Memo Question for February 27: Colonialism

"The treasure captured outside Europe by undisguised looting, enslavement and murder, floated back to the mother-country and were there turned into capital." -- Marx, Capital, Vol. 1 Ch. 32.

Do the other assigned readings provide any basis for assessing the general truth of this passage from Marx? In what sense did colonial trade in the 1497-1800 period contribute to capital formation in Europe?

Comments

[Alexandre Poirier]

It is hard to assess clearly the general truth of that quote from Marx's Capital using the other readings alone. The readings by De Vries, and O' Rourke and Williamson try to explain the causes of the trade "boom" that started after a series of discoveries by European states. On the other hand, these readings do not tell us much about capital accumulation in Europe. But, one can infer that the profits from trade could be invested in capital. The main beneficiaries from the trade were merchants who were conducting the trade, and rich citizens who could afford the luxury goods that came from Asia. Later on, when the Europeans started importing non-luxury goods, working-class citizens also benefited from increased consumer choice and lower prices. Nevertheless, the main share of profits went to traders and large trading companies, such as the VOC. One can imagine that these profits contributed to the accumulation of capital by these traders. One could guess that these additional profits triggered the capital accumulation which started the Industrial Revolution, but this point seems a bit exaggerated.

De Vries's article mitigates the last point made, by suggesting that the profits from trade were not as high as we would expect. He argues that the transport costs did not decrease much over time, so that the profits did not increase dramatically over time. The efficiency in shipping remained more or less constant, since there was a minimum number of people you needed on the ship during the voyage. This same point is made by O' Rourke and Williamson. Transport of goods from Asia was a risky and costly enterprise: the voyage was very long, and sailing by the Cape of Good Hope was very dangerous. A substantial fraction of the ships sent there never came back. Of course, he mentions that some of these ships stayed in Asia to engage in intra-Asian trade, which was much more profitable. De Vries mentions the VOC settling in Batavia to engage in this trade. Maybe this way of trading; using colonization to exert market power, was the way in which profits were the highest, and that contributed the most to the accumulation of capital.

The O' Rourke and Williamson reading did not assess capital formation directly. Instead, they tried to decompose the causes of the trading boom into three factors: market integration, increase of demand and increase of supply. They found that market integration had a small impact on the trading boom, but that the increase in European demand in the 18th century had a large impact. That increase in demand was due to the importation of goods for working-class citizens and goods to be used in manufactures: intermediate goods. These intermediate goods may have had a large effect on these newly built factories, by increasing the optimal level of investment, leading to an increase in capital.

[Edson R Severnini]

Although it is conventional to say that the intercontinental trades developed between Europe and Asia during 1500-1800 was crucial for the “primitive accumulation” and, consequently, for the formation of the stocks of capital that supported the Industrial Revolution, the assigned readings provide evidence against it: they indicates that actually “undisguised looting, enslavement and murder”, as said by Marx, were the activities that more contributed to the capital formation in the preindustrial Europe.

First of all, the O'Rourke and Williamson (2002)'s argument of Asia-Europe trade boom of 1500-1800 does not seem confirmed by the evidence. De Vries (2007) compares some indicators of the Asian-European trade with the Atlantic trade and shows that, while highly volatile, the latter grew at least twice the long-term rate of the former, and, as a result, by the late eighteenth century the volume of American exports to Europe was a large multiple of the volume of Asian exports.

Besides the boom trade, the argument of the market power of the trade companies does not seem valid for the whole 1500-1800 period as well, and, consequently, the profitability of such organizations seems quite limited over that interregnum of time. That is true that the mark-ups in the price of some tradable goods were high in some periods, but they seem to be temporary and in some situations quite short, like in the “first mover” advantage situation. Indeed, de Vries (2007) presents evidence that the long term trend for the gross margins of the Dutch and English East India Companies, for example, was of deterioration. Until the 1660s, he says, the VOC’s gross margins were always well above 3:1, but declined to a level below 2.5:1 after 1720, and after 1660 similar situation occurred with the English company. Furthermore, the cost of transaction appeared to be quite rigid during the 1500-1800 period. The per-ton transportation cost, for example, had only a small reduction over this period. As a consequence of the long-term pressure on the gross margins and this inertia of the transaction costs, the profitability of the trade enterprises deteriorated.

Facing such a deterioration in their profitability over the period of 1500-1800, the trade companies engaged in two kinds of strategies: profitable intra-Asian trade or/and seeking for political revenue. The first, engaged by the VOC in the first 60-70 years of its operation, consisted of sending ships, personnel and capital, and establishing trading factories in order to achieve profits that could then be repatriated. The second was to assume direct control over Asian territory and levy taxes to supplement commercial revenues. Since most of the companies preferred focus on the second way of making profits, the expropriation emerged as a huge force of “primitive accumulation” and became the main force behind the formation of capital in the Europe preindustrial.

[K. Powers]

In Jan de Vries’ Limits of Globalization in the Early Modern World, which focuses almost entirely on Europe-Asia trade, the author does not provide much evidence for Marx’s assertion that imports to Europe from Asia were turned into capital—at least directly. De Vries briefly considers a passage from Capital mentioning “the great revolution in commerce in the sixteenth and seventeenth centuries … which stimulated the development of commercial capital,” and subsequently describes a modified version of Marx’s view in which intercontinental trade in the same period “concentrated capital in the hands of urban merchants” (3). However, these mentions of imported capital are only intermediate steps for another argument in de Vries’ paper regarding the effect of institutional changes on economic growth. According to Kevin O’Rourke and Jeffrey Williamson in After Columbus: Explaining the Global Trade Boom 1500-1800, the imports flowing to Europe from Asia were mostly noncompeting luxury goods enjoyed only by the upper classes (O’Rourke and Williamson 6). According to Limits and After Columbus, the Asian goods imported to Europe include spices, pepper, Bengali cotton textiles, porcelain, silk, tea, coffee, silk, gold, perfumes, drugs, dyes, and saltpeter; the New World exports to Europe mentioned include sugar and tobacco (de Vries 9-12; O’Rourke and Williamson 5-6). Regardless of which class in Europe received the imported goods, few of the above would be considered by Marx to be capital in the physical sense.

On the other hand, if Marx meant “treasure” to be profits gained from trade that were then turned into capital in Europe—a process he mentions in Capital—the articles are more supportive of his general assertions (26:1). Indeed, although the VOC’s gross margin of its overall portfolio declined from 3:1 before the 1660s to less than 2.5:1 after 1720, the company operated successfully for decades (de Vries 13). Though there was, at the most, a small reduction in transportation costs per ton before the 19th century, British, French, and Dutch imports from Asia totaled 11.5 percent of the countries’ aggregate imports in the 1770s (de Vries 15, 19). However, due to the negative effects of monopolistic behavior, international wars, tariffs, and other barriers to trade on profits in the early modern era, a company’s exports from Asia to Europe were sometimes necessarily subsidized by its intra-Asian trading operations and the collection of taxes and tolls where the company directly controlled a territory (de Vries 16-17; O’Rourke and Williamson 8). Thus, though prices, demand for and supply of particular goods, and international relations may not have been stable in the period, enough profit existed for several nations to compete for the market in Asian goods, thereby validating the part of Marx’s claim that identifies the flow of money to Europe as a result of trade outside of the region (O’Rourke and Williamson 14). However, O’Rourke and Williamson assert that European surplus income increased moderately and very quickly in the 17-18th and 19th centuries, respectively, but that these income increases fueled the trading boom—not vice versa (15).

In addition to their ambiguous support of Marx regarding capital accumulation, neither de Vries nor O’Rourke and Williamson provide much evidence supporting the cruelty explicit in Marx’s assessment of European involvement abroad. In the early modern era, trade between Europe and Asia was “almost entirely in the hands of a small number of state-sponsored trading organizations,” but further detail is minimal (de Vries 7).

From 1497 to 1800, it appears that colonial trade contributed directly to European capital formation by providing some raw and intermediate input into European production. De Vries and O’Rourke and Williamson don’t mention too much about physical capital formation as a direct result of colonial trade; however, profitable trading companies grew and flourished for decades, potentially providing the money Marx asserts will necessarily become capital. For many such companies, and especially the Dutch and English East India Companies, intercontinental trade in the early modern era opened the door in later years to profitable political (and thus economic) control over former trading partners. As early as 1614, an employee of the Dutch East India Company realized the usefulness of political control in building the multinational he worked for:
“Trade in Asia must be maintained under the protection of our own weapons; and they have to be paid for from the profits of trade. We can’t trade without war, nor make war without trade.”1
Indeed, England’s later defeat of the Mughal empire in India allowed it to completely wrench control of Indian markets away from the Dutch East India Company.2 The English East India Company’s success in the 1757 Battle of Plassy also gave the company control over cotton, opium, and large tax revenues (de Vries 18). Sizeable, if slowly decreasing, profit margins not only allowed trading companies to expand and flourish in the period from 1497 to 1800, but also allowed the extraction and control of resources in current and future colonies for use by the home country even after the trading companies ceased to exist. Money, in a loose sense, is necessary for investment in capital, and the control of resources increases profit margins for the owners; it is difficult to believe that the growth of colonial trade from 1497 to 1800 did not contribute to capital formation in Europe.

1 “The East India Companies,” Economist, Dec. 31, 1999 (353:8151): 76-77.
2 Mark Naidis, "The Dutch East India company and the Economy of Bengal, 1630-1720," (Book Review), American Historical Review, Dec. 1986 (91:5): 1255-1256.

[James Zuberi]

Professor de Vries’ article about trade between Asia and Europe during this period is illustrative of some ways that specifically sea trade may not have contributed to any great extent in capital formation. First, the imports by sea routes from Asia were mostly luxury goods like spices and tea and were not directly involved in the creation of capital. So at least as a first order affect from trade with Asia, increase in trade took away wealth (mostly in the form of silver) from European trading countries and provided luxury goods which would be consumed by the wealthy. Therefore, instead of possibly investing wealth the Asian trade may have reduced capital accumulation.

Another result of the paper is that the inflow of Asian luxury goods decreased the price of domestic luxury goods in Europe and so there was an income effect that individuals were more wealthy. In order to evaluate the possibility of this income effect we can look at volume. As the industrial revolution began to take hold, capital formation was taking place but how much of this capital formation could reasonably be attributed to Asian trade? From the discussion it seems that the volume of trade was not enough to have a large enough impact on capital formation in the absence of significant multiplier effects. Therefore, even if the channel of Asian luxury goods decreasing the price of domestic luxury goods and in doing this providing the wealthy more real income to invest in capital formation projects did exist, this channel was too weak to substantiate Marx’s claims.

Finally, a way that Asian trade could have affected capital formation could be through the merchants themselves who were investing in new ships (as the paper describes that the number of ships was increasing over time) and gaining profit margins which could then be invested in capital formation projects. The first question would be reasonably difficult to answer because it was not only merchants who were propping up the shipping industry. The period of 1949- 1800 was also a period of colonialism and so it is likely that merchant investment may not have been the main driver of the formation of capita related to the shipping industry. Also, the profit margins of merchants were partially used in colonization or in transforming European companies into ‘territorial states’ and so this channel is likely not strong enough to account for European capital formation.

[rion]

Both articles provide some keys to explain the trade growth in the period, but doesn't give us much clue as to the question given for this week, whether such trade affected the capital accumulation in Europe.

de Vries (2007) focuses on the Europe-Asia trade in the period in question and shows that the profit from the trade had been quite limited by competition. O'Rourke and Williamson (2001) shows that the cause of trading boom can be attributed to the increase of demand and supply, rather than to the declining trade barrier, based on the evidence of no significant price convergence.

I have no idea how to relate these findings to the capital accumulation in Europe during pre-Industrial Revolution era. Even if intercontinental trade was larger than we think, it is not very clear why it can explain the capital accumulation.

As de Vries points out, globalization in this era was more about increased consumer choice, than anything else. More choice has nothing to do with whether consumer saves money for investment. If a rich guy at that time had new exotic luxuries from Asia, he might want to purchase it, spending the money he would have invested otherwise. Whether he increases or reduces the saving depends on the relative significance of income effect and substitution effect coming from the reduction in price of that good from infinity to some still very expensive price.

The relation between the profit of the trading company and the capital accumulation is also unclear to me. First, if such profit is so important to the capital accumulation, it doesn't need to be trading companies. I would imagine there were many other monopolists with associated rent. Second, the larger profit has no direct connection with capital. As is the case with increased choice, the increased profit would increase the saving by its owners from the income effect, but there's no reason to believe such profit mainly went into capital.

Marx's statement has no point in this respect. In order for those European trading companies to extract rent from Asia, they need to have monopoly or monopsony. As Europeans were mostly exporting Silver for goods, they could not be monopolist: they were not the sole supplier of silver of course. And as de Vries shows in his article, there had been multiple trading companies on the trade route most of the time and they needed to compete with the land trade as well. They might have huge profit from selling the imported non-competing goods to domestic customers exclusively, but it has nothing to do with "the treasure captured outside Europe". Also it would be very inadequate to call the monopoly rent, if any, "undisguised looting, enslavement and murder" to begin with. Even under monopoly there must be some consumer surplus from the trade left except for the case of complete price discrimination.

[Insook Lee]

I am not sure that in quote of memo question whether Marx indicated era over all of this three hundred years. Was capital in pre-modern Europe formed from colonial trade just as Marx described?
At first, was there increase in capital at all? Based on the table of European surplus income growth in the article of Williamson and O’Rourke, capital accumulation looked to occur in this period. However, there must be some limitation for telling right or wrong only with rough data in trade. However, at least it is true that unlike Marx’s statement that there was unilateral looting, there was export as well, since data implies that European goods also traveled into the other. Even though reading articles does not provide any explicit evidence, there was slave trade from Africa. However, it does not look that this brutal way of stealing was main method of capital accumulation as Marx portrayed. No matter how it operated, there was a channel of creating wealth through, so called Age of Commerce.
Unlike the previous impression on this Age of Commerce, however, it turned out that there was no such a huge boom in international trade, both in with Western hemisphere and Asia, based on the argument of Williamson et al.(2002) and Jan de Vries(2008) Then, under Malthusian economy, without technology innovations, how was the capital formatted? Even though Williamson et al.(2002) said that European income growth in 16th century is not explained by trade, some part of it since 17th century can be.
Even though trade bars, transportation cost, price difference did not dramatically decrease for the sake of growth of trade, 1.1 percent increase annum on average might have chance to bring some impact over European economy, considering economic growth rate at this era was really negligible.
By importing noncompeting luxurious goods and by in some limited extent enjoying the rent of monopoly, European trade companies like VOC could earn quite large margin. As Jan de Vries(2008) showed gross margin of them were ‘always well above 3;1, they declined thereafter, reaching a level below 2.5;1 after 1720’ This large ratio for such a long period must have enabled European economy to increase capital in the long run. In the same era, there might rarely be as profitable as this business-and even for nowadays. It would be educated conjecture that margin of Atlantic trade, which was much larger than Asian trade, would be similar. Aside from how wealth accumulated in trade was distributed or invested. In this point, trade might have some role in capital formation in Europe, even though the regression analysis of Williamson did not show for all the period between 15th century and 18th.
Even if the capital that trade earned might not be vitally and revolutionarily huge amount, colonial trade still could have some meaning to European economy. Along with one possible way of capital formation in Malthusian economy that is internal innovation like technology progress, external expansion through trade not only served to accumulate capital physically and currently, but also might provide some stimulation in contacting different world, which implicitly provided a certain momentum to European society to develop in the future.
In addition to extending the trading partner across the world and enjoying some gains of trade, the European had some experience of colony, which might pave the way of coming colonialism in the next. Direct control over some places of Java and Spice Island to expropriate all the value added. They might find one way of ‘primitive accumulation’, as Marx said, outside Europe, whether right or wrong.

[I Romem]

Neither the paper by DeVries nor that by O'Rourke and Williamson provides a sufficient basis for assessing the general truth of the passage from Marx.

For a start, they address the trade between Europe and Asia while paying very little attention to that between Europe and the Americas. As DeVries points out, the former was quite minor in scope compared with the latter so that any conclusion arrived at in the papers can at best apply to this much smaller – and qualitatively different - trade. But I will set this aside for now and return to it later.

Europeans no doubt accrued wealth from their trade with Asia (recall, though, that trade is not a zero-sum game). Moreover, they also extracted wealth by several means, many of which are quite rightly considered illegitimate today, such as the use of slavery. In the literal sense, the wealth obtained from trade with Asia was later transformed into capital, at least in part, and Marx's statement cannot be contested. However, the weight of the statement lies in an implicit accusation: that were it not for this extraction of wealth Europe would not have made its way onto the Capitalist path, either (1) because the profits of trade funded capitalist ventures, or (2) because trade was fueled by capitalist demand for raw materials.

It is very likely that European wealth originating from this trade did fund Capitalist ventures centuries later, although it is most likely to have done so indirectly, at least in as much as not all Capitalist ventures were related to the Dutch or English East India Companies. As for trade being fueled by demand for raw materials… well, that would require contemporary figures, which they were not. To summarize, I would say that implied accusations (1) and (2) may be relevant for Colonialist extraction after 1800, but not for the period 1500-1800 with which we are dealing.

Nevertheless, perhaps a better question to ask is whether colonization in this period was crucial to the formation of the institutions of Capitalism. From DeVries it would seem that in Asia it was not. The declining profitability of trade that he describes drove European nations towards extending their sovereign rule over their trading counterparts. It would appear that if this was what was needed to maintain profits, then surplus would be invested in military means rather than productive capital – hardly an institutional stimulus for capital (if investment in the military had a part in shaping Capitalist institutions, it would surely have occurred thousands of years ago).

In the Americas, on the other hand, the situation may be different (as well as later in Australia). Having, in a sense, emptied these lands by way of disease and brutality, Europeans then settled them with their own populations (as well as slave labor). In particular, colonists originating from England brought with them the institution of secure private property rights that was crystallizing in England at the time, as evident in last week's readings. Thus, they spread what may have been the seeds of Capitalism throughout much of the world. Note that this was not the case in those parts of the Americas settled by non-English colonists. Perhaps this is the key tie between (at least early) Colonialism and Capitalism, as opposed to Marx's accusation.

[Wayne Feng]

From the reading this week it is difficult to completely address how significant colonial trade really was for capital formation in Europe in the 14th-17th centuries. O' Rourke and Williamson use a formulation of supply and demand between Asian and Europe to demonstrate the idea that price convergence was non-existent due a lack of globalization. The article by de Vries further points out the historical development of trade by European parties and the nature of trade growth within the environmental context. It would seem that during this period trade between Europe and Asia were luxury good rather than commodity goods. As such the availability of these goods to the general public during that time period was extremely limited and the goods themselves held a monopoly (according to O' Rourke and Williamson) in trade as there were no alternative products for these imported items. de Vries does have some examples such as coffee for products that did have some competition, which developed as European colonies opened elsewhere.

From de Vries’s observation, there is further analysis comparing the growth of Asian trade against those of other sources such as the Americas. We see that in this context Asian trade was very slow and small. de Vries concludes by saying that transaction costs were too high for Asia (and perhaps in general). This led interested parties such as the VOC to try to seek greater control by establishing “territorial states”.

From this we can as the question regarding this memo as to what effect colonial trade had on capital accumulation. From one perspective it is true that there was wealth created from this trade, but it was limited to luxury for the wealthy and profits for a monopolist in the Asian trade context. A more interesting perspective may be to look at the role of African and American trade in the role of capital accumulation for Europe (which there certainly is literature about). For trade between Europe and these countries were in a more controlled environment and the type of goods sent back to Europe were not necessarily predominately luxury goods. It would seem as if this type of trade would be what would have a more significant impact on the development of capital in Europe. At the same time this is a point noted by de Vries, that in analysis of European growth Asian is not included which overstates the importance of trade or mischaracterizes the economy of Europe at that time. Globalization during this era was not as profound as traditionally though (such as Marx) but rather there may be other factors at work which setup capital for the Industrial Revolution such as the redistribution of income.

[F. Gerard]

Francois GERARD
Memo 5: Colonialism

We can summarize Marx’s argument as follow: 1. Capital generates capital and the primitive accumulation of capital has been possible thanks to colonies; 2. overseas traders made huge profits by undisguised looting, enslavement and murder, and selling goods in Europe; 3. the money was used to buy lands expropriating the country population transforming them into wage laborers and creating a class of land capitalist; 4. overseas trade generated inflation shrinking the fortunes of nobles and their social importance; 5. institutions were modified (Glorious Revolution) and came to support the whole overseas commercial process leading to monopoly power, even more expropriation and thus even more profits and capital formation.

What the other texts can tell us is that, if the primitive accumulation comes from a trade generated by the exploitation of some overseas local population, then the Asian trade is not the main source of primitive accumulation. Indeed, the Asian trade was mainly (at least at the beginning)… trade and not pure exploitation. O’Rourke and Williamson also claim that this specific trade route in the hands of monopolistic companies was limited to some non-competing luxury goods while de Vries argues that the products were non-competing and purely luxury only at the very beginning and that the monopolistic feature of this trade is far from obvious. Then what about the argument of Marx? First Marx seems to have always agreed with the peculiarity of the Asian trade while stating The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the aboriginal population, the beginning of the conquest and looting of the East Indies, the turning of Africa into a warren for the commercial hunting of black-skins,… as the chief momenta of primitive accumulation. Asia is referred here only as the beginning of an exploitation which is confirmed by de Vries’ article (in Asia, the colonialist system appeared later). Then, is colonial trade still a possible cause of capital formation in Europe? Of course, yes, but the rest of the overseas trade, the Atlantic trade with Africa and the New World, the trade we can better refer to as a colonial trade based on exploitation rather than cooperation with local merchants. First this trade is closer to what Marx may have in mind while describing the primitive accumulation. Second this trade was much more important in terms of volume and possible benefits given that European traders controlled their political and commercial environments. But nonetheless, I still believe that Asian trade has some strong connections with the capital accumulation in Europe and the start of the capitalist era. Indeed, as de Vries repeats in his article, the commerce with Asia had a broad impact in Europe by increasing the diversity of goods in European markets and by stimulating the development of substitutes to the Asian products. The capitalist age needed to create a home market to take off. The new diversity of goods and the relative luxurious of the Asian products have certainly contributed to the creation of a new demand for material goods based on a hope for new standards of living (a reason for the raise in industriousness we were discussing recently). Earning his bread and owning land were not enough anymore; people started selling their land and their hands and the process described by Marx could start, helped by inflation created by the gold and silver from America, hurting overseas traders less than nobles given that nominal land rents were much stickier than prices of foreign goods.

[Monica J. Deza-O.]

Regarding the first question, the readings do not give us enough background to comment on Marx’s quote. Regarding the second question, the readings do not say much about capital formation in Europe, but give us enough background to make some inferences.
According to De Vries, trade between Europe and Asia could not have cause significant growth in Europe for many reasons. For instance, Asian trade with Europe was measured to be an average of half a pound per European inhabitant per year, which would have been to small to assume that the multiplier effects could have taken care of the growth.
However, I want to make three points. First. Asian –European trade produced income, which could have been used in investment and formation of capital. Second, trade gave Europeans a whole new market to exploit, and the incentive to invest on ships and trading firms. Third, Europe not only traded with Asia, but also with America, and perhaps the international trade market as a whole gave Europe more than half pound per inhabitant, as pointed by De Vries.
Rapid growth of port cities is an indicator of the significance of trade. . They were fastest growing between 1500 and 1800, and accounted for nearly 10% of total urban growth in all of Europe. For such a significant growth to happen, the income generate from trade must have been very significant, and as I mentioned before, even if the trade did not generate capital accumulation on its own, it did provide enough income to invest and a whole new market sector to invest on: the sea trading sector.
According to O’Rourke and Williamson, an increase in European demand was caused by importation of goods for working class citizens and intermediate goods. The import of intermediate goods must have helped factories obtain lower cost inputs, making production cheaper, and leading to increase production. Having access to cheaper inputs may have been an incentive to produce at all, so it might have induced Europeans to invest in a firm.
O’ Rourke and Williamson argue that the trading boom was caused by demand and supply because there was no commodity price convergence. De Vries states that Europe created imitation of Asian goods, such as the European porcelain and silk, which might have affected the price convergence process. However, this import substitution market created several jobs, and several industries, for which formation capital accumulation must have been required.

[Gabriel Chodorow-Reich]

Did Western Europe grow rich by exploiting and extracting resources from the rest of the world? For Marx, international trade did not so much provide the driving force behind the capitalist revolution as its initial impetus. Thus “extirpation, enslavement and entombment in mines” in America, “conquest and plunder” in India, and “the conversion of Africa into a preserve for the commercial hunting of blackskins” formed the “chief moments of primitive accumulation” (Capital Chapter 31). Primitive accumulation then created the political demand for the enclosure laws, working laws, and cultural transformation of Europe which characterized the transformation from feudalism to capitalism.

The process of primitive accumulation has two components. On the one hand, resource extraction brought raw materials, including human slaves, back to Europe where they could be used directly in the production process. At the same time, international trade itself created a new class of wealthy merchants who now had the means and the desire to transition feudal Europe into a capitalist society. This latter claim receives a direct empirical test by de Vries’s study of the profitability of the early European traders.

Although de Vries rejects the possibility of sustained or rising profits over the course of early globalization, he finds episodes consistent with the Marx thesis. For example, the Dutch East India Company (VOC) exhibited “substantial profitability” over a forty year period in the middle of the seventeenth century. Whether these profits came from Europe-Asia trade or, as de Vries argues, from intra-Asia trade has little import. In either case, European stockholders grew rich as a result of overseas activity, with, in Marx’s words, “great fortunes [springing] up like mushrooms in a day.”

The O’Rourke and Williamson article provides an indirect test of the first aspect of primitive accumulation: the movement of raw materials from the periphery into Europe. In particular, they estimate the importance of increased European demand in generating the inter-continental trade boom. They find that, beginning in 1600, a large portion of the trade growth resulted from higher demand for foreign goods in Europe, consistent with the notion that European capitalists were importing raw materials for use in the production process. However, O’Rourke and Williamson’s evidence on import prices comes mostly from spices, hardly the quintessential intermediate input into production. Moreover, their income measure reflects the growth of “surplus income” of the rich, making inferences on the causality of primitive accumulation difficult.

Perhaps the largest problem in using the de Vries and O’Rourke and Williamson articles to evaluate Marx’s thesis relates to their empirical emphasis on Europe-Asia trade. For understanding the importance of the transport of raw materials and persons used in production, a focus on American and African trade would be preferable. And to the extent that trade patterns and profitability in these regions differed from Asia, it is difficult to infer global relationships from the Asian trade route.

[Omar Nayeem]

The two additional readings, by O’Rourke and Williamson and by de Vries, do not provide any evidence that strongly supports Marx’s characterization of capital accumulation in Europe. However, some of the peripheral points that are made in both papers indicate that European powers during this time were engaged in exploitative practices, and, while the papers themselves do not provide enough information for one to determine whether Marx’s description is factual or merely hyperbolic, it is clear that practices that, today, would be deemed “unfair” were employed.

O’Rourke and Williamson talk about an “inter-continental trade boom” (driven by primarily by supply and demand forces) that took place between Europe and Asia. For the most part, these trade partnerships are portrayed in such a way that they seem to be mutually beneficial (or at least not harmful to the Asian side). O’Rourke and Williamson do mention, however, that China (by the British in 1852) and Japan (by the Americans in 1858) were forced, under threat of military force, to open their doors to external trade. While this sort of coercion would seem unfair, and even unethical, by today’s standards, it also does not seem to fit exactly with Marx’s characterization. First, there is no evidence of “looting”, “enslavement”, or “murder” in this example. Also, and perhaps more important, the imports from Asia (with the possible exception of textiles, which likely would be classified under intermediate goods) generally represented final goods that did not increase European productivity and hence did not increase the level of physical capital. If anything, trade with Asia decreased the level of physical capital, since payments for goods were made largely in silver. If we define the term “capital” more loosely, however, to include financial capital, specifically in the form of company profits, then one could argue more convincingly that Europeans accrued capital through unfair practices, but again, none of the evidence in the paper directly supports Marx’s strong language.

In a footnote, O’Rourke and Williamson also mention African slaves that were taken to the Americas, but they mention them only in the context of an increasing supply of foreign (rather than domestic) goods. Some of the goods imported from the Americas may have contributed towards increases in European physical capital, but O’Rourke and Williamson do not mention that explicitly. What is indisputable, though, is that slave labor played a prominent role in the prosperity of European (and other) nations that perpetrated slavery, and, given his use of the term “enslavement”, that seems to be one of the points that Marx wanted to make.

De Vries argues that O’Rourke and Williamson exaggerate some of their claims. In particular, he demonstrates that the volume of trade during this period between Europe and Asia was lower (in terms of tonnage) and grew more slowly than that between Europe and the Americas. In short, he disputes the assertion that there was an “inter-continental trade boom.” He also demonstrates that profit margins in trade with Asia were falling due partly to competition; therefore the large European firms were not truly monopolists as O’Rourke and Williamson portray them.

De Vries also briefly discusses the pressures on European firms to maintain profits and notes that they turned to political revenue – taxation and tolls – as a second source of cash flow. The VOC, he mentions, took over parts of modern-day Indonesia and Sri Lanka. Unfortunately for the VOC, while their tax revenues increased substantially during the eighteenth century, the high administrative costs exceeded the tax revenues, and so this move was actually not profitable. Thus, Dutch colonialism of South and Southeast Asia, at least in this instance, cannot be said to have contributed to capital accumulation. The case of the British and the EIC is different, though. De Vries notes that the EIC’s conquests gave it not only large tax revenues but also significant control over the China sea trade. For the EIC, colonialism was profitable. As de Vries notes in his concluding remarks, the EIC set an example that ushered in a new era: “Step by step, beginning with the English in 1757 and continuing into the nineteenth century, the European trading companies were transformed into territorial states. What began as an age of globalization ended as an age of colonialism.” Two points are worth noting here. First, while the papers do not focus on colonization and its effects on the native populations, anyone familiar with the history will know that colonizing powers, in almost all instances, drew strong resentment from members of the conquered populations, who felt (with good reason) that they were being exploited and bullied. Second, de Vries notes that the EIC’s foray into colonization was hugely profitable; it brought in political revenue and also gave the company control over trade in the region. In this sense, we have an increase of financial capital flowing into Britain, and possibly also an increased inflow of raw goods that may contribute to increases in physical capital. If the colonies of France, Spain, Portugal, and other European nations during the age of colonialism also fit the EIC’s prototype (a reasonable expectation given its profitability for the British), Marx’s remarks, while still framed in strong terms that are not directly supported by either paper, make a lot more sense.

[Lemin Wu]

Jan de Vries (2007) clarified quite a few relevant questions in assessing Marx’s argument. Was the treasure captured outside Europe big enough to accomplish the “primitive accumulation”? If there is anything that enhances the capital formation, what is it on the earth?

O’Rourke and Williamson took a hard definition of globalization and argued that the markup of commodity showed little trend of decreasing in the course of “globalization” before 1800 and he guessed that the man-made barrier in the form of monopoly hindered the globalization severely. They also find that the transport cost or rather the transport fee didn’t decrease much over a long time as we tended to expect. To some extent, the monopoly story they suggested, usually associated with the typical image of primitive accumulation as Marx termed it, fit well with Marx’s depiction of the capital formation in Europe through intercontinental trade.

However, in the other assigned reading, we found some evidence against O’Rourke and Williamson’s argument. Jan de Vries focused on the trade between Europe and Asia and revealed that the profit of intercontinental trade turned out less glorious than expected, neither was the volume of trade. Compared to the trade with America, the trade between Europe and Asia could hardly be termed as a boom (the tonnage shipped from Europe to Asia achieved a growth rate less than 1% through the 300 years). The gross margins of the English East India Company and the Dutch East India Company during the 17th century were in the range between 2.5 and 4. The competition between the traders was a real pressure on the return of the trade. In assessing O’Rourke and Williamson’s view, there may be some difference in the patterns of trade between Asia and the other areas such as America. I doubt part of the difference lies in the higher density of population and culture in Asia in the sense that the reactionary interaction of the Asian merchants should also enhance the competition within the group of European merchants.

In terms of capital formation, the assigned reading suggested another way to look at the issue raised by Marx. Given the low margin and limited volume of Europe-Asia trade which implied little impact of globalization on ordinary people’s life before 1800, the capital formation might be attributed to the change in institution brought about by the intercontinental trade which induced a great demand for the related institutions that ensured the enforcement of contracts and security of property rights.

[Willa]

This quote from Marx, actually in Chapter 31 of Captial appears to refer to actions undertaken by Europeans in the West Indies and political profit in India and China. The other two articles focus primarily on trade with Asia but with limited evidence about the nature of this trade as experienced by those outside of Europe.

Support for the passage can be found in Professor de Vries’ brief discussion of “political revenue.” While there are few details, one can imagine that the means necessary to collect tolls and taxes in a foreign country were not based around upstanding ethics or any principles of non-violence, for example. Still deVries later makes the point that this investment turned out not to be profitable, which would contradict Marx’s claim that it was this forceful expropriation of “treasure” that led to the accumulation of capital in Europe. On the other hand, even later in his article, deVries points out that this early trade may have been the precursor for later colonization. If the endeavors earlier were thoroughly unprofitable, then either they later became profitable or perhaps the profits which may have averaged to nothing were heterogeneous and some benefited greatly.

Both of the other two articles focus on trade with Asia and in doing so acknowledge huge growths in trade across the Atlantic. As this trade is less discussed, it’s difficult to assess its importance in this discussion but if the levels of trade are as high as the authors mention, then these may support Marx’s claim as well.

One thing that is also only briefly discussed in the other two articles is who in Europe is benefiting. Marx’s point about capital accumulation is that this primative accumulation is what made it possible for laborers to be alienated from their means of production through – in a sense – their sale of their labor, and so the accumulation of capital that he argues for need not be evenly distributed. Surely Marx is not one to argue against the emiseration of at least some Europeans and so bringing capital back to Europe that only some have access to is all that is necessary to demonstrate his point. Therefore arguments about overall levels of trade and goods may hide some differences among beneficiaries.

Finally, de Vries also points out that a long-term effect of the trade with Asia was to increase the demand for material goods. Although this is not Marx’s point in this quotation, it does serve to support his broader idea that this increase in trade, demonstrated both by O’Rourke and Williamson and deVries was a key step in the development of capitalism.

[Ernie Tedeschi]

Marx writes in Chapter 26 of Capital that “[t]he capitalist system pre-
supposes the the complete separation of the labourers from all property in
the means by which they realize their labour.” As Jan de Vries points out
in this week’s reading, Marx viewed the trade boom of the early modern
era through the same lens with which he observed the Europe of his time:
by way of “primitive accumulation” – securing raw materials and finished
goods from the Americas and Asia hitherto scarce or unknown in Europe
– traders were able to shift and concentrate capital back to the Continent,
with far-reaching historical consequences. This interpretation of history pre-
supposes an actual “trade boom” occurred in the centuries preceding the
Industrial Revolution and that it was driven primarily by the “discovery”
and subsequent exploitation of overseas factors.
On the former point, de Vries questions whether a “trade boom” even
happened in the first place, pointing out that, with the exception of a few
narrow outlier periods of history, the early modern era was defined by con-
sistently small growth in trade, rarely exceeding 1%. While he concedes that
over a 300-year period, even trivial growth accumulates and compounds into
an impressive absolute boost, characterizing the early modern economy as
playing host to a “boom” implies growth far less gradual than what we ob-
serve in hindsight. Even then, he finds that overall, European firms engaging
in global trade were far from reliably profitable, and rather than ride the
wave of a “boom” adopted the decidedly-un-boom-like strategy of diversify-
ing their economic activities to hedge against risk.
O’Rourke and Williamson, meanwhile, dispute the nature of this pre-
cursor to globalization. Rather than attribute the “boom” to fundamental
changes in technology or European discovery, they find, via the lack of price
1convergence of traded goods between Europe and their countries of origin,
that really a rise in European demand in some cases and Asian supply in
others – that simplest and most fundamental of economic phenomena – was
the most likely culprit in driving the growth in trade during this time, with
other factors such as Chinese autarky playing possible supporting roles.
How, then, was Marx wrong? Perhaps he got the process right in a limited
sense – if we posit that the pre-Columbian inhabitants of Hispanola “owned”
the sugar they grew, then certainly things changed with colonization – but
overstates the impact of European colonization on the growth of capital.
What he envisions as a massive shakedown of the natural resources of Asia
and the Americas that engorged the coffers of European urban traders and
created the capital they would use generations later to fund industrialization
might instead have been a far more focused phenomenon accommodating an
almost niche demand among the European elite, though this is not to say
that some cases, like the sugar trade, the potential for profits was not still
high. Marx also sees malevolence in European intentions when, in fact, the
trade boom may have been pushed in large part by a surge in the supply
of exotic goods being produced in Asia, either because of changes in their
domestic demand or simply because Asian producers were themselves keen
on accommodating European demand. Marx has a legitimate story to tell
about the rudimentary globalization of the early modern era, but he ignores
the simpler, and less malignant, explanations that also deserve their due in
the historical narrative.

[Mauricio Larrain]

Capital formation in an economy is determined by aggregate investment. Aggregate investment, in turn, depends on the level of aggregate savings, which is the difference between income and consumption. Holding consumption fixed, an increase in income would increase savings, and therefore investment and capital formation.

In the era of globalization, income can flow from one country to another. In particular, the trade of European countries with its colonies produced an inflow of income to Europe in the form of profits of trading companies. If these firms were highly profitable, we could expect a high inflow of profits to Europe, which would contribute in the long term to capital formation in this continent.

But were the European trading companies highly profitable? The conventional wisdom is that the companies that conveyed “the riches of the Indies” to Europe themselves became rich. Enjoying monopoly control over expensive goods, the trading companies maintained huge price markups between exporting and importing ports. However, de Vries (2007) questions this conventional wisdom. The author focuses concretely on the intercontinental trade between Europe and Asia. According to de Vries, it appears likely that the European companies conducting trade with Asia via the Cape route faced a long term deterioration of their profitability as trading operations. Their gross margins were under long-term pressure while transaction costs as a whole were stubbornly resistant to reduction. Moreover, the downward pressure on these profits limited the motivation and ability of the companies to expand the volume of trade, and these profits remained low so long as the European companies could exert only a limited influence over the Asian commercial world in which they did business. As a result, de Vries concludes that the European trade with Asia was generally not highly profitable, and became less so over time.

If the evidence of de Vries could be replicated for European companies conducting trade with other continents, such as Latin America and Africa, we may be able to conclude that colonial trade in the 1497-1800 period contributed little, at least from the point of view of flow of profits to Europe, to capital formation in this continent. However, since de Vries findings apply only to intercontinental trade between Europe and Asia, it is difficult to generalize his results and conclude from his reading that colonial trade did not contribute to capital formation in Europe.

[Mark Borgschulte]

According to Jan de Vries' article on globalization in the early modern world, the volume and character of global trade was insufficient to drive early capital accumulation in Europe on any meaningful scale. While he focuses specifically on the European-Asian trade routes, he finds that these routes largely involved European export of silver, and import of luxury goods such as spices, pepper, cotton and tea. Besides cotton, these are consumer goods; their import should result in capital flowing out of the country, rather than accumulating. By comparison, import of cotton should be thought of as the import of an intermediate good, a form of capital which depreciates entirely in production. By increasing the availability of intermediate goods, the early modern trade would have allowed Europe to specialize in the production of final goods, driving capital accumulation through higher returns to saving.

The thesis that increased volume and declining prices of imported intermediate goods drove early modern capital accumulation finds some supporting evidence in After Columbus: Explaining the World Trade Boom, but it is hardly conclusive. The prices of many American-made raw materials, such as wood, furs and cotton, fell during the 1600-1800 period. As well, the percentage of trade in these goods rose, both in the Asian trade, and the American trade. However, it does not seem that the volume of the combined trade would have been sufficient to explain European capital accumulation. The article also claims that trade with Asia became increasingly dominated by manufactured exports from Europe, though silver remained the primary export through most of this period. Information on the price of silver would have been very useful in both articles (I didn't find it, if it was there.)

Marx's thesis, that the rise of capital accumulation in Western Europe was driven by European exploitation of its international trading partners, does not seem to be complete. While there have been increased trade, dominated by European profiteers and capitalist pigs, it was primarily focused on consumption items. Instead of a "boom" we see steady growth in trade, driven in large part by increases in supply on the part of exporters in America and Asia. A more complex explanation, taking into account the shifting nature of European production and productivity, is probably a more important factor in explaining capital accumulation during this period, than a story about exploitation of the emerging globalization trend by European traders.