Globalization
And Homestead, Pennsylvania jobs paid well both by the standards of the United States and the standards of the world economy of the time. White households could make around $900 (of 1910 value) a year, placing them well the upper third of the U.S. population in terms of income per household in 1910. Relative to what could be earned by people of similar skill levels anywhere else in the world, a job in the Homestead mill was a very attractive job. Even the unequal America at the turn of the century was a very attractive place compared to the rest of the world. America was exceptional. In spite of the hours, in spite of the risk of death or injury, in spite of the working conditions, these were very good jobs by international standards: jobs worth moving 7,000 miles for, from Hungary or Lithuania to suburban Pittsburgh. For the economy of the late nineteeth century was for the first time in human history a truly global economy, filled with long-distance trade and migration.
Even before the U.S. Civil War of 1861-5, the export of cotton from the American south and of sugar from the Caribbean islands had shown how European agriculture could be replaced and augmented. After the Civil War the coming of the steam engine and the iron hull to ocean transport made possible the export to Europe not merely of cotton and sugar–crops which could not be grown in the climate of the European industrial core–but also grain, meat, and wool.
[Figure: Decline in the cost of ocean shipping, 1500 to 1900]
The extent to which the navies and trading fleets of the great European sea-borne empires of the sixteenth, seventeenth, and eighteenth centuries shaped the industrial development of western Europe has always been one of the most fiercely-debated and unsettled topics in economic history. That European expansion in the sixteenth, seventeenth, and eighteenth centuries had catastrophic consequences for the regions of west Africa that were the sources of the slave trade, or for the Indians of the Caribbean, or for the Aztecs, Incas, the mound-builders of the Mississippi valley, or the princes of Bengal is not in dispute. But how much did trade and plunder affect European development? That is not so clear.
The first wave of plunder from the Americas was made up of gold and silver. But gold and silver are not things that you can eat, or things that have much use as raw material for industrial or artisanal production. Most of the gold and silver that arrived from the Americas was promptly coined, and thus its principal effect was to drive up Europe’s overall price level as more money chased fewer goods, according to the quantity theory of money.
An important secondary effect of the large-scale plunder of gold and silver from the Americas was to redistribute purchasing power within Europe, away from northern European countries like Britain, Holland, and Germany and to southern European Spain, where the treasure fleets landed (save when they were captured by the British or Dutch navies). Because the kings and nobles of Spain could use their American gold to support their armies, fund their masses, and purchase their luxuries, Spain became more a country of soldiers and servants–living well, or at least supporting the armies of the Counterreformation, until the gold and silver ran out–while Holland and Britain became more nations of craftsmen, sailors, and merchants.
On the one hand, without American gold the armies of the Counterreformation would never have come so near their goals of suppressing Protestant heresies. On the other hand, demand for northern European products funded by American gold and silver changed relative prices and increased the returns to northern European entrepreneurship and enterprise. Which dominated? Did the arrival of treasure fleets from America in the end accelerate or retard northern European commercial development? I have seen no convincing arguments on either side for significant accelerating or retarding effects.
Another important secondary effect was that gold and silver from American treasure fleets made Europe’s price level relatively high, and thus made Europe’s goods too expensive to be worth purchasing by Asian consumers while it made Asia’s goods–spices, porcelains, textiles, teas–very much worth purchasing by Europe’s consumers. Thus the trade around Africa’s Cape of Good Hope from the sixteenth through the eighteenth centuries was overwhelmingly a trade of precious metals from Europe for useful material goods from Asia. To the extent that American gold and silver made Asia’s goods affordable and thus encouraged Europeans to develop navigational and other technologies that turned out to have large external benefits, American gold and silver may have played a small role in spurring European development.
But I have seen no convincing arguments that this was important enough to change the shape of Europe’s economy.
The second wave of products from the Americas were the staple plantation crops of tobacco and sugar, the mainstays of the triangle trade: sugar and tobacco to Europe, rum and weapons to Africa, slaves to the Caribbean. But tobacco and sugar were boosts to European consumption, not raw materials for further transformation in industrial enterprises. It is hard to see how this second wave of products might have shaped the structure of the European economies.
Things become different with the early nineteenth century, and the third wave of products from the Americas: cotton. North American slaves and Eli Whitney’s cotton gin together produced a cheap material input to an important manufacturing industry, and this time the industry was dynamic enough and the raw material important and cheap enough that the presence of the Americas did change the shape of the leading European economy, that of Britain.
The availability of cheap American slave-grown cotton, as opposed to more expensive and more distant Egyptian and Indian varieties, may have saved Britain as much as four percent of national product in the reduced prices it had to pay for raw material inputs in peak years in the first half of the nineteenth century, and saved perhaps two percent of national product in reduced foreign materials prices in average years.
If the pattern of consumption had been maintained in the absence of slavery in the U.S. south, then this reduction in real national product would have come entirely out of investment–and would have reduced the pace of growth of the pre-Civil War British economy by perhaps 0.3% per year (cumulating to perhaps 15% over fifty years). If the cut had come proportionately out of investment and consumption, the reduction in growth would have been only 1/4 as large (cumulating to perhaps 4% over fifty years).
In an era in which British standards of living and levels of productivity are grew at roughly 1/2 a percent per year, the availability of slavery in the U.S. cotton south could have been responsible for between 15 and 60 percent of British economic growth in output per capita and per worker before the midpoint of the nineteenth century.
Yet cotton was a uniquely important good. And British imports of cotton were a uniquely strategic pressure point to apply to a pre- or an early-industrial economy. No other commodity, or set of commodities, had the potential to affect the destiny of any European economy in the years before the late nineteenth century. Trade was simply too small relative to domestic production for it to have been the prime mover or the balance wheel of any of these economies.
All this began to change in the early nineteenth century, when canvas sails began to be replaced by iron steam engines. By the end of the nineteenth century wooden hulls had been replaced by iron ones, message sloops had been replaced by submarine telegraph cables, and new methods of packing and preserving made it possible to transport a much broader range of commodities across oceans cheaply. The first transoceanic shipping of perishable organics came before 1850. Well before 1900 Europe’s beef was raised in Argentina, its mutton and wool was raised in Australia, and its butter raised in New Zealand. International trans-oceanic trade was no longer limited to luxuries, rarities, drugs–tobacco and tea–and the occasional strategic, bulk, easily-shipped commodity like cotton. Instead, nearly anything could become the object of international trade.
Moreover, the profits–even the profits counterfactually holding oceanic transportation costs constant–from long-distance international trade grew markedly as a result of two sets of changes in the world economy. The first was the industrialization of northwest Europe: all of a sudden northwest Europe had an enormous comparative advantage in making manufactured goods–and thus an enormous increase in its desired trade of its manufactures for the raw materials and agricultural goods of what was to be the periphery of the first global economy. The second such shock was what iron and steam did to the availability of natural resources out on the periphery. All of a sudden copper, coal, coffee, and all of the other mineral and agricultural products could be much more cheaply extracted and then shipped by rail to ports.
Two gigantic comparative advantages–in extracting resources and delivering them to ocean ports where they could be shipped, and in making manufactured goods–had been created from nothing. And lowered intercontinental ocean transport costs suddenly made it possible to take advantage of these comparative advantages through specialization: the core specializing in the manufactures that its superior access to industrial technologies allowed it to produce cheaply, the periphery specializing in the primary products that its new infrastructure allowed it to export.
Moreover, the British Empire meant that the crops that a region could grow were not limited to those that it had traditionally grown. During the nineteenth century the rubber plant came to Malaysia, the tea shrub came to Ceylon, and the coffee tree came to Kenya. The comparative advantages of the regions that were to become the periphery of the late nineteenth century global economy were not so much given as made: made by innovative and entrepreneurial use of mineral deposits and climatic zones.
Given these differential potential comparative advantages–to make manufactured goods in northwest Europe in the late nineteenth century, and to extract materials and grow crops elsewhere–the coming of low ocean transportation costs produced enormous pressure to specialize: to create a region-by-region international division of labor. Exports boomed even half a world away from Europe’s industrial revolution. Between 1870 and 1913 exports as a share of national product doubled in India and in what was to become Indonesia, and more than tripled in China. And in Japan–forced out of two and a half centuries of Tokugawa isolationism–exports rose from practically zero to 7 percent of national product in the generation of the Meiji Restoration.
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