Britannia Rules The Waves

Lecture 1

Whence the idea of 'development'?

• • The concept of development is critically linked to structural differences arising in a given historical framework and leading to the 'idea' of superiority.

• • Development is, essentially, an ideological construct. This statement does not imply that it is either a-theoretical or eschewing analysis.

• • It is advisable to place even the most abstract theory in an appropriate historical mold.

• • Akin to the notion of 'development' are the related ones of 'backwardness' and 'forwardness'.

The great divergence• • According to well documented historical evidence, the world prior to

roughly the mid-XVIII century did not exhibit extraordinary differences.

• • This statement is to be understood in terms of relevant quantities. Cultural differences were there but they did not translate into major gaps in GDP per head, average standard of living.

• • Some indicators bear out this proposition; namely, market development, consumption per head or even more complex ones such as the population growth rate, shortages of land-intensive products.

• • Main reference: David Pomeranz (2000): 'The great divergence'. Princeton, Princeton University Press.

An interesting argument(by Brad DeLong (http://www.j-bradford-delong.net/)

commenting Pomeranz (2000).)• • The fifteenth-century Portuguese Infante Dom Henrique sat

in his castle at Sagres and sent his ships in small squadrons groping for perhaps a thousand miles south along the coast of Africa. The fifteenth-century Chinese notable Cheng Ho--in modern transliteration Zheng He, the eunuch admiral who was a trusted lieutenant of the Yung-lo Emperor--took 30,000 men and seventy ships on eight voyages to the Indian Ocean, reaching as far as Zanzibar and projecting power on a very large scale.

• • The Ottoman Emperor Mehmet II deployed the largest and strongest pieces of artillery in the world--specially made for the occasion--for his conquest of Constantinople in 1453.

Zheng He Voyages

Vasco da Gama Voyages

Vasco da Gama’s voyage

continued

• • We think that the populations of China and India grew more rapidly than the population of Europe from 1500-1850: this suggests--at least if we believe in Malthus--somewhat more prosperous societies with more rapidly growing economies in the Eurasian "east."

• • Basically, it was the discovery of America and the availability of key natural resources that explain the split at about the mid-XVIII century.

Note the counterfactual argument:

• 1. - At the core of Pomeranz’ book is a grand counterfactual. Suppose that you removed the Americas from the surface of the globe: Columbus sails west in 1492 and dies of thirst in a mammoth world ocean. And suppose that you erased the coal deposits from the island of Britain and from the Rhine valley. What would post-1500 world history have looked like then?

continued• 2. Pomeranz’ answer is that the most likely trajectory would

have seen economic life in northwest Europe evolve the way that economic life in Gujarat or the Yangzi delta evolved between 1500 and 1800: a flourishing commercially-revolutionized society bumps up against ecological limits as deforestation, declining marginal products of labor, the rising ability of peripheral regions to make their own manufactures, and so forth reduce the returns to innovation and commerce and increase the rewards of landlord or priestly surplus extraction. Thus growth stops. And what growth there is follows a labor-intensive, resource-economizing logic that--as it did in the nineteenth century Yangzi delta--boosts elite consumption but not mass standards of living, and leaves no space for an industrial revolution.

Consider other points of view..• 1. David Landes (1998): 'The wealth and poverty of nations.

Why are some so rich and others so poor.' New York. Norton.• 2. Technology, technology and yet more technology!!!

Basically an European achievement in terms of applications to industry and economic endeavor.

• 3. Here is a quote from DeLong:... Thus Landes wages intellectual thermonuclear war on all who deny his central premise: that the history of the wealth and poverty of nations over the past millennium is the history of the creation in Europe and diffusion of our technologies of industrial production and sociological organization, and of the attempts of people elsewhere in the world to play hands largely dealt to them by the technological and geographical expansions originating in Europe.

• 4. It is indeed difficult to deny this proposition.

But how did Europe manage to undergo a technological revolution????

• 1. It wasn't just a technological revolution but a historical process that took a long time.

• 2. The evidence brought forth by Pomeranz is compelling but it overlooks a crucial fundamental argument.

• 3. It is possible to hold, by economising on concepts, on numerology and extensive anecdotal evidence but by resorting to simple logical yet theoretical arguments that some early even random events may have led to successful trajectories. A crucial assumption supported by clear evidence is the increasing returns assumption.

• 4. Hence, random success stories in the so called West and random failures in the East (or South).

Trade and Production• 1. Until well into the age of the Renaissance, the vast

majority of the population lived off the output of their own plots of land. 'Own' does not imply 'property' but availability. A world of aristocrats, landlords and peasants.

• 2. Yet trade had an extraordinary role to play. Paradoxically, trade even in ancient times was international, long-distance and dealt with in luxury goods.

• 3. The major trade routes known in antiquity: The Silk Road, The Spice Route.

The silk road

The spice route

Trade as a spur to early forms of industrial enterprise

• • Textiles and metal working in Italy, possibly the first factory system in the western world, since the early XIII century.

• • Venice and its arsenal, the most advanced production plant in the Middle Ages.

• • Industry spreads to Flanders, France and England

• • Venice and the Mediterranean as a large commercial clearing house between East and West.

Venice Arsenal

Trade and Industry as a spur to financial development

• • From physical money to trust money.

• • The rise of the great Italian money lenders and financial houses: Siena, Florence, Lucca, Milan.

• • Flemish and German bankers.

• • The rise of Dutch supremacy: long distance trade, financial and commodity markets, banks.

• • Money and banking as a truly international phenomenon.

Quentin Massys’ Money lenders

The international dimension of money: Jan Van Eyck

The rise of a sea power

• Elizabethan mercantilism: early protection• Increasing sea-trade, port cities and urban

markets• The new industries: - ship-building - sails and navigational implements - clock-making and precision instruments - machine tools

The triangular trade

• From Europe to Africa• From Africa to the Overseas colonies: the West

Indies and the American eastern seaboard.• From the colonies back to Europe.• The slave trade: was it important?• Most sea-faring European states took part:

Spain, Portugal, Great Britain, France, Holland, Denmark..

• Even more quantitatively important: the Eastern slave driving.

The triangular trade

The break-through

• Cromwell and the English civil war, in fact a revolution.

• The state intervenes: the Navigational Acts.• Land reform and the agricultural revolution.• The commercial revolution• Courts, custom-houses and tax collectors• Off to the colonies: losing one but gaining the

crown’s diamond: India and the East India Company.

The first industrial state

• International markets and domestic markets.• Raw materials and the new industries• From textiles to capital goods industries• The transportation revolution: railways and

the steam power• The age of machinery. • Land shortages

A development theory as a conflicting, evolutionary process: Braudel, Wallerstein, Arrighi

• • 1300-1450: The Italian one-hundred year war

• • 1450-1560: Genoa and Spain

• • 1560-1650: El Siglo de Oro: the age of Charles V and Philip II.

• • 1650-1720: The United Provinces and their world trade.

• • 1720-1780: Dutch financial success and decline.

Towards the modern world

• • 1780-1880: The first Industrial Revolution and Great Britain as the first true World Power

• • 1880-1915: British (relative) industrial decline.

• • 1915-1970: The US hegemony

• • 1970-2000....Financial supremacy and... final demise??

Theory and Power

• 1. The great productivity increase and the age of machinery

• 2. Production as the source of wealth and the key to explain prices

• 3. The theories of production and distribution: wages, profits and rents.

• 4. Why should the state meddle? Free trade and comparative advantage

• 5. The underlying necessity: trade as a way to lessen the burden of rents.

Now that I am developed let us trade freely

• Free trade as the overriding ideology.• Every state (economy) has some comparative

advantage: you sell me your wheat and I sell you my machines.

• The exchange process as the fundamental explanation of prices and distribution.

• Away from labour and on to utility.