|(From The Economist)
1492 AND ALL THAT
Did Europe's "age of discovery" give birth to an age of globalisation?
THE word "globalisation" is a new one, coined in the age of Davos and the
Big Mac. But global economic integration is an old process and just how old is
the stuff of fierce debate. There is plenty of evidence that, in several ways,
international economic links were closer in the 19th century than in much of
the 20th. Some go farther back, to the trade boom that followed the voyages
of Christopher Columbus and Vasco da Gama at the end of the 15th century. But
why focus on Europe, say others? Dennis Flynn and Arturo Giraldez, of
California's University of the Pacific, reckon that the world economy was "born" in the
1570s, by which time trade linked Europe, the Americas, Asia and Africa.
Yet a provocative recent paper* argues that there is little evidence that world markets were truly
integrated before about 1800. Kevin O'Rourke, of Trinity College, Dublin, and Jeffrey
Williamson, from Harvard University, agree that European trade with the rest
of the world boomed after 1500. It rose by about 1.1% a year over the next three centuries, probably faster than GDP. Evidence, surely, of global integration?
Not enough for economists, say the authors. For the test is not the quantity
of trade, but the price of traded goods. In a single market, the price of
spices relative to, say, the price of grain ought to be the same everywhere.
If the relative price of spices was much higher in the Netherlands than in the
East Indies, that would create profitable opportunities for pepper exports
to the Netherlands. As supply increased, however, the price gap should have
closed. So if the world economy was becoming more integrated in the 16th,
17th and 18th centuries, relative prices in Europe and its new trading partners
in Asia and the Americas should have moved closer together.
The trouble, say Mr O'Rourke and Mr Williamson, is that nothing of the sort
seems to have happened. For example, the mark up on cloves imported into
Amsterdam from South East Asia fell in the first half of the 17th century,
and then soared: it was far higher throughout the 18th century than it had been
in the 17th. Contrast this with the 19th century a period previously studied
by the pair when relative prices did converge.
Which raises two questions. Why did prices not converge? And, if market
integration did not cause the trade boom, then what did? The answer to the
first question is straightforward: trade was not free. There were high
import tariffs, and trade was dominated by state sponsored monopolies, such as the
Dutch and British East India Companies. So there was little chance of the
gap between prices in Asia or the Americas and Europe being narrowed by
The answer to the second question lies in a combination of rising import
demand from Europe, and rising export supply from Asia and the Americas. In some
periods, demand was the main cause; in others, supply. The authors argue
that European import demand depended on the incomes of the richest classes, the
only people likely to be able to afford such luxuries as spices, coffee and
foreign cloth. Because these people were landowners, their fortunes hung on the
price of land, which in turn may have been linked to population growth. When the
population increased, this drove up the demand for land and therefore rents,
putting more money in landlords' purses. It explains most of the increase in
trade in the 17th century when rising demand also pushed up the relative
price of imports and more than half of the increase in the 18th century.
However, during the 16th century European landlords' incomes fell. The
chances are that import demand was also weak. The relative price of Asian imports al
so fell during the century, while that of goods from the Americas rose. So the
increase in trade during that period was probably based on an increase in
the supply of goods from Asia to Europe.
AUTARKY AND THE MANILA GALLEON
Controversially, Mr O'Rourke and Mr Williamson wonder whether Chinese trade
policy may have been a cause of this. From the middle of the 15th century,
China stopped sending naval and "treasure" fleets abroad; thereafter its
trade policy varied, but was officially far less open, even autarkic. If China,
then a huge power accounting for perhaps one quarter of world GDP, stepped back
from trade, could it be that exports from the rest of Asia were diverted towards
Europe? Europe's trade boom would then be a product not of global economic
integration, but of its opposite.
Students of China are sceptical. Maybe, says Kenneth Pomeranz of the
University of California, Irvine, the policy of autarky did have some effect. But the
Chinese remained the biggest traders at important South East Asian ports.
"For most of the period," he says, "there really was no Chinese withdrawal from
In a new paper,** Mr Flynn and Mr Giraldez chart the enormous flows of Latin American silver
to China between 1500 and 1800, for use as currency. In the early 16th century,
the price of silver in terms of gold was about twice as high in China as in
Europe; the price gap lasted from 1540 until it disappeared under the weight
of increased silver production, mainly from Latin American mines such as the
great complex at Potosi, by about 1640. The huge, enduring arbitrage opportunity
drew in the metal: Spanish galleons brought more than 50 tons a year from
Acapulco to Manila, whence Chinese merchants carried it on. Another big price gap
opened up in the 18th century. Meanwhile, Chinese silk, porcelain and tea flowed
out of the country. "The idea that China was autarkic in this period is a
ridiculous myth," says Mr Flynn.
Still, say Mr O'Rourke and Mr Williamson, the effect of China's policy,
especially on relative commodity prices, is worth quantifying. The idea that
China was trading all the while does not mean that the official policy had
no effect. And if the effect was small, then why did Asian export supply
China aside, there is a lot else for historians to argue about. Evidence,
* After Columbus: Explaining the Global Trade Boom, 1500 1800", by Kevin
O'Rourke and Jeffrey Williamson. Centre for Economic Policy Research, 2001.
** "Cycles of Silver: Global Economic Unity through the mid 18th
by Dennis Flynn and Arturo Giraldez. Forthcoming, the JOURNAL OF WORLD