155, 168 Congress of Vienna, 217, 250, 259-60
Cokayne, William, 156 Conservative party, 292, 337, 347
Cokayne Project, 156 Constantine (emperor of Rome), 41
coke, 163, 172, 183, 191, 194, 197-98, 206, Constantinople, 57, 59, 62, 79, 80, 284. See also
226,229 ,233..2345 230,242 2 "2D eo} Istanbul
288, 384, 402 constitutional monarchies, 154, 378
Colbert, Jean-Baptiste, 131, 146, 148, 149-50, Consulado of Burgos, 135
155 Continent (railway), 202
Colbertism, 146—50; parliamentary, 154—59 Continental System, 210, 228, 290, 382
cold war, 365, 382 conversos, 136
collectivization of agriculture, 359, 372, 375 convertible husbandry, 165
College of the Fishery, 153 convoy system, 127
Collins, Michael, 331 Coolidge, Calvin, 345
Cologne, 61, 279, 280 cooperative farms, 359, 396
Cologne-Minden Railway, 289 Copenhagen, 125, 250, 282
Colombia, 306, 307 Copernicus, 72, 164
colonialism, 97, 131—32. See also copper, 25-26, 28, 33, 69, 91, 93, 117, 118,
decolonization; imperialism; in ancient times, 121, 123, 133, 145, 161, 168, 181, 182, 206,
33, 35, 40; China and, 85; France and, 150; 222, 259).2675 5075306
Great Britain and, 157—58; imperialism copyholds, 49, 50, 111
distinguished from, 314; medieval Europe Cordova, 57
and, 58, 64; Netherlands and, 153—54; in cork, 139
New World, 104-105, 121, 127, 134, 138- corn, 104, 105, 372
39, 157—58; Spain and, 97, 104—5, 121, 127, Corn Laws, 210, 271, 291-92
134, 138-39, 258 Cornwall, 33, 108, 117, 174, 177, 181, 193
Columbus, Christopher (Christoforo Colombo), corporate conglomerate, 336
98, 101, 103, 104, 109, 135, 331 corporate state, 354
Combination Acts, 210, 213 corporations, 209, 336. See also incorporation
COMECON. See Council for Mutual Economic Corsica, 45, 62
Assistance corso forzoso, 300
commenda, 65-66 Cort, Henry, 172
commerce. See trade and commerce Cortez, Hernando, 92, 104
commercial organizations, 123-24 cotton, 36, 54, 62, 68, 157, 178, 181, 292;
commercial revolution, 65 American Civil War and, 275, 294, 297;
Committee of European Economic Cooperation Arabs and, 79; China and, 85; India and, 87,
(CEEC), 365, 366 105, 178; industrialization and, 160, 172, 177,
Common Agricultural Policy, 398 178-79, 182-83, 184, 220, 222, 226, 228,
Common Foreign and Security Policy (CFSP), 232, 234, 246, 247, 253, 258, 263, 267, 268;
398 spinning of. See spinning; technological
common law, 207 advances and, 114, 194; wool displaced by,
Common Market. See European Economic 159
Community cotton gin, 178, 225
common people, 212 cotton mills, 178
Commonwealth of Nations, 378 Council for Mutual Economic Assistance
communal property, 30 (COMECON), 374, 376, 377
communes, 61, 272 Council of Europe, 398
communications technology, 204—5, 326-27 Council of Ministers, 371
Communism, 338, 363, 372; in China, 333-34, Council of People’s Commissars, 356, 371
375-76; in former colonies, 381; in France, country banks, 168, 277, 278
353, 365; in Italy, 365; post-World War I, Courland, 143, 144f
346; in Soviet Union. See Soviet Union; in Coventry, 360
Vietnam, 376-77; War, 357 Covilhao, Pedro de, 100
comparative advantage, 291 cowery shells, 91
comparative statics or dynamics, 10 Cracow, 65
compass, 70, 79, 82, 98 credit, 66-67, 79, 123, 125, 183, 279-80, 389
Compromise of 1867, 254, 255 Credito Italiano, 283
computers, 327 Crimean War, 263, 272, 283, 292
 443

Croatia, 394 de-Stalinization, 372

Croesus, King, 36 Deutsche Bank, 280, 303
Crompton, Samuel, 178 Deutschemark, 367, 393
Cromwell, Oliver, 114 Diamond, Jared, 24
crown (currency), 346 diamonds, 140, 308, 309, 311
Crusades, 17, 56—57, 58—59, 62, 80 dictatorship of the proletariat, 357
Cuba, 258, 306, 377 diffusion, defined, 194
cult of personality, 372 diminishing marginal productivity, law of, 13,
cultural revolution, 375-76 14
Cunard, Samuel, 204 diminishing marginal utility, law of, 15
cuneiform writing, 29, 33 diminishing returns, law of, 10, 13, 14
customs unions, 245, 254, 383 Diocletian (emperor of Rome), 41, 42
Cuza, Prince, 283 Direktionsprinzip (direction principle), 288
Cuzco, 93 Diskonto-Gesellschaft, 280
Cyprus, 26, 33 Disraeli, Benjamin, 287, 310, 316
Cyrus the Great, 31, 36 distaff, 68
Czechoslovakia, 57, 253, 255, 324, 365, 393; Diu, 103, 104, 121
Great Depression, 349; post-World War I, division of labor, 25, 26, 28, 32, 39, 179, 250
343: Soviet Union and, 373, 374, 375, 390, Dobrudia, 374
391, 392 dockworkers’ strike, 214
Czech Republic, 392 dole, 347
dollar, 347, 354, 368, 371, 389, 390
Daimler, Gottfried, 197 dollarization, 389
dairy farming, 112, 165, 247, 274, 298 dollar shortage, 365
Daiz, Bartholomew, 100 dollar zone, 366, 368
Dalmatia, 254 domestication of animals, 23—25, 90, 104
Danish Sound Toll. See Sound Toll Donbas, 305
Danube River, 26, 204, 255 Dondi, Giovanni de, 72
Danzig, 64, 143 Donetz Basin, 265
Darby, Abraham, 172 double-cropping, 82
Darmstadter, 280, 282 double-entry bookkeeping, 76, 123
Davy, Humphrey, 196 Drake’s well, 197
Dawes, Charles G., 346 Dresden, 360
Dawes Loan, 346, 349 Dresdner, 280
D-banks, 280 dry farming, 32
death rates, 5, 6t, 8, 55, 74, 96, 184, 185, 261- Dubcek, Alexander, 375, 392
62, 317, 319t, 399 ducat, 68
debt peonage, 109 Durham, 221
Deccan, 87 Dusseldorf, 279
Declaration of Independence, 210 Dutch East India Company, 120, 125, 154
Declaration of the Rights of Man and the Dutch East Indies, 377
Citizen, 207 Dutch War for Independence, 96, 114, 115, 152,
decolonization, 334, 377—81 153
deforestation, 50, 74, 109 Dutch West India Company, 154
de Gaulle, Charles, 379, 380, 385 dyestuffs, 33, 54, 105, 157, 179, 206, 242, 248,
Delian League, 36 327, 344
Delors, Jacques, 397
demesnes, 46, 50, 56, 59, 74 East Asia, 82—85
demographic transition, 317 East Berlin, 366
denazification, 366 Eastern Europe, 17; agriculture, 190; emigration
Deng Xiaoping, 376 from, 224, 323; foreign investment, 303; gold
Denmark, 54; agriculture, 110, 272, 273, 274; standard in, 353; imperialism, 141-46;
banking, 282; European Economic industrialization, 256—62; medieval, 44, 46,
Community and, 385; foreign investment, 49, 54, 56, 61, 68, 74, 75
305; industrialization, 249, 252; medieval, 46, East Germany, 366, 367, 374, 375, 390-91,
64, 70; railways, 203; trade, 122, 250, 251, 392-93
298 East India Company. See Dutch East India
depressions, 234-35, 241, 280, 347, 348. See Company; English East India Company
also Great Depression East Indies, 150, 377
Derbyshire, 181 Eastland (Baltic) Company, 124
Descartes, René, 18, 164 Ecole Normale Supérieure, 217
t+

Ecole Polytechnique, 217 Engel, Ernst, 15

Economic Consequences of the Peace, The Engels, Friedrich, 15
(Keynes), 343 Engel’s Law, 15
Economic Cooperation Administration (ECA), engineering industry, 220, 221, 231, 233, 268
366 England, 246. See also Great Britain;
economic development: in ancient times. See agriculture, 110, 111, 112, 164-67, 271—
ancient times; defined, 9; determinants of, 9— 72; banking, 167—69, 276-77; economic
12; indicators of, 6t; in nineteenth century, nationalism, 131; educational system, 216—
187-218; underdevelopment vs., 4—8 17; exploration and discovery, 101; growth
economic growth, 232—33; defined, 8; limits to, of manufacturing, 95; immigration and
398-402; logistics of, 16-18; worldwide, emigration in, 184—85, 190, 301;
290-316 industrialization, 161, 164-72, 177, 181, 183;
economic liberalism, 210-11 medieval, 46, 47, 50, 52, 53, 56, 58, 64, 66,
economic miracle, 367, 370 68, 71, 73, 74, 75; monetary standards in,
economic policy, 209-11 299; population, 97, 167, 183—84, 185;
economic progress, defined, 9 smelting process in, 198; technological
economic retrogression, 9 development, 113, 114, 117, 118, 119; trade,
economic statics, 10 120-21, 122; urbanization, 191; World War II
economic structure, 14-16 and, 360
economies of scale, 13, 243, 383 English Channel, 95, 153, 204, 205, 397
ECSC. See European Coal and Steel English East India Company, 120, 124, 159, 287
Community enterprise, forms of, 336-37
Ecuador, 93, 389 entrepot, 125
Edict of 301, 41 entrepreneurship, 9-10, 160, 222—23
Edict of 1807, 273 environmental degradation, 398, 399
Edict of Nantes, 142, 149, 150 epochal innovation, 18, 193
Edinburgh, 185 Eridu, 28
Edison, Thomas, 197, 205 Erie Canal, 226, 286
educational systems, 183, 215—17, 223, 254, ERP. See European Recovery Program
257; in era of high growth, 370; government Eskimos, 93
role in, 287—88; technology and, 327-28 Estates-General of 1789, 148
Education Bill of 1870, 287 Estonia, 357, 374, 395
Edward III (king of England), 66 étatisme (statism), 149, 288
EEC. See European Economic Community Ethiopia, 90, 310, 311
EFTA. See European Free Trade Association ethnic cleansing, 394
Egypt, 92, 103, 287, 326, 386; ancient, 24, ethnic minorities, 321
28, 29, 31, 33, 36, 39, 40; banking, 284; Euphrates River, 17, 23, 28, 29, 77
decolonization, 378—79; on eve of western Eurasia, 20, 23, 24, 39
expansion, 89, 90; foreign investment, 303, Europe. See also Central Europe; Eastern
305; imperialism, 309-10, 311, 316; Europe; medieval Europe; Northern Europe;
population, 18; trade, 119 Southeastern Europe; Southern Europe:
Eidgenossischen Bank, 279 Western Europe: energy sources in, 328;
Elbe River, 57, 255 exploration and discovery, 98—103;
Electorate of Brandenburg, 142 international relations, 331—32; levels of
electricity, 196-97, 235, 238, 241, 242, 247, living in fifteenth century, 96—98; migration
252, 255, 324, 328-29, 402 in, 320-21; overseas expansion and feedback
electricity-generating stations, 227 to, 103-5; petroleum in, 325; population, 16,
electrolysis, 196 17, 18, 96-98, 187-91, 317; post-World War
electromagnetic induction, 196 II, 362; resources, 192—93; stock market
electroplating, 196, 197 crash, 348; trade, 119-27
electrum, 36 European Atomic Energy Community
Elizabeth I (queen of England), 121, 123 (EURATOM), 384
Emergency Tariff Act of 1921, 344 European Coal and Steel Community (ECSC),
empire preference, 297 384
employment, 364. See also unemployment European Council, 397
Employment Act of 1946, 364 European Defense Community, 384
enclosure movement, 165—67, 271-72 European Economic Area (EEA), 398
endogamy, 87 European Economic Community (EEC), 379, 380,
energy consumption per capita, 6t 384-86, 397, 398. See also European Union
energy sources, 161—63, 195-97, 324-25, European Free Trade Association (EFTA), 385,
328-29 398
 Index 445

European Monetary Institute, 398 flour, 255, 274, 275, 296

European Monetary System (EMS), 397 fluyt ship (flyboat), 115, 116f
European Parliament, 385, 398 flying shuttle, 177
European Payments Union (EPU), 368 fodder crops, 53, 112, 165
European Recovery Program (ERP), 365—66, Fogel, Robert, 318
367, 374 forced circulation of money, 299, 300
European Union, 334, 382—86, 387, 391, 395, Ford, Henry, 197, 275, 329
397-98 Fordney-McCumber Tariff Act of 1922, 344
Evans, Oliver, 195 Foreign Assistance Act of 1948, 365
evolution, 20 foreign investment, 301-7, 315, 351; Latin
Exchange Rate Mechanism (ERM), 397 America and, 389; in Soviet bloc countries,
excise taxes, 148 391, 392; World War I and, 341—42
experimental method, 164 Formosa, 269
export subsidies, 344 Fort Orange (Albany), 121
export taxes, 291 four-course crop rotation, 53, 74
franc, 300, 346, 353, 354
Factory Acts, 211, 216 France, 8, 89, 95, 152, 154, 186, 238, 239, 246,
factory system, 160, 163, 178, 186, 191, 225 253, 254, 255, 258, 262, 301; agriculture,
fairs, 65, 66, 76, 125, 149 110, 111, 112, 235, 272-73; banking, 277—
fair trade, 364 78, 280, 282, 283, 284; Belgium and, 208,
famines, 17, 21, 52, 55, 73-74, 184, 190, 292, 227, 231, 272; class structure, 213;
375 Colbertism in, 146—50; colonialism, 150;
Faraday, Michael, 196 Communism in, 353, 365; decolonization,
Fascism, 352, 354—55, 356 377, 378, 379, 380; economic growth, 232—
Fashoda, 310 33; economic nationalism, 130, 131;
fealty, 45 economic policy, 210; educational system,
Federal People’s Republic (Yugoslavia), 373 216, 217; era of high growth, 368; European
Federal Reserve System, 285 Economic Community and, 385; European
fee simple, 276 Union and, 397; exploration and discovery,
Ferdinand (king of Spain), 82, 101, 133, 135 103; foreign investment, 302—3; gold
fermage, \11 standard in, 353, 354; government role in,
Ferry, Jules, 311, 315 288, 289; Great Depression, 349; immigration
Fertile Crescent, 23 to, 190, 323, 324; imperialism, 307, 309-10,
fertility rates. See birth rates 311, 313, 314, 315, 316; industrialization,
fertilizer, 49, 74, 112, 190, 241, 271, 341. See 160, 222, 232-37, 241, 256, 257, 263;
also manure fertilizer international relations, 331, 333; Italy and,
feudalism, 17, 45, 47, 48, 59-61, 80, 254. See 145, 146, 208, 235, 260, 261; legal system,
also manorial system; serfdom 207-9; medieval, 45, 47, 49, 52, 53, 54, 55,
fiat money, 299, 300 56, 57, 61, 64, 65, 68, 73, 75; population, 97,
Field, Cyrus W., 205 189—90; post-World War I, 344, 345, 346,
finance, 276—85. See also banking; credit 348, 353; post-World War II, 366, 367;
Finland, 250, 349, 365; agriculture, 108, 274; Prussia and, 208, 280, 281; railways, 202,
banking, 282; European Economic Area and, 203, 234, 278, 289, 353; resources, 192;
398; independence of, 357; in Soviet bloc, Schuman Plan and, 383-84; silver standard
373, 374 in, 300; slave trade, 122; smelting process in,
firearms, 70, 96, 104, 113, 116, 127, 226 198; South Sea Company and, 168-69,
Firth of Clyde, 183, 185 technological development, 113, 114, 115,
Firth of Forth, 183, 185 119, 195, 232: trade, 121, 124, 235, 292-94,
fish and fishing industry, 64, 89, 90, 91, 122, 297, 298; urbanization, 191; Vietnam and,
[SO eISSM S12 5025, 2672735274; 376, 377; World War I and, 340, 341, 342;
275. See also herring trade World War II and, 361
fish days, 155 Francis I (king of France), 148, 149
five-year plans, 358, 359, 371, 372 Franco, Francisco, 356, 365
flails, 107 Franco-Prussian War, 233, 241, 297, 300
Flanders, 44, 53, 56, 58, 61, 64, 68, 72, 74, 95, Franco-Russian alliance, 303
97, 114, 115, 120, 160, 227, 228 Frankfurt, 65, 279, 280
Flanders fleet, 65, 120 Franklin, Benjamin, 196
flax, 108, 112, 120, 152, 229 Franks, 44—45, 56-57
Florence, 59, 61, 66, 68, 75, 76 Frederic Barbarossa, Emperor, 61
Florida, 104 Frederick II (the Great, king of Prussia), 129,
florin, 67-68 142—43
446 Index

Frederick William (Great Elector, king of industrialization, 220, 221, 222, 232, 238-43,
Prussia), 142 244, 245, 248, 256, 257, 263; international
freeholds, 111, 254 relations, 331, 332; Italy and, 261; Japan and,
freemen, 48—49 268; medieval, 45, 46, 47, 52, 53, 54, 56, 61,
free trade, 130, 210, 211, 238, 250, 290-94, 64, 65, 74, 75; nationalism, 129, 217, 218;
297-98, 343, 351, 385 Nazi, 324, 337, 355, 356, 360, 363, 366, 367,
free trade treaties, 234 372, 374, 382, 394; Netherlands and, 250;
French Community, 379, 380 population, 97, 98, 189; post-World War I,
French Indochina, 313, 377 342-43, 345—46, 348, 353; post-World
French Revolution, 49, 198, 207, 208, 212, 216, War II, 362, 363, 364, 365, 366-67; price
217, 229, 238, 272, 290, 382 revolution, 105; railways, 202, 203, 239, 279,
French West Africa, 309, 310 289; reunification of, 393; Schuman Plan and,
Friesland, 96 383-84; smelting process in, 198; Spain and,
Frisians, 64 133; stock market crash, 348; technological
Fugger, Jacob, II, 123, 124f development, 114, 117, 118, 195, 206; trade,
Fugger family, 125, 135 121, 122, 123, 124; trade unions in, 214, 337;
fulling mill, 68 urbanization, 191; West. See West Germany;
Fulton, Robert, 203 World War I and, 336, 340—42, 356; World
fustians, 177 War II and, 360, 361, 374
Ghana, 90, 100, 380
gabelle, 148, 149 Ghent, 61, 160, 228, 229
Gaeta, 59 gig-mills, 113
Galileo, 18, 164 Gilchrist, Percy C., 198, 222, 223, 241
Galvani, Luigi, 196 gin, 118
Gama, Vasco da, 100, 101, 103 Gladstone, W. E., 292, 293, 310, 316
Ganges River, 377 Glasgow, 185
Garbett, Samuel, 179 glasnost, 395-96
Gascon wine trade, 64 glass, 62, 161, 179, 180, 181, 194, 234, 238,
gasoline, 197, 361 2539267
Gaul, 40, 52 globalization, 399
General Agreement on Tariffs and Trade Glorious Revolution, 154—55, 168, 169
(GATT), 364 Goa, 104, 121, 127
General Confederation of Labor (CGT), 214 gold, 104, 109, 129, 130-31, 133, 134, 140,
General Revision Act of 1891, 276 153, 206, 301, 355, 368, 372; in Africa, 90,
generator, 196 308; in Australia, 296, 300; bullion, 105—6,
genetic science, 53-54 127; in California, 296, 300; coinage of, 36,
Geneva, 65, 66, 76, 123, 149, 279 67—68, 168; in pre-Columbia America, 91
Genghis Khan, 83, 87 gold bloc, 354
Genoa, 59, 61, 62, 65, 66, 67, 68, 72, 260, 283 Gold Coast, 380
Gentile, Giovanni, 354 goldsmithing, 167
gentry, 95 gold standard, 283, 299-301, 342, 346, 347,
George, Lloyd, 345 349, 350, 351, 353-54
geothermal power, 328 Gompers, Samuel, 214
German African Society, 310 Gorbachev, Mikhail, 387, 392, 395—96
German Colonial Society, 311 Gosplan, 358
German Democratic Republic. See East Gotland, 64
Germany Gotthard railway tunnel, 248
German Federal Republic. See West Germany Gottwald, Klement, 373
German foundation, 64 government, role of, 285-89, 334-36, 370
Germany, 57—58, 143, 246, 251, 253, 255, 262, grafting, 54
354; agriculture, 110, 111, 273, 296; banking, grain sales to Russia, 273, 372
243, 278, 279-81, 283; decline of, 95; Granada, 109, 136, 137
division of, 366—67; East, 366, 367, 374, Grand Canal, 83
375, 390-91, 392-93; economic growth, grapes, 35, 74, 108, 262
233; economic nationalism, 141—42; Great Britain, 54, 238, 243, 246, 250, 251, 252,
educational system, 216, 217; emigration 389. See also England; Scotland; Wales;
from, 190, 224; foreign investment, 303, 305; agriculture, 257, 270-71; banking, 276-77,
France and, 208; gold standard in, 300; 284; Belgium and, 227; Bretton Woods
government role in, 286, 289; Great conference and, 364; class structure, 213—14:
Depression, 296—98, 349, 352, 355; colonialism, 157—58; decolonization, 377,
imperialism, 310-11, 313, 315, 316; 378-80; economic policy, 210-11;
 447

educational system, 215, 223, 287-88; Gulf of Finland, 145

European Economic Community and, 385, gunpowder, 70, 96, 149, 341
386; European Union and, 397; foreign guns. See firearms
investment, 302, 305, 306-7, 351; gold Gutsherrschaft, 108
standard in, 299, 300, 353; government role
in, 286—88, 335—36; Great Depression, 296, Haber-Bosch process, 341
349, 351; Hong Kong and, 388; immigration Habsburg Monarchy, 95, 133, 135, 136, 141,
and emigration in, 184—85, 190, 224, 301; 146, 227, 252, 256, 260, 272, 274, 281, 303,
imperialism, 307-13, 314, 315, 316; 332, 346
industrialization, 161, 178, 181-83, 220— Hainaut basin, 227
24, 232-33, 241, 244, 256, 263, 327; Hamburg, 65, 125, 279, 360
international relations, 333; Japan and, 267; Hamilton, Alexander, 225—26
legal system, 207—8; Netherlands and, 151, Hamiltonians, 284—85
153, 156, 157; Palestine and, 324; Handelsbanken, 282
parliamentary Colbertism in, 154—59; handloom weaving, 246, 247f
population, 183-84, 189, 318; postal service, Hansa, 64, 76, 95, 120
205; post-World War I, 344, 345, 346-47, hard-currency areas, 368
353; post-World War II, 362, 363, 365, 366, Hargreaves, James, 177
367; railways, 180, 221, 226, 271, 288; harnesses, 70
Schuman Plan and, 384; Soviet Union and, harrows, 53
373; steel production in, 197—98; in sterling harvesters, 271
bloc, 354; stock market crash, 348; haute bourgeoisie, 212
technology development, 194—95, 326; trade, Havel, Vaclav, 392
156-57, 290-94, 297, 298, 344, 351; trade Hay, John, 313
unions in, 337; World War I and, 340, 341, Helmholtz, Hermann von, 195
342; World War II and, 361 hemp, 108, 112, 120
Great Depression, 321, 349-56, 370, 382 Henry IV (king of France), 113, 149
Greater Asian Co-Prosperity Sphere, 332 Henry VII (king of England), 101
Great Famine: of 1315-17, 73-74; of 1845, 190 Henry VIII (king of England), 95, 154
Great Fishery, 153 Henry the Navigator (prince of Portugal), 99—
great leap forward, 375 100, 139
Great Purge, 359 herring trade, 120, 131, 151, 153
Great Silk Road, 82, 83 Hertz, Heinrich, 205
great spurt of industrialization, 263 Hesse-Darmstadt, 280
Great Trek, 307 hides, 122, 139, 307
Great Western (ship), 204 hieroglyphic writing, 33
Greece, 218, 261, 262; agriculture, 272, 274; Hill, Rowland, 287
ancient, 33—39, 40; Arabs influenced by, Hinduism, 86, 87, 88, 89, 127, 333, 377
80; Committee of European Economic Hiroshima, 360
Cooperation and, 365; emigration from, 324; Hirsch-Dunker, 214
era of high growth, 368; foreign investment, Hitler, Adolf, 337, 349, 382
303; medieval, 62; population, 16, 18; Hittites, 29
post-World War I, 343, 346 Hobbes, Thomas, 21, 23
greenbacks, 300 Hobson, John A., 315
green manure, 53, 74 Ho Chi Minh, 376
green revolution, 328, 378; medieval, 79 hoe culture, 25, 26, 28, 90, 91
Grenada, 135 Hofmann, A. W., 242
Gresham, Thomas, 123 Hohenzollern dynasty, 142
Groningen, 96 Hohokam culture, 93
Groot, Hugo de (Grotius), 153 holding companies, 336
gross domestic product (GDP), 4, 7t, 8, 15, 223,
Holland, 94, 97, 151, 152, 153. See also
Netherlands; agriculture, 111-13; economic
368, 388, 400f, 402
gross national product (GNP), St, 8, 219, 223, nationalism, 131; foreign investment, 302;

233, 268, 286, 348 France and, 208; medieval, 56, 58, 72;
Grundherrschaft, 111 technological development, 115;
Guadalquivir River, 138 urbanization, 191
Guatemala, 92 Holocaust, 324, 360
guilds, 68, 72, 76, 98, 109, 113, 114, 115, 128, Holstein, 250
135, 148, 149, 153, 207 Holy Office, 136
Guinea, 380 Holy Roman Empire, 141, 382
guinea (coin), 299 homage, 45
 448

Homestead Act of 1862, 227, 276 Imperialism, the Highest Stage of Capitalism
Homo erectus, 20n1 (Lenin), 314
Homo habilis, 20n1 Imperial Railway Office, 289
Homo sapiens, 20, 23 import prohibitions, 344
Honecker, Erich, 392 import quotas, 344, 349, 350
Hong Kong, 4, 311, 378, 388-89, 395 import substitution, 352, 381—82, 389
Hongkong and Shanghai Bank, 284 import taxes, 291
Hoover, Herbert, 344, 349, 350, 352 Inca Empire, 93, 104
Hope and Company, 279 incandescent light, 197, 205
hops, 54, 112, 271 incest, 21
Hornigk, Philipp W. van, 142 income: distribution, 9; per capita. See per
horsecollar, 53 capita income; real, 8, 14
horses, 26, 49, 51, 52-53, 54, 79, 104, 180 income tax, 292
horseshoes, 53, 70 incorporation, 209, 234, 241, 280. See also
horticulture, 57, 112, 133 corporations
hot blast, 198 India, 11, 77, 79, 150, 178; agriculture, 87, 328;
Hottinguer et Cie, 231 in ancient times, 24, 36; banking, 284; on eve
House of Rothschild, 281 of western expansion, 85, 86-88, 89; foreign
House of Trade, 127 investment, 302; Great Britain and, 122,
Huart-chapel, Paul, 229 157, 287, 309, 313, 315; imperialism,
Hudson valley, 121 307; independence of, 333, 377—78; life
Huguenots, 142, 150, 152 expectancy in, 318; new route to sought, 98,
human capital, 10, 13, 249, 254, 306, 370, 382, 100, 103; per capita income, 5; railways, 203;
388 trade, 105, 121, 122, 123, 125
human sacrifice, 92 India House, 126
hundred days (first of FDR’s term), 351, 352 Indian Ocean, 29, 33, 62, 79, 85, 99, 100, 103—
Hundred Years War, 73, 146, 148, 149 4, 119, 120, 127, 139, 146, 153, 154
Hungarian Revolution, 324 India Office, 287
Hungary, 45, 57, 62, 80, 83, 123, 141, 244, 254, indigo, 105, 275
256, 261, 393; agriculture, 274; foreign Indochina, 87—88, 313, 377
investment, 303; Great Depression, 349; Indonesia, 77, 85, 88, 89, 120, 121, 127, 154,
post-World War I, 343; Soviet Union and, 307, 378, 388
373-75, 390, 391-92; Spain and, 133; Indus River, 17, 26, 29, 33, 36, 85, 377
technological development, 118; trade, 121, industrialization, 160—86, 377. See also
122 technology; characteristics of modern, 161—
hunger exports, 275 63; concerns about, 398, 399; origins of, 15;
hunter-gatherers, 21, 26, 57, 89, 90, 91, 93 patterns of early industrializers, 219—43;
hunting, 14, 20-21, 24, 27, 74 patterns of latecomers, 244—69; population
Huskisson, William, 291 and, 190; prerequisites and concomitants of,
Hussein, Saddam, 390 164-72; proto-, 160-61; social aspects of,
hydraulic turbine, 196, 237 183-86; technology of, 113-19, 172-81;
hydrocarbons, 327 upstream, 251
hydrochloric acid, 180 industrial revolution, 159, 161, 163-64, 169,
hydroelectricity, 192, 232, 247, 249, 252, 328 186, 245, 252, 327
hygiene, 184 infant mortality, 8, 185, 317, 318, 320t
infield-outfield system, 108
Iberian peninsula, 17, 47, 54, 56, 57, 65, 109, inflation, 186, 296, 341, 345-46, 353, 363, 389,
232-33, 257-59 390; in China, 82; in era of high growth, 370;
Iceland, 365, 398 gold standard and, 300, 342, 347: in Roman
immigration and emigration, 17, 184—85, 190, Empire, 41
224, 261, 262, 275, 301, 351. See also informal institutions, 338
migration; illegal, 323; twentieth century, inner six, 385
321-24 innovation, 172—81; defined, 194; epochal, 18,
Imperial Bank of Persia, 284 193; institutional, 11, 14
imperialism. See also colonialism: Central, Inquiry into the Nature and Causes of the
Eastern, and Northern Europe and, 141— Wealth of Nations (Smith), 129, 179, 210, 290
46; colonialism distinguished from, 314; Inquisition, 136, 141
economic, 128—59; explanations of, 314-16; Inspektionsprinzip (inspection principle), 288
impact of World War II on, 377; Portugal and > institutional innovation, 11, 14
139-41, 310, 315; revival of Western, 307— institutionalist theory, 12
16; Spain and, 132—39, 309, 315 Inter-Governmental Conference, 398
 449

internal combustion engine, 64, 197, 329 emigration from, 190, 224, 261, 301, 324; era
International Association for the Exploration of high growth, 368, 370; European Rate
and Civilization of Central Africa, 310, 311 Mechanism and, 397; exploration and
International Bank for Reconstruction and discovery, 98—99; Fascism in, 352, 354—55,
Development (IBRD), 364 356; foreign investment, 303; France and,
International Financial Commission, 262 145, 146, 208, 235, 260, 261; government
International Labor Organization (ILO), 334 role in, 287; imperialism, 145—46, 310,
International Monetary Fund (IMF), 364, 382, 315; industrialization, 244, 257, 259-61;
402 international relations, 332; medieval, 44, 45,
international organizations, 383 46, 47, 49, 52, 54, 55, 57, 59-62, 64, 65, 66,
International Red Cross, 334 68, 74, 75; nationalism, 217, 218; population,
International Refugee Organization, 363 96, 260, 261; post-World War I, 343;
international relations, 217—18, 331-34 post-World War II, 366; price revolution, 105;
International Trade Organization (ITO), 364 railways, 203; resources, 192; Schuman Plan
Interstate Commerce Commission, 289 and, 384; silver standard in, 300; smelting
invention, defined, 194 process in, 198; technological development,
inventory cycles, 295 114, 117, 118, 119; trade, 119-20, 122, 260,
investment. See foreign investment 293, 297; trade unions in, 337; urbanization,
invisible exports, 302 191; World War I and, 340
Iran, 24, 26, 31, 80, 284, 389. See also Persia Ivan III (grand duke of Moscow), 83
Iraq, 8, 23, 24, 389, 390 ivory, 36, 90, 140
Ireland, 49, 54, 72, 108, 177, 181, 183, 190,
291; banking, 276; emigration from, 190, Jacksonian Democrats, 211, 285
224, 301; European Economic Community Jacquard loom, 246
and, 385; famine, 17, 190, 292; nationalism, jade, 92
218 Jainism, 86
iron, 89, 90, 91, 118, 133, 143, 145, 161, 179, James (duke of Courland), 143
1815 1825191;-193, 206; 227, 229,232, 238; James I (king of England), 156
239-41, 247, 249, 251—52, 253, 259, 268; in James II (king of England), 154
agricultural implements, 190, 271; Chinese janissaries, 82
use of, 83; European Coal and Steel Japan, 4, 86, 382, 395; agriculture, 276;
Community and, 384; fall in price, 196; automobile industry, 329; China and, 85, 268,
government role in industry, 288; labor force 269, 313, 332-33; era of high growth, 368,
in, 222; in medieval Europe, 53, 69—70; pig, 370; gold standard in, 301; government role
117, 172, 183, 197-98, 220, 231, 233, 241, in, 286; imperialism, 307, 314, 315, 377;
252, 255, 263, 265, 288; smelting of, 31, 172, industrialization, 265—69; international
194, 197-98, 226, 233, 234, 236, 241, 252, relations, 332, 332—33; Organization for
255, 402; transportation industry and, 201; Economic Cooperation and Development
wrought, 116-17, 172, 197-98 and, 368; Portugal and, 100, 104, 127;
Iron Age, 69 post-World War I, 342; trade, 127, 265-66;
iron bridge, 174f twenty-first century economy, 388; Vietnam
Irrawaddy River valley, 89 and, 376; World War I and, 341; World War II
irrigation agriculture, 17, 28, 32, 57, 59, 82, 92— and, 360
93, 109 Jason and the Golden Fleece legend, 35
Isabella (queen of Spain), 82, 101, 135 Java, 89
Islam, 82, 103, 137—38, 338; in Africa, 89-90; Jefferson, Thomas, 225
agricultural technology and, 109; ancient Jeffersonians, 211, 284
empires, 29-30; in Chechnya, 397; Jericho, 27
decolonization and, 377; in India, 86—87, 88; Jerusalem, 62
in medieval era, 45, 54, 56—57, 59, 62, 68; Jews: expulsion from Spain, 82, 109, 136-37;
Mongols and, 83; in Pakistan, 333; in Serbia in Germany, 238, 355; Holocaust and, 324,
and Kosovo, 394; trade and, 127; world of, 360; immigration of, 190; in medieval
77-80 Europe, 59, 65; Muslims and, 79; in
Ismael, 80 Netherlands, 152; in Portugal, 141
Israel, 324, 386 jihad, 79
Istanbul, 79, 343. See also Constantinople John II (king of Portugal), 100, 101
Isthmus of Panama, 103 joint-stock banks/companies, 125, 150, 168—69,
Italy, 17, 133, 141; agriculture, 108—9, DD 201, 209, 229-31, 241, 260, 262, 336;
274; in ancient times, 35, 40; banking, 260, foreign investment in, 305; patterns of
283; Communism in, 365; decline of, 94—95; development, 277, 278, 281, 282, 283-84;
decolonization, 377; educational system, 215; universal/mixed, 279-80
450

Jordan, 386 land reclamation, 56, 72, 112

Joseph II (Habsburg emperor), 253, 272 Landsmanbanken, 282
journeyman’s associations, 213 Languedoc, 97
J.P. Morgan & Co., 285 Laos, 313, 378
J.S. Morgan & Co., 277 lathe, 180
Julius Caesar, 31, 40 latifundia, 45
Junkers, 296 Latin America, 8, 187, 381—82; Alliance for
Jura Mountains, 247 Progress and, 371; banking, 284; currency
Jutland, battle of, 340 devaluation in, 354; foreign investment, 302,
303, 305, 306-7; France and, 209; Great
Kalihari Desert, 90 Depression, 352; immigration and emigration
kamikaze, 85 in, 190, 261, 301, 323; imperialism, 314;
Kashmir, 316 post-World War II, 363; railways, 203;
kassiers, 279 resources, 193; trade, 298, 389; twenty-first
Katanga province, 381 century economy, 389; urbanization, 319;
Kay, John, 177 World War I and, 341
Kenya, 326, 380 Latin America Free Trade Association
Kepler, Johannes, 72 (LAFTA), 382
Kerensky, Alexander, 356 Latin Empire, 80
kerosene, 197 Latin Monetary Union, 300
Keynes, John Maynard, 343, 346 Latvia, 143, 357, 374, 395
Keynesian economics, 352 Laurium, 36
khedive of Egypt, 287 Lausanne Conference, 349
Khrushchey, Nikita, 371-72, 395 Laval, Gustav de, 196
Kim Il-sung, 376 Lavoisier, Antoine, 179, 206
Kingdom of the Two Sicilies, 260 Law, John, 168—69
kings, 30, 48, 60, 74 law merchants, 207
Kipling, Rudyard, 316 lead, 117, 133, 161, 206, 222, 227, 258-59
knights, 45, 48, 57 lead chambers, 179
Kommanditgessellschaft, 280 League of Nations, 324, 334, 346, 348, 349,
KG6nigsberg, 58 382, 383
Koran, 77 leaseholds, 50, 111
Korea, 85, 86, 268, 269, 307, 313, 376, 382, 388 leather, 70
Korean War, 333, 376, 384 Lebanon, 33, 386
Kosovo, 394 Leblanc, Nicholas, 180
Kreditbanken, 279-80, 281 Leblanc soda producers, 223
Krivoi Rog, 265, 305 Le Chapelier Law, 208, 213
Kronstadt, 357 Lee, William, 113
Kruger, Paul, 309 Leeds, 181
Kublai Khan, 83, 85 legal systems, 32, 39, 207—9, 238
Kurdistan, 24 Leipzig, 65, 279
Kuwait, 389, 390 Lenin, V. I., 303, 314-15, 356, 357, 358, 396
Kuznets, Simon, 18, 193 Leningrad, 360, 396
Lenin Tomb, 372
labor: agricultural, 107, 222, 257, 274, 275; Leonardo da Vinci, 114
division of. See division of labor; as factor of Leopold (king of Belgium), 310, 311
production, 8, 9; industrialization and, 186, letters of credit, 79
222; in medieval Europe, 71, 74-75, 76; letters of fair, 65, 66—67
organized. See trade unions; technology and, Levant, 61—62, 65, 178
328 Levant (Turkey) Company, 124, 125
Labor Front, 337 lever, 162
labor strikes, 214, 347, 371 Lever, William, 222
Labour party, 337, 363 Lever Brothers, 222
Lagash, 29 Liaotung peninsula, 269
Lagny, 65 Liberal party, 292, 347
laissez faire, 211, 285, 286, 335 Liberia, 311
Lancashire, 114, 160, 177, 181, 182, 185, 219, Libya, 310, 378, 389
275, 294 Liebig, Justus von, 206
Land Bank for the Nobility, 283 Liége, 117, 227, 228, 229, 231
landlords, 74, 75, 111 life expectancy, 5, 6t, 8, 27, 41, 317-18, 321t
landowners, 212 lighthouses, 197
 451

lignite, 255 MacArthur, Douglas, 352

Liguria, 260 Macedonia, 31, 394
Lille, 191 Machine-Tractor Stations, 359
limited partnerships, 209 Madagascar, 380
Limits to Growth, The, 398-399 madder, 54, 112
Lincoln, Abraham, 275 Madeiras, 140
linen, 62, 68, 114, 160, 177, 178-79, 194, 227, Magellan, Ferdinand, 103, 138
228, 229, 246, 253, 263 Magellan Strait, 103
line of demarcation, 101 Magna Graecia, 35, 36
linotype machine, 205 magnesium, 206
Lipton, Thomas, 222 magnetism, 196
lira, 67, 300 Magyars, 45, 57
lire, 67 Mahan, A. T., 315
Lisbon, 95, 120, !26, 127, 141, 259, 282-83 Main River, 121
literacy, 183, 205, 215-17, 245, 246, 249, 254, maize, 91,92, 105
257, 266, 327—28, 370, 378 Malabar, 104
lithography, 205 Malacca, 104
Lithuania, 57, 58, 357, 374, 395 Malaya, 316, 341, 378
Liverpool, 185 Malay peninsula, 85, 87, 104, 313
Liverpool-Manchester Railway, 181, 201 Malaysia, 377, 378, 387, 388
livestock, 49, 52, 74, 75, 90, 107, 108, 112, 165, malnutrition, 398, 399
166, 258, 298 Malthus, Thomas R., 14, 210, 399, 402
Livingstone, David, 310 Manchester, 178, 182, 185, 288
livre, 67 Manchu dynasty, 311
llamas, 91, 104 Manchuria, 332, 333
Loan and Discount Bank of Persia, 283 mandarins, 82, 83
locators, 58, 61 manganese, 206
Locke, John, 18 Manhattan Island, 121
locomotive. See steam locomotive manifest destiny, 316
logistic curve, 16 Manila galleon, 139
logistics, 16-18 manorial system, 45—47, 49, 50, 52, 55, 57, 58,
Loire River, 17, 44, 45, 360 59, 110
Lombard Street, 66 Manuel (king of Portugal), 141
Lombardy, 59, 61, 62, 64, 97, 260 manufactures royales, 149, 160, 288
Lomé agreement, 386 manure fertilizer, 52, 53, 59, 74, 107, 112, 165
London, 185, 299, 363, 373; banking and Mao Zedong, 375, 376
finance, 277; Great Depression, 351; Marconi, Guglielmo, 205
industrialization, 167—68, 181; medieval, 61, Marco Polo, 62, 83
64, 66; population, 97; post-World War I, Marcus Aurelius, 40, 41
347; trade, 123, 125; World War I and, 341 Mare Liberum (Grotius), 153
London Stock Exchange, 277 marine engine, 195, 196
looms, 68, 114, 178, 229, 246, 247f maritime insurance, 66
lords, 45, 46—47, 48-49, 50, 56, 59, 60, 64, 74, mark (currency), 300, 345—46
108 marketplace, 125
Lorraine, 233, 342 marling, 53
Louis XI (king of France), 149 Marseilles, 35
Louis XIII (king of France), 149 Marshall, George C., 365
Louis XIV (king of France), 89, 129, 130, 131, Marshall Plan, 365, 367, 370
146, 149, 150 Martin, Emile, 198
Louis XV (king of France), 168 Martin, Pierre, 198
Louisiana, 209 Marx, Karl, 15, 213
Louisiana Purchase, 276 Marxism, 12, 30, 285, 314
Liibeck, 65 Mary II (queen of England), 154
lumpenproletariat, 98 Maryland, 121
Lusitania (ship), 340 Massachusetts Institute of Technology, 398
Luxemburg, 96, 383 Massiv Central, 97, 110
Lydia, 36 mass production, 329
Lyons, 76, 123, 149 match girls, 214
mathematics, 28, 42, 80
Maastricht meeting, 398 Matsukata, Count, 267
Macao, 121 Maudsley, Henry, 180
452

Mau Mau uprising, 380 Midlands, 181, 185

mauve dye, 206 migration, 185, 190—91, 320-21. See also
Maxwell, James Clerc, 205 immigration and emigration; chain, 321; in
Mayan culture, 92 fifteenth-century, 97—98; in nineteenth
Mazarin, Cardinal, 149 century, 190; in pre-Columbia America, 91
measles, 104 Milan, 59, 61, 64, 66, 67, 283
meat, 107, 165, 274, 307, 372 milk, 49, 107, 247, 372
Mecca, 77 Mill, John Stuart, 210
mechanical clocks, 72, 73f millet, 82, 87
mechanical harvesters, 271 mills, 70-72
mechanical power, 68-72, 114, 161, 162, 163, Milosevic, Slobdan, 394
179 Miner’s Friend, 174
mechanical reapers, 190 Ming dynasty, 83, 85
mechanics’ institutes, 216 mining industries, 117—18, 172—74, 177, 180—
Mecklenburg, 273 81, 265, 288
medical care, nationalization of, 363 Minneapolis, 255
Medici bank, 76, 337 mir, 272
medieval Europe, 44—76; agrarian basis, 44—47; missionaries, 57, 313, 316
economic crisis, 72—76; expansion, 54—59; Mississippi Bubble, 168
forces of change, 50-54; patterns of stability, Mississippi River, 203
49—50; rural society, 48—49; technology, 68— mixed economies, 370.
72; urbanization, 56, 59-61 Mixtecs, 92
medieval green revolution, 79 mobile telephone, 326—27
Mediterranean Sea, 37, 39, 40, 64, 65, 66, 79, mobilier banks, 279
119, 146, 151, 204 Mobutu, Sese Seko, 381
Mediterranean world, 32—36 modern economic epoch, 193, 194
Meiji Restoration, 266, 267, 268, 276 Mohammed, 77, 79
Mekong River valley, 89 molasses, 275
Meline tariff, 297 Moluccas (Spice Islands), 62, 89, 100, 101, 103,
Memel, 58, 64 104, 120, 127
mental models, 338 molybdenum, 376
mercantilism, 128—30, 142, 155; neo-, 344 monasteries, 95
Merchandise Marks Act, 297 monastic orders, 48
Merchant Adventurers, 124, 156 monetary unions, 245
merchant bankers, 278 money. See also banknotes; bullion; gold
merchant marines, 131, 223, 250, 302, 341, 362 standard: Bretton Woods conference and, 364,
merchants: Chinese, 83; in class structure, 212; 385; cacao beans as, 92; Carolingian system,
Dutch, 151, 153; free trade advocated by, 67; coined, 35-36, 37f, 67-68, 155, 168;
291; law, 207; in medieval Europe, 65—66, cowery shells as, 91; deflation of, 267;
68, 76; Muslim, 79; organizations formed by, devaluation of, 354, 371; exchange rate
123-24 stabilization, 354; fiat, 299, 300; paper, 145,
Merchants of the Staple, 123-24 266, 299, 300, 301, 342, 345—46; silver
mercury, 206, 258 dollar, 275
mercury amalgamation process, 117 money changers, 67
Mergenthaler, Ottmar, 205 money laundering, 4
merino wool, 109, 133 money scriveners, 168
mesolithic era, 23 Mongolia, 57, 62, 83, 83-85, 87
Mesopotamia, 18, 28, 29, 31, 32, 33, 77, 79 Mongolian People’s Republic, 376
Mesta, 109-10, 135, 136 monopolies, 131, 140, 142, 149, 168, 208, 210,
metallurgy, 28, 35, 96, 98; chemistry in, 206; 267, 277, 278, 279, 281, 283, 284
industrialization and, 248, 255, 265; in Montenegro, 343
medieval Europe, 53, 69-70; origins of, 25— Montgomery Ward, 275
26; technological advances and, 116-18 moon landing, 331
metayage, 111 Moors, 57, 101, 109, 133, 137-38
Metternich, Klemens von, 259 Moravia, 160, 253, 274
Meuse River, 202 morcellement, 272
Mexico, 91, 104, 105, 117, 138, 139, 306, 387, Morgan, J. Pierpont, 277
389 Moriscos, 109, 138
Mexico City, 92, 319 Morocco, 309, 379, 386
mezzadria, 108 Morris, William, 197
Midas, King, 36 Morse, Samuel, 196, 205
 453

Moscow, 191, 203, 263, 283, 356, 357, 372, 396 Neilson, James B., 198
Moscow-St. Petersburg Railway, 203 neolithic era, 23, 26, 27, 28, 30
Mosselman, Dominique, 227, 231 neomercantilism, 344
most-favored-nation status, 293, 364 Nepal, 8
mother trades, 151 Nestlé Company, 337
moving picture machine, 205 Netherlands, 95, 141, 167, 218, 227; agriculture,
Mozambique, 100, 310, 381 106, 107, 111-13, 151, 165, 273; banking,
mule (spinning device), 178, 228-29 278-79; Benelux Customs Union and, 383;
multilateral trade, 368, 374 colonialism, 153—54; decolonization, 378;
multinational firms, 336—37 economic nationalism in, 130; educational
Muscovy, 72 system, 216; foreign investment, 303; gold
Muscovy Company, 124, 125 standard in, 354; Great Britain and, 151,
Mushet, David, 229 153, 156, 157; imperialism, 307, 314;
muskets, 116 industrialization, 244, 248—52, 257;
Muslims. See Islam population, 96—97, 249; price revolution,
Mussolini, Benito, 354—55 105; prodigious increase of, 150-54;
Mustapha Kemal (Ataturk), 284 railways, 202; revolution of 1830, 217; Spain
Mutsuhito (emperor of Japan), 266 and, 965 11459115; 1335 15a) 152.1533
mutton, 306 technological development, 114, 115; trade,
Myanmar, 378. See also Burma 120, 121, 125, 130, 151, 153-54, 297-98;
Mycenaean period, 35 World War II and, 360
Neustadt, Wiener, 255
NAFTA. See North American Free Trade New Amsterdam, 121
Agreement Newcastle, 180, 181
Nagasaki, 265, 360 New Christians, 141
Nagy, Imre, 374 Newcomen, Thomas, 174—75, 177, 194, 228
Namur, 117 New Deal, 335, 336, 337, 352-53
Nanking, 85 new draperies, 114
Naples, 59, 97, 208 New Economic Mechanism, 391—92
Napoleonic Codes, 207—9 New Economic Policy (NEP), 357-58, 359, 396
Napoleonic Wars, 166, 180, 198, 208, 209-11, New England, 121, 158, 226, 275
218, 220, 229, 257, 278, 281, 288, 290, 291, Newfoundland, 101, 103, 364
296, 299, 307, 361 New France, 121
Napoleon III (emperor of France), 278, 292, 293 New Guinea, 314
naptha, 197 New Lanark, 183
Natal, 307, 309 New Model unions, 213-14
Nationalbank, 282 New Spain, 138. See also Mexico
National Banking System (U.S.), 267, 285 newspapers, 205
National Bank of Sweden, 281 Newton, Isaac, 18, 72, 164
national banks, 267 New York, 296, 341
National Industrial Recovery Act, 352 New Zealand, 4, 190, 298, 305—6, 309, 389
nationalism: economic, 128—59, 342, 343; Nicholas I (tsar of Russia), 203
entrenchment of, 382—83; international nickel, 206, 235
relations and, 217-18 Niger, 8
nationalization of economic sectors, 363, 370, Nigeria, 380
8/5) Niger River, 90
National Labor Front, 355 Nile River, 17, 26, 77, 90
National Liberation Front, 373 nitrates, 307
National Recovery Administration (NRA), 352 Nkrumah, Kwame, 380
national sovereignty. See sovereignty N.M. Rothschild & Sons, 277
NATO. See North Atlantic Treaty Organization nobility, 45, 48, 95, 143, 212, 238
natural gas, 197, 324, 325, 328, 329, 379 nongovernmental organizations (NGOs), 338
natural liberty, system of, 210 Norman Conquest, 46, 56, 207
Navigation Acts, 156—59, 210, 250, 292 Normandy, 45
navigational instruments, 98—99, 113 North, Douglas, 338
navigational techniques, 33, 96, 139, 193 North America, 8, 20, 23, 91, 154, 157, 328
navigation laws, 131 North America Free Trade Agreement
Nazism, 324, 337, 355, 356, 363, 366, 367, 372, (NAFTA), 398
374, 382, 394 North Atlantic Treaty Organization (NATO),
Neckar River, 121 384, 394
Nederlandsche Bank, 279 North Borneo, 378
454
Northern Europe: imperialism, 141—46; Orleans, Duke of, 168
medieval, 54, 59, 62, 64-65, 74, 76 Ormuz, 103-4
North German Confederation, 241, 280 Osman, Sultan, 80
North Sea, 58, 64, 65, 76, 95, 120, 121, 146, ostmark, 393
151 Otto, Nikolaus, 197
Northumberland, 221 Ottoman Bank, 284
Norway: agriculture, 108, 109, 273; banking, Ottoman Empire, 30, 73, 80-82, 146, 209, 217,
282; European Economic Area and, 398; 218, 244, 261; banking, 284; foreign
European Economic Community and, 385; investment, 303, 305; post-World War I, 343
foreign investment, 305; industrialization, Outer Mongolia, 376
249, 250, 252; medieval, 46, 49, 54, 64, 72, outer seven, 385
74; nationalism, 218; per capita income, 4; Owen, Robert, 182—83
resources, 192; technological development, oxen, 49, 53
118; trade, 251, 274; transportation Oxford University, 288
development, 203
Norwich, 114 Pacific Ocean, 153
notation system, 80 Pagan, Kingdom of, 89
Nottinghamshire, 181 paint, 179, 180
Nova Scotia, 101 Pakistan, 85, 333, 377-78
Novgorod, 64 paleolithic era, 14, 20-23, 24, 26
Nubia, 90 Palestine, 17, 62, 324
nuclear power, 327, 328, 384, 402 Palmerston, Lord, 311
Nuremberg-Firth railway, 202 pan-Arab movements, 379
Papal States, 260
oats, 52, 53, 54, 108, 250, 274 papermaking, 70, 79, 82, 119, 179, 180, 204,
obsidian, 91, 92 234 DON 299
October Revolution, 356, 357, 395 paper money, 145, 266, 299, 300, 342, 345-46
Oder-Niesse line, 373 Paris, 61, 66, 97, 167, 202, 277, 278
OECD. See Organization for Economic Parsons, Charles A., 196
Cooperation and Development partnerships, 123, 209
OEEC. See Organization for European pastel, 112
Economic Cooperation Patagonia, 91
Oersted, Hans, 196 paternalism, 288
oil, 250, 378, 379, 389—90, 397 pax romana, 16, 39—40
oil shocks, 385-86, 389, 397, 399 Peace of Paris, 342
O’Kelly (erector of steam pump), 228 peasants, 108, 111; in ancient times, 25, 26-27,
olive oil, 127, 139 28, 30; in Austro-Hungarian Empire, 253—
olives, 35, 54, 108, 138 54; in China, 83; in class structure, 212; in
Olmec culture, 91 Hungary, 274; in medieval Europe, 46—47,
Oman, 28 48—49, 50, 56, 59, 70, 74, 75; in Prussia, 273;
OPEC. See Organization of Petroleum revolts, 75, 258; in Russia, 145, 272, 275; in
Exporting Countries Soviet Union, 372; in Spain, 109
open door policy, 313 Peasants’ Land Bank, 283
open field agriculture, 110-11, 165-66, 271 peat, 118
open hearth process, 198, 226, 232 peat bogs, 112
opium, 311 pecuniary economies of scale, 243
Opium War, 311 pedal loom, 68
Oporto, 258 Peel, Robert, 291, 292
Orange Free State, 307, 309 Peking, 85, 313, 375. See also Beijing
orders, in medieval Europe, 48, 212 pence, 67
Ordinance of Trade, 150 Penn, William, 139
Oresme, Nicole, 72 Pennsylvania, 198
Oresund, 250 penny, 67
Organization for Economic Cooperation and pepper, 127, 292
Development (OECD), 368 per capita income, 4—5, 9, 13-14, 17, 224-25,
Organization for European Economic 233, 252, 254, 256, 261, 263, 399, 400f; in
Cooperation (OEEC), 334, 366, 367, 368, era of high growth, 368; Great Depression
383, 385 and, 349; in Latin America, 382; in Third
Organization of Petroleum Exporting Countries World, 381
(OPEC), 389-390 Pereire brothers (Emile and Isaac), 278, 281,
Orient Express, 203 282-83
 Index 455

perestroika, 395, 396 Europe, 54—56, 61, 72—75; of Mediterranean

Périer brothers, 228 world, 35; of Netherlands, 96—97, 249; of
Perkin, William, 206, 242 nineteenth century Europe, 187-91; of
Perry, Matthew, 266 Portugal, 97, 139; of pre-Columbia America,
Persia, 29, 31, 36, 39, 62, 80, 86, 284, 389. See 91; of Roman Empire, 18, 39, 40; of
also Iran Scandinavia, 97, 249; of Switzerland, 246;
Persian Gulf, 23-24, 28, 29, 33, 62, 79, 85, 100, twentieth century, 317—24; of the United
104, 325, 389 States, 11, 224; urbanization and, 185, 319-—
Persian language, 77 20, 323t
Peru, 92, 117, 138, 139 porcelain, 62, 82, 105, 118, 179, 234
Peruzzi company, 66, 76 Port Arthur, 269
peso crisis, 389 port of Venice, 147f
Peter I (the Great, tsar of Russia), 144—45, 263 Portugal, 89, 94, 151, 152, 261, 380; agriculture,
petite bourgeoisie, 212 274; banking, 282; brief economic
Petrograd, 356. See also St. Petersburg superiority, 95; China and, 85, 100, 104, 127;
petroleum, 197, 262, 263, 324, 325, 327, 328, colonialism, 97; Committee of European
329, 390, 402 Economic Cooperation and, 365;
Peugeot, Armand, 197 decolonization, 381; emigration from, 301,
pharmaceuticals, 242, 247, 248, 327 324; European Free Trade Association and,
Phénix machine works, 231 385; exploration and discovery, 99-101;
Philip II (king of Spain), 133, 134, 135, 140 foreign investment, 303; imperialism, 139—
Philippines, 85, 138, 258, 377, 378 41, 310, 315; India and, 87; industrialization,
Phoenicia, 33, 40, 89 257-58, 259; medieval, 46, 57, 64, 72, 75;
phonograph, 205 overseas expansion, 103; population, 97, 139;
photography, 205 price revolution, 106; railways, 259; slave
phylloxera, 258 trade, 122; trade, 119-21, 123, 126-27, 139-—
Phyrgia, 36 41, 291, 293
physicians per 1,000 population, 6t, 8 postal systems, 205, 245, 287
Physiocrats, 148, 210 potash, 179-80
pictographs, 29 potatoes, 91, 105
Piedmont, 260, 261, 282—83 potato famine, 184, 292
pig iron. See iron, pig Potsdam Conference, 366, 367, 373
pig lead, 259 potter’s wheel, 25
pin factory, 179 pottery, 25, 26, 35, 70, 89, 93, 179, 180, 181
piracy, 39, 65, 122, 131 pound (currency), 67
Pisa, 59, 62, 67 pound sterling, 299, 347, 354
Pittsburgh, 191 Po valley, 46, 54, 97, 108, 114, 260
Pizarro, Francisco, 104 power loom, 178, 229
Placentia Bay, 364 power production. See energy sources
plastics, 324, 327 Prague, 281
plows, 25, 51, 52, 53, 70, 96, 107, 271 Prague spring, 392
Poland, 57, 58, 62, 75, 83, 263, 357; agriculture, President’s Council of Economic Advisers, 364
108; decline and fall of, 143; emigration price controls, 42, 128, 340, 342, 363
from, 190, 224, 301; Great Depression, 349; price revolution, 98, 105—6, 110
population, 98; post-World War I, 342, 343, prices, 296, 299-300, 341, 349
346; Provisional Government of National priests, 28, 29, 30, 48
Unity, 373; Soviet Union and, 373, 374, 390, primary sector, 14—15
391, 392; in sterling bloc, 354 primogeniture, 272
police force, creation of, 210, 291 Prince-Bishopric of Liege, 227
pollution (caste), 87 Principle of Population (Malthus), 14
Pomerania, 273 Principles of Political Economy (Ricardo), 291
Ponzi schemes, 394 printing (mechanical), 70, 82, 113, 118-19,
Popular Front, 353 204-5
population, 8, 10, 13-14; Amerindian, 104; in Privatbank, 282
ancient times, 23, 26; of China, 16, 83, 85; by private property, 30
continent, 318t; continuing growth, 398, 399, privatization, 391, 392, 393
401f, 402; economic growth and, 17; of production, 12—14; defined, 12; factors of, 8, 9—
England, 97, 167, 183-84, 185; of fifteenth 10, 16
century Europe, 96—98; of Great Britain, productivity, 12—14; agricultural, 106—13, 161,
183-84, 189, 318; of Italy, 96, 260, 261; 164—67, 190, 270—71; defined, 12; industrial,
logistics of growth, 16—18; of medieval 113-19; total factor, 12, 222
456

proletariat, 213, 357 Red Sea, 29, 33, 85, 100, 103, 104
Protestantism, 149, 153 Red Square, 372
Protestant Reformation, 141 refrigeration, 206
proto-factories, 253 refugees, 323-24, 368, 387
proto-industrialization, 160—61 regents, 151
Provence, 61, 97 regular clergy, 48
Provins, 65 Reichsbank, 280—81, 300, 346, 355
Provisional Government (Russia), 356 Reichsmark, 367
Provisional Government of National Unity Reichstag election, 346
(Poland), 373 religion, 29, 47, 86-87, 152-53. See also
Prussia, 129, 250, 296, 297; agriculture, 272, specific religions
273; Austro-Hungarian Empire and, 254; Remagen bridgehead, 361
banking, 279, 280-81; economic reform, Renaissance, 18
238-39; educational system, 216; France Renault, Louis, 197
and, 208, 280, 281; government role in, 288; rentenmark, 346
imperialism, 142—43; medieval, 58; rentier class, 353
post-World War I, 342; transportation rent (land), 50, 56, 58, 59, 74, 75, 80, 111
development, 203 reparations: for World War I, 344—46, 349, 353;
Prussian State Bank, 281 for World War II, 366, 374
puddling and rolling process, 172, 175f, 194, Reparations Commissions, 345
197—98, 229, 233, 239 Report on Manufacturers, 225
Pueblo Indians, 93 resources, 10, 11, 192—93; concerns about
Puerto Rico, 258 depletion, 398, 399, 402; foreign investment
pulley, 162 and, 301—2; twentieth century, 324—25
purges, in Soviet Union, 359, 371 Ressselaer family, 121
Puritans, 93 Restoration of 1660, 167
purple dye, 33 revolution of 1830, 217
Putin, Vladimir, 397 revolution of 1848, 217, 253, 272, 302
putting-out system, 177 Rhineland, 61, 119, 121, 238, 272, 273
pyramids, 92 Rhine River, 17, 44, 45, 121, 202, 204, 361
Rhodes, Cecil, 309
Qing (Ch’ing) dynasty, 333 Rhodesia, 309, 380
Quebec, 121, 209 Rhone River, 204
Queensland government, 314 Ricardo, David, 210, 291
quinine, 206 rice, 24, 26, 54, 79, 82, 87, 88, 89, 105, 108,
quinto real (royal fifth), 127 ars, oll, Xers 1 2IGy, oui7
Richelieu, Cardinal, 149
radar, 327 Riga, 58, 64
Radicals, 211, 353 Rig Veda, 87
radio, 205, 326 Rio de la Plata, 104
Railway Act of 1844, 288 Rivera, Miguel Primo de, 355
railways, 180—81, 199, 226, 229, 234, 239, 245, roads, 40, 42, 64, 167, 171
255, 259, 262, 263, 265, 283, 290, 296, 353; Rocket (locomotive), 181
agriculture impact on, 271, 273, 275; bank rockets, 326, 327, 330
underwriting of, 278, 279, 281; electrification Roebuck, John, 179
of, 247; foreign investment in, 302, 303, 304, rolling and slitting mills, 117
305, 306; government role in, 288-89; Roman Empire, 29, 31, 32, 36, 37—43, 44, 48,
importance to industry, 221; narrow-gauge, 49, 51, 52, 59, 70-71, 318; Arabs and, 79—
231; patterns of development, 201-3; 80; decline and fall of, 42; legal system, 39;
post-World War I, 345; tunnels for, 248, 397; population, 18, 39, 40
World War II and, 360 Romania, 57, 218, 257, 261, 262; agriculture,
Rainhill trials, 181 272; banking, 283; Great Depression, 349;
rapeseed oil, 54 post-World War I, 343; silver standard in,
rayon, 327 300; Soviet Union and, 373-74, 390, 394
real income, 8, 14 Romanov dynasty, 356
real wages: in fifteenth-century Europe, 96, 98; Roosevelt, Franklin D., 350—51, 352, 364
immigration and, 301; industrialization and, Roosevelt, Theodore, 316
186; in medieval Europe, 74—75; price Roosevelt family, 121
revolution and, 106; in Roman Empire, 40 Rothschild, James (Jacques) de, 231, 278
reapers, 190 Rothschild, Meyer Amschel, 278
Red River valley, 89 Rothschild, Nathan, 278
 457

Rothschild family, 202, 281, 282-83 Sanders, George, 228

Rotterdam, 250, 279, 360 Sao Tomé Island, 140
Rouen, 125 Saracens, 45
Royal College of Chemistry, 242 Sarawak, 378
Royal Mail, 205 Sardinia, 33, 45, 62, 133, 202, 260, 261
Royal Mint, 168, 299 Sargon the Great, 29, 31
Royal Society, 164 satellites, 327
rubber, 307, 341, 377 Satsuma Rebellion, 267
ruble, 396 Saudi Arabia, 389
Ruhr region, 191, 239, 240f, 241, 252, 288, 345, savanna, 90, 91
346, 353 Savannah (ship), 204
ruling class, 48 Savery, Thomas, 172-74
rum, 118, 132 savings banks, 277, 283
rural society, medieval, 48—49 Savoy, 260
Russia, 217, 250, 255, 293, 332, 355, 399; sawmills, 251
agriculture, 108, 190, 263, 272, 274-75; in Saxony, 58, 118, 238, 239, 279
ancient times, 26; banking, 263, 283-84; Scandinavia: emigration from, 190, 224; foreign
collapse of Soviet Union, 387, 392, 395—97; investment, 305; industrialization, 244, 248—
educational system, 215; emigration from, 52; in medieval era, 45, 49, 56; population,
224, 301; foreign investment, 303, 305; gold 97, 249; in sterling bloc, 354; trade, 293, 298;
standard in, 300-301; government role in, trade unions in, 214
287, 289; grain sale to, 273, 372; imperialism, Scania, 108, 110
143, 144—45, 313, 314, 315; industrialization, Schaaffhausen’scher Bankverein, 280
222, 244, 256, 263-65; Japan and, 269; legal Schacht, Hjalmar, 355
system, 209; medieval, 49, 53, 64, 74, 75; Scheldt River, 96
Mongols in, 83; nationalism, 218; petroleum schilling, 346
in, 325; population, 97, 189; post-World Schleswig, 250
War I, 343; post-World War II, 366; price Schmoller, Gustav von, 129
revolution, 106; railways, 203, 263, 265, 283, Schuman, Robert, 383—84
289, 305; smelting process in, 198; trade, Schuman Plan, 383-84
121, 125, 275, 297; trade unions in, 214; Schweizerische Bankgesellschaft, 279
urbanization, 191; World War I and, 342, 356; Schweizerische Bankverein, 279
World War II and, 360 Schweizerische Kreditanstalt, 279
Russian Revolution, 213, 265, 323, 332,338, Schweizerische Volksbank, 279
356-57 science, application of, 205-6
Russian Soviet Federated Socialist Republic Scotland, 46, 49, 292; agriculture, 108; banking,
(RSFSR); 357 183, 276-77; educational system, 216,
Russo-Chinese Bank, 283 223, 287, 288; emigration from, 301;
Russo-Japanese War, 265 industrialization, 161, 177, 182-83;
Ruthenia, 374 population, 185; smelting process in, 198;
rye, 52, 54, 108, 112, 296 trade, 122
screw propeller, 204
Saar valley, 239, 342 S-curve, 16
sacred cows, 11, 87 scyths, 53
Safavid dynasty, 80 seacoal, 118
saffron, 54 sea loans, 66
Sahara Desert, 90, 309 Sears Roebuck, 275
sahel, 90 secondary sector, 14, 15
Saigon, 313 secular clergy, 48
St. Bernard dogs, 64 secular trends, 295
St. Lawrence River, 93, 103 securities market, 155
St. Léonard machine works, 231 Seine River, 204
St. Petersburg, 144—45, 191, 203, 263, 265, Seljuk, 62
283, 356 Semitic languages, 30
St. Petersburg Private Commercial Bank, 283 Sepoy Rebellion, 287
Sakhalin, 269 sequins, 68
salt, 64, 91, 120, 122, 139, 140, 148, 149, 151, Serbia, 218, 257, 261, 262, 272, 283, 300, 343,
193, 194 394
saltpeter, 149 serfdom, 48—49, 50, 70, 75, 108, 144, 238, 250,
Sambre-Meuse valley, 227, 229 253—54, 263, 272, 273, 283. See also
samurai, 266 feudalism
458

service sector. See tertiary sector smuggling, 290

Seven Years War, 158 soap, 55, 70, 140, 179, 180, 184
Seville, 97, 123, 135, 138 Social Darwinism, 316
sharecropping, 108, 109, 111 Social Democratic party, 214, 337
Sharp and Roberts, 178 social institutions, 10, 11-12, 206-18, 331-38
sheepowners, 109-10, 111, 135 socialism, 214, 337, 354, 363
Sheffield, 181 Socialist party, 353
Sherman Anti-Trust Act, 243 Social Revolutionaries (SRs), 357
sherry, 258 social security, 363
shilling, 67 social structure, 14—16, 30
shipbuilding, 96, 98-99, 115, 151-52, 157, Sociedad General de Crédito Mobiliario
199, 221, 250, 341 Espanol, 282
ship design, 70, 98-99, 139 Societa Generale de Credito Mobilare Italiano,
shipowners, 66 283
shock therapy, 391 Société de la Vieille Montagne, 227, 231
Siam, 104, 307, 314. See also Thailand Société Générale de Belgique, 229, 231, 278,
Siberia, 190, 296 279
Sicily, 17, 33, 35, 39, 45, 56, 57, 62, 72, 133, Société Générale de Crédit Foncier, 278, 282
260 Société Générale de Crédit Mobilier, 278, 279,
sickles, 53, 107 280, 281, 282, 283, 284
Sidon, 33 sociétés anonymes, 209, 231
Siemens, Friedrich, 198 sociétés en commandite, 209, 278, 280
Siemens, Werner von, 197 Society of Arts, 177
Siemens, William, 198 Society of Harmonious Fists, 313
Siemens and Schuckert, 243 solar power, 402
Siemens-Martin furnace, 198, 223, 241 Solidarity, 391
Siena, 66 Solvay ammonia-soda process, 223, 231
Sierra Leone, 5 Sound Toll, 120, 250
Sikhism, 86 South Africa, 23, 190, 296, 298, 307, 309, 311,
Silesia, 142, 198, 238, 239, 241, 255, 265, 342 314, 326, 380, 389
silk, 36, 54, 62, 68, 82, 114, 138, 177, 178, 235, South America, 5, 91, 101, 103, 104, 154, 328,
246, 267-68, 311 341
silver, 36, 91, 104, 109, 117, 121, 123, 129, South Asia, 85-89
130-31, 133, 134, 139, 153, 206; bullion, South Carolina, 158
105—6, 127; coinage of, 67, 168 Southeast Asia, 24, 26, 85, 307, 333, 382
silver dollar, 275 Southeastern Europe: agriculture, 274, 275;
silver standard, 299, 300 industrialization, 257, 261—62
simple partnerships, 209 Southern Europe: foreign investment, 303;
Sinbad, 79 industrialization, 256—62; medieval, 64—65
Singapore, 4, 378, 388 South Manchurian Railway, 332
Single European Act (SEA), 397 South Sea, 103
Sirius (ship), 204 South Sea Bubble, 155, 168—69
Skandinaviska Banken, 281 South Sea Company, 168—69
slash-and-burn agriculture, 52, 87, 90, 108 sovereign (currency), 67, 299
Slater, Samuel, 225 sovereignty, 382—83, 384, 385
slavery, 13, 28, 32, 104, 140, 157, 307, 311; sovereignty declaration, 392
cotton industry and, 178; in medieval Europe, Soviet bloc: collapse of, 390—97; emergence of,
48, 49; in Roman Empire, 40-41, 42 371-77
slave trade, 59, 90, 122—23, 311 Soviet Union, 244; cold war and, 365, 382;
Slavic tribes, 57 collapse of, 387, 390-97; emergence of
slide-rest screw-cutting lathe, 180 Soviet bloc, 371—77; emigration from, 323;
slivovica, 262 government role in, 286, 335; international
Slovaks, 392 relations, 332, 333—34; Jewish emigration
Slovenia, 394 from, 324; Korean War and, 376; post-World
smallpox, 104, 184 War I, 343; post-World War II, 362, 366-67;
Smeaton, John, 180 rise of, 356-59; space exploration, 331; Third
smelting. See iron, smelting of World and, 382; trade unions in, 337—38;
Smith, Adam, 17, 25, 128-29, 131, 157, 179, World War I and, 342; World War II and, 371
193, 210-11, 290, 291 space technology, 326, 327, 330-31
Smith, Ian, 380 Spain, 77, 154, 244; agriculture, 109-10, 133,
Smoot-Hawley Tariff, 344 258, 272, 274; in ancient times, 32, 33, 40;
 459

banking, 259, 282; Belgium and, 227; brief Steelyard district, 64

economic superiority, 95; colonialism, 97, Stephenson, George, 181
104-5, 121, 127, 134, 138-39, 258; decline sterling bloc, 354
of, 133; economic nationalism, 130-31; Stockholm, 145
educational system, 215; emigration Stockholms Enskilda Bank, 281
from, 301, 324; era of high growth, 368; Stockholms Handelsbank, 281
exploration and conquest, 92, 101, 103; stocking frame, 113-14
expulsion of Jews, 82, 109, 136-37; stock market crash of 1929, 348—49
foreign investment, 303; France and, 208; Stockton and Darlington Railway, 181, 201
government role in, 287; imperialism, 132— Stolypin Reform, 265, 272
39, 309, 315; industrialization, 257—59; Italy Stop of the Exchequer, 154
and, 145; medieval, 45, 46, 49, 54, 57, 68, 74, Straits of Gibralter, 64
75; Netherlands and, 96, 114, 115, 133, 151, Strategic Bombing Survey of Germany, 360
152, 153; overseas expansion, 103, 104—5; streetcars, 197
population, 97, 98; Portugal and, 140; Stropshire, 181
post-World War II, 365; pre-World War II Stuart dynasty, 154
politics, 354, 355-56; price revolution, 105, subinfeudation, 45
110; railways, 202—3; silver standard in, 300; submarine warfare, 340, 341, 361
South Sea Company and, 168; technological Sudan, 310, 379
development, 117; trade, 120, 121, 123, 124, Suez, 303
127 Suez Canal, 204, 309-10, 316, 378
Spanish-American War, 258 Suez Canal Company, 287
Spanish Company, 124 suffrage, 213
Spencer, Herbert, 316 sugar, 54, 79, 104, 105, 118, 122, 132, 140, 157,
Spice Islands. See Moluccas 234, 250, 255, 263, 267, 275, 291, 297, 341,
spice trade, 62, 88, 89, 94, 95, 100, 103, 104, BWHL
105, 119, 120, 123, 126-27, 132, 139, 140 sulfur, 193
spinning, 25, 68, 194, 223, 246, 247, 268 sulfuric acid, 179, 206, 241
spinning jenny, 177, 178 Sully, Duke de, 149
spinning machines, 177—78, 228-29, 232 Sumatra, 104
spinning mill, 177 Sumer, 28-29, 30-31, 33, 44
spinning wheel, 68 Sumerian language, 30
spin off, 25 sumptuary laws, 131
Sri Lanka, 85, 333, 377. See also Ceylon Sun Yat-sen, 313
Staatsbildung (state-making), 129 superstructure, 12
Staatswissenschaft (sciences of the state), 142 supply and demand, 15-16
Staffordshire, 179, 181 supranational organizations, 383
stagflation, 390 Supreme Court, U.S., 352
Stalhof, 64 Surinam, 121
Stalin, Joseph, 357, 358, 359, 371-72, 373, 374 surplus capital, 315
stamping mills, 117 Svenska Handelsbank, 281
Stanley, H. M., 310 Sverges Riksbank, 281
State Bank (Russia), 283 Swan, Joseph, 197
Statute of Artificers, 155-56 Swansea, 182
steamboats, 195, 203—4, 255 Sweden, 144; agriculture, 108, 190, 272, 273-
steam engines, 163, 172, 174-77, 179, 180, 74; banking, 281, 282; Committee of
194, 226-27, 228, 229, 232, 234; compound, European Economic Cooperation and, 365;
195, 204; developments in, 195—96; educational system, 215—16; European
stationary, 181, 195, 244 Economic Area and, 398; foreign investment,
steam locomotive, 64, 180—81, 195, 199, 200f, 305; government role in, 289; Great
203, 244, 326 Depression, 355; imperialism, 145;
steam power, 172—77, 178, 179, 191, 327 industrialization, 249, 250—52:; life
steam pump, 172-74, 228 expectancy in, 317; medieval, 49, 54;
steamships, 201, 203—4, 221, 244, 250, 290 railways, 273, 289; resources, 192; smelting
steam threshers, 271 process in, 198; technological development,
steam turbine, 196 117, 118; transportation development,
steel, 206, 222, 226, 232, 234, 236-37, 238, 203
239, 241, 252, 255, 259, 263, 265, 268, 353, Swedish-Polish war, 143
383-84, 391; development of cheap, 197—99; Swiss Bank Corporation, 279
European Coal and Steel Community and, Swiss Confederation, 208
384 Swiss Institute of Technology, 246
460

Switzerland, 54, 95, 110, 249, 283, 398; temple cities, 29, 30
agriculture, 109, 273; banking, 279; tenant farmers, 48, 111, 167, 272
Committee of European Economic Tenochtitlan, 92
Cooperation and, 365; European Free Trade Ternaux, Louis, 228
Association and, 385; foreign investment, tertiary sector, 14, 15
303; gold standard in, 354; immigration to, Teutonic Knights, 58
324; industrialization, 244, 245-48, 257; textiles, 98, 122, 135, 136, 151; in ancient times,
railways, 202—3, 245, 247, 248; resources, 25: industrialization and, 163, 177-79, 220,
192: silver standard in, 300; technological 2912991223 .0234,.046. 2472584 25990203;,
development, 114; trade, 293, 298; trade 267; in medieval Europe, 54, 68, 69;
unions in, 214; World War I and, 341 technological advances and, 114—15, 194,
swivel-loom, 114 195
synthetics, 324, 327 Thailand, 89, 314, 388. See also Siam
Syria, 23, 31, 59, 62, 65, 386 Thames River, 167
thermal energy, 328
Taiping Rebellion, 311 thermodynamics, first law of, 195
Taiwan, 269, 382, 388, 395 Third World countries, 317, 319, 328, 334, 352,
Taj Mahal, 87, 88f 381-82, 399. See also underdeveloped
Tamerlane, 80 countries
tanning, 70 thirty-eighth parallel, 376
Tanzania, 5 Thirty Years War, 94, 98, 142
Taoism, 82 Thomas, Sidney G., 198, 222, 223, 241
tariffs, 131, 286, 290; Austro-Hungarian Empire Thomas-Gilchrist basic process. See basic
and, 254; Benelux Customs Union and, 383; process
China and, 311; European Coal and Steel three-course crop rotation, 50—52, 53, 55
Community and, 384; European Economic three-field system, 96, 108
Community and, 384; European Free Trade threshers, 190, 271
Association and, 385; France and, 148, 149, Tiananmen Square uprising, 394—95
150, 207, 235, 292—93; General Agreement Tibet, 86
on Tariffs and Trade and, 364; Germany and, Tierra del Fuego, 23, 91, 93
243, 297; Great Britain and, 223, 291-92; Tigris River, 17, 23, 28, 29, 77
Great Depression and, 349, 350; Italy and, tilt hammers, 117
261; Japan and, 266, 268; Meline, 297; timber, 115, 118, 120, 122, 151-52, 161, 169,
Netherlands and, 153; Portugal and, 142; 180, 198, 201, 249, 251, 273-74, 306, 402
post-World War I, 343—44; Prussia and, 239; tin, 33, 117-18, 133, 174, 177, 181, 193, 194,
Russia and, 265; Spain and, 136, 258; 206, 222, 307, 378
Sweden and, 145; United States and, 211, Tindemans, Leo, 397
351; World War I and, 341 tinkers, 70
taxation, 335; in England, 169; in France, 146, Titanic (ship), 205
148, 208, 353; in Germany, 393; in Great tithes, 5O
Britain, 154; in medieval Europe, 44, 45, 50, Tito, Marshall, 373
74; Muslims and, 79; in Ottoman Empire, 80; tobacco, 105, 118, 122, 132, 140, 157, 158, 250,
in Portugal, 141; in Roman Empire, 41—42; DIS 292298
in Russia, 145; in Spain, 133-34, 258; in Tokugawa shogunate, 85, 265, 266
Sweden, 145 Tokyo Bay, 266
tax farmers, 148 tolls, 64, 148
tea, 105, 179, 222, 268, 292, 311 Toltecs, 92
technical economies of scale, 243 Tonkin, 313
technische Hochschulen, 370 tools, 20, 21f, 23, 89, 91, 93
technology, 10—I1, 15, 18, 232. See also Tory party, 211, 291, 292
industrialization; of Africa, 90; agricultural, total factor productivity, 12, 222
106—13, 328; in ancient times, 23, 31; of Touré, Sekou, 380
China, 79, 82—83, 85; development and tourism, 248
diffusion of, 193-206; industrial, 113-19, Toynbee, Arnold J., 373
172-81; of Japan, 388; in medieval Europe, trade and commerce. See also free trade; tariffs:
68-72; productivity of capital and, 13; in in Africa, 90—91; in ancient times, 26, 28,
Roman Empire, 42—43; twentieth century, 29; in Austro-Hungarian Empire, 254, 297;
325-31; in World War II, 360 balance of, 129, 223, 268, 348, 365, 368,
telegraph, 196, 197, 205, 234, 287, 326 389; bilateral treaties, 344; Bretton Woods
telephone, 205, 287, 326-27 conference and, 364; in China, 83, 85, 127;
television, 326 continuing growth in, 399, 401f, 402;
 461

economic nationalism and, 131; in Europe, turbines, 196, 232, 237, 247
119-27; fair, 364; in France, 121, 124, 235, Turgot, Jacques, 148
292-94, 297, 298; in Great Britain, 156—57, Turkestan, 62
290—94, 297, 298, 344, 351; Great Turkey, 310, 324, 365
Depression and, 295—99, 349, 351, 353; turkeys, 105
increased volume of, 105; in Italy, 119-20, Turkish language, 77
122, 260, 293, 297; in Japan, 127, 265—66; in Turks, 73, 80—82, 83, 133, 146, 272. See also
Latin America, 298, 389; in medieval Europe, Ottoman Empire
59, 61—68, 76; in Mediterranean world, 32— turnips, 53, 112, 165
36; most-favored-nation status, 293, 364; turnpikes, 169, 171-72, 226, 271
multilateral, 368, 374; in Nazi Germany, 355; Tuscany, 59, 68
in Netherlands, 120, 121, 125, 130, 151, Twentieth Party Congress, 371
153-54, 297—98; non-tariff barriers, 387; two-course crop rotation, S0O—52
percentage distribution, 332; in Portugal, two-field system, 108
119-21, 123, 126-27, 139-41, 291, 293; Tyne River, 118, 180
post-World War I, 343-44; in pre-Columbia Tyneside, 181, 185
America, 91—92; protectionist, 254, 290, typewriter, 205
291-92, 295-99, 344: in Roman Empire, 39, typhus, 104
41; in Russia, 121, 125, 275, 297; slave, 59, divress3
90, 122-23, 311; in Soviet Union, 374; in Tyrol, 121, 123, 343
Sweden, 273-74; World War I and, 340—41
trade associations, 352 Ukraine, 263, 265, 296, 357
Trades Union Congress, 215 underdeveloped countries, 4—8, 327, 328. See
trade unions, 213—15, 337—38, 347, 355, 359 also Third World countries
Transcaucasia, 357 unemployment, 186, 346—47, 349, 352, 355,
transhumance, 109-10 390, 393
transition economies, 391, 393, 399 unemployment compensation, 335, 336
transportation, 169-72, 190, 195, 199-205, unequal treaties, 266
254—55. See also specific forms; expansion Unilever, 222
of, 226; mass, 197; nationalization of, 363; Union of Socialist Soviet Republics (USSR).
technology for, 326 See Soviet Union
Trans-Siberian Railway, 263 Union of Utrecht, 151
Transvaal, 308, 309 United Kingdom. See Great Britain
Transylvania, 374 United Nations, 334, 362, 363, 364, 374, 376,
Treaties of Rome, 384, 385 378, 380, 381, 382, 383
Treaty of Brest-Litovsk, 356 United Nations Relief and Rehabilitation
Treaty of Nanking, 311 Administration (UNRRA), 362-63
Treaty of Riga, 357 United States, 3, 8, 187, 243, 259, 329;
Treaty of Tordesillas, 101, 103 agriculture, 224—25, 275-76, 328: Alliance
Treaty of Union, 183 for Progress and, 371; banking, 267, 284-85;
Treaty of Versailles, 334, 342, 343, 356 Bretton Woods conference and, 364; China
Trentino, 343 and, 395; decolonization and, 377;
Trent River, 185 devaluation of dollar, 354; economic policy,
Trevithick, Richard, 180—81, 195 211; educational system, 215, 216, 217,
trial-and-error method, 164, 165, 174 288; era of high growth, 368, 370; foreign
Trieste, 343 investment, 302, 304—5; forms of enterprise
Tripartite Monetary Agreement, 354 in, 336—37; gold standard in, 300;
Tripoli, 310 government role in, 286, 287, 289, 335, 336;
Trojan War, 35 grain sale to Russia, 273; Great Depression,
Trotsky, Leon, 358 296, 349-52; immigration to, 184, 190,
Troy, 35 224, 261, 262, 275, 301, 321-23, 351;
Troyes, 65 imperialism, 311, 313, 314, 315;
Truman, Harry S., 365 industrialization, 219, 220—21, 222, 224-27,
trust busting, 352 232, 263; international relations, 331, 332,
tsetse fly, 90 333, 334; Japan and, 266, 267, 268; Korean
Tudjman, President, 394 War and, 376; legal system, 209; life
Tudor dynasty, 95 expectancy in, 317; Mexican border patrolled
tulip mania, 112 by, 387; natural gas imports to, 379; oil
tungsten, 206 production in, 389; Organization for
Tunis, 311 Economic Cooperation and Development
Tunisia, 309, 379, 386 and, 368; Organization for European
462

United States (continued) Visby, 64

Economic Cooperation and, 383; per capita Visigothic kingdom, 45
income, 4; petroleum in, 325; Philippines Volta, Alessandro, 196
and, 378; population, 11, 224; post-World Vorarlberg, 254
War I, 344-45, 346, 347, 348; post-World
War II, 362—63, 364, 365-66, 367, 368; wage controls, 42, 75, 128
railways, 201, 202, 203, 226, 275, 289, 296, wages. See real wages
304; smelting process in, 198; Soviet Union Wales, 49, 180; agriculture, 108; banking, 276;
and, 365, 372, 382; space exploration, 331; emigration from, 301; industrialization, 177,
stock market crash, 348—49; technology 182, 183, 221; population, 97, 183—84, 185;
development, 195, 196, 326, 330; Third smelting process in, 198; urbanization, 191
World and, 382; trade, 297, 298, 351; trade Walesa, Lech, 391
unions in, 214—15, 337; transportation Wallonia, 117
development, 199-201; Vietnam War and, war chests, 130
377. World War I and, 340, 341, 342; World War Communism, 357
War II and, 360, 361 war guilt clause, 343
Universal Postal Union, 334 War of the Austrian Succession, 142—43
universities, 183, 216, 217, 223, 239, 288, 370 War of the Spanish Succession, 150, 168
University of London, 288 warriors, 28, 30, 31, 45
unseeables, 87 Warsaw, Grand Duchy of, 208
untouchables, 87 Warsaw Pact, 374
upstream industrialization, 251 warships, 39
Ur, 28 Wars of the Roses, 95
Urak, 28 watchmaking, 113, 246, 247-48
Ural, 145, 263 water buffalo, 26, 49
Urban II, Pope, 58 water clocks, 72
urbanization, 319—20, 323t; in ancient times, water frame, 177—78
27-28; in China, 82; in fifteenth-century Waterloo, 212
Europe, 97—98; in France, 235; watermelon, 79
industrialization and, 185—86; in medieval watermills, 114, 172, 249
Europe, 56, 59-61; in nineteenth century, water power, 68, 70, 117, 162, 177—78, 192,
190-91 196, 226-27, 237, 246, 247, 249, 324, 325,
Uruguay, 306, 381 402
usury, 79 waterwheels, 70—72, 162, 174, 180, 195-96,
Usury Laws, 210 247
Utilitarians, 210, 211 Watt, James, 163, 175-77, 179, 180, 194, 195,
228
vaccination, 184 weapons, 20, 26, 53, 69, 93
Valencia, 97, 109, 133, 138 weaving, 25, 68, 177, 178, 194, 223, 229, 246,
varnas, 87 268
vassals, 45, 47, 48, 60 weaving frame, 68
Venezia, 114 Wedgwood, Josiah, 179
Venezuela, 389 weights and measures standardization, 28, 145,
Venice, 59, 61, 62, 64, 65, 66, 68, 71, 76, 95, 245
119-20, 140, 145-46, 147f, 260 welfare states, 335, 370
Vera Cruz, 139 West Berlin, 366, 367, 393
vera societa, 66 Western Europe, 8, 77; agriculture, 190; in
Verona, 64 ancient times, 24; era of high growth, 368,
Verrazano, Giovanni da, 98, 103 370; foreign investment, 303; gold standard
Verviers, 227, 228, 229 in, 353; medieval, 49, 54—55, 67, 74, 75; per
Vespasian, Emperor, 71 capita income, 4; trade unions in, 337
Vespucci, Amerigo, 98 West Germany, 324, 366, 367, 368, 370, 383-
vetches, 53 84, 392-393
Vienna, 65, 80, 255, 281, 296 West Indies, 101, 104, 121, 123, 132, 150, 157,
Vienna Congress, 382 275, 296
Vietnam, 87, 89, 333, 378 Westminster, 167
Vietnam War, 376-77 Westphalia, 58
Vijayanagar, 87 West Point, U.S. Military Academy at, 217
Vikings, 45 West Riding of Yorkshire, 181, 185
Virginia, 121, 132, 158 wheat, 24, 39, 52, 82, 87, 90, 104, 109, 110, 112,
virgin lands project, 372 139, 262, 271, 274, 291, 296, 306, 307, 341
 Index 463

wheel, 25, 162 peace, 342—48; European reorganization

wheeled plows, 51, 52, 53, 96 following, 320; foreign investment and, 303,
wheeled transport, 79 305; impact on immigration, 321; impact on
Whigs, 211, 291, 292 international relations, 332; reparations for,
White armies, 357 344—46, 349, 353; unemployed veterans of,
White Russia, 357 352
White Sea, 121 World War II, 16, 297, 317, 324, 327, 329, 352,
Whitney, Eli, 178, 225, 226 355, 371, 375, 382, 383, 387; aftermath of,
Wilkinson, John, 175-77, 180 362—63; economic aspects of, 359; economic
Willem I (king of Belgium), 229 assistance following, 364—68; government
William III (king of England), 154 role following, 335; government spending on,
William the Conqueror, 57, 71 336; impact on immigration, 321-23; impact
Willoughby-Chancellor expedition, 121, 124 on imperialism, 377; impact on international
Wilson, Woodrow, 334, 345 relations, 333; planning for postwar economy,
windmills, 71-72, 114, 115, 162, 172 363-64; reparations for, 366, 374;
wind power, 192, 324 technology and, 330-31
wine, 35, 54, 64, 120, 122, 127, 139, 151, 235, Worsley, 160
258, 262, 273, 274, 291, 292, 293 worsted cloth, 115, 177
Winter Palace, 356 Wright brothers, 329
wire-drawing machines, 117 writing systems, 28—29, 33, 92
Wirtschaftswunder, 367 wrought iron. See iron, wrought
Witte, Count, 301 Wiirtemberg, 97, 273
woad, 54, 112
wood, as energy source, 118, 324 Yalta conference, 372
wood pulp, 251, 274 Yangtse River, 83
woodworking, 70 Yaoundé Convention, 380, 386
wool, 35, 120, 123, 124, 136, 146, 151, 155, Yellow River, 17, 82, 83
156, 165, 227, 271, 292, 306, 307; calicoes Yeltsin, Boris, 387, 395, 396, 397
vs., 159; industrialization and, 177, 178-79, Yorkshire, 181, 185
181, 234, 246, 253; in medieval economy, Young Plan, 349
49, 62, 64, 68, 75; merino, 109, 133; Yuan dynasty, 83
technological advances and, 114, 115, 194 Yucatan, 92
Woolwich Arsenal, 161 Yugoslavia, 324, 343, 373, 374, 392, 394
working class, 212—13, 353
World Bank, 338, 364, 382 Zaire, 90, 381. See also Belgian Congo
World Health Organization, 363 Zambezi River, 90
World Monetary Conference, 349-51 Zambia, 380
World Trade Organization (WTO), 338, 364, Zealand, 56, 72, 151, 152
395 Zemstvo and Urban Bank, 283
World War I, 218, 220, 224, 226, 235, 238, 239, Zhou Enlai, 375
243, 247, 252, 255, 262, 265, 268, 274, 277, Zimbabwe, 380. See also Rhodesia
283, 287, 288, 289, 296, 297, 298, 311, 335-— zinc, 117, 206, 227
36, 355, 356, 359, 360, 361, 382; aircraft in, Zionism, 324
329; economic consequences of, 339-42, Zollverein, 218, 238, 239, 245, 254, 293, 296,
351, 353, 370; economic consequences of 367, 385
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AN A
 PRAISE FOR PREVIOUS EDITIONS

“I have long been an admirer of Professor Cameron’s published scholarship. The

topics he addresses are important and he writes with remarkable clarity and grace.
The level of presentation is perfect for an undergraduate audience.’
—Michael Moohr, Bucknell University

“I am now even happier that I have consistently assigned (this book) in my classes.
Cameron’s interpretations of events always seem to me both sensible and consistent.”
—Richard N. Langlois, University of Connecticut

“A tour de force. ... Manages to pack an astonishing wealth of detail on many topics,
from the manorial system to the recovery and integration of Western Europe after
World War II. ... Learned, lucid, readable, and appositely illustrated.”
—Journal of Economic Literature

a his classic book offers a broad sweep of economic history from prehistoric times
to the present and explores the disparity of wealth among nations. Now in its
fourth edition, A Concise Economic History of the World has been updated to reflect
the stunning changes in the world economy since 1989. Truly a definitive history of
globalization, the new edition has been expanded to include coverage of the most recent
elaava (oyeyestanies in the European Union, East Asia, and, in general, transition economies.
Comprehensive and global in scope, this concise text features ample illustrations and
a fully updated annotated bibliography that guides readers to the relevant scholarly
literature. Now available in eleven languages, including Spanish (second edition),
French, German (two volumes), Polish, and Chinese, this unique work remains an
invaluable, lively, and accessible text for both undergraduate and graduate students
of European economic history, the history of globalization, and world development.

ABOUT THE AUTHORS

The late Rondo Cameron was the William Rand Kenan Professor of Economics and
History at Emory University. He was the 1991 recipient of the Editor’s Award for
Exceptional Books for the first edition of A Concise Economic History of the World.
He is the author or coauthor of several books, including The European World (1970)
and Civilizations: Western and World (1975), and the coeditor of International

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