« Memo Question for February 13: Industrious Revolution | Main | Memo Question for March 5 »

February 20, 2008


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.


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.

The comments to this entry are closed.

Search Brad DeLong's Website