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February 20, 2008


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.


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.

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