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Trade and Poverty: When the Third World Fell Behind

Author(s):Williamson, Jeffrey G.
Reviewer(s):Roy, Tirthankar

Published by EH.NET (July 2011)

Jeffrey G. Williamson, Trade and Poverty: When the Third World Fell Behind. Cambridge, MA: MIT Press, 2011. xii + 301 pp. $35 (hardcover), ISBN: 978-0-262-01515-8.

Reviewed for EH.Net by Tirthankar Roy, Department of Economic History, London School of Economics and Political Science.

Through a process of unprecedented market integration, a world economy emerged in the nineteenth century. Trade barriers fell, trade costs came down, and empires unified territories. Commodities were traded on a larger scale than ever before; labor, capital, and knowledge joined the basket of tradable; and new land frontiers opened up in order to feed industrial cities. In an earlier work with Kevin O?Rourke (Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy), Jeffrey Williamson has shown that increasing trade led to specialization and factor-price convergence on both sides of the Atlantic. Trade was not only an engine of economic growth but also aided transmission of growth until a ?backlash? began to form in the interwar period. Yet, if trade induced convergence of standards of living in the Atlantic world, it seemed to make the whole world more unequal in the nineteenth century. Did ?globalization? cause ?divergence??

Trade and Poverty argues that globalization increased world inequality by causing ?deindustrialization? in the commodity exporting third world. On the eve of the trade boom, the Industrial Revolution had begun in Europe. Other regions of Western Europe followed Britain?s lead. The trade boom was driven by a large fall in the prices of manufactured goods produced in Western Europe, and a rise in the demand for primary commodities available in the tropics. So large was the rise in demand and so large the technological leap that they jointly led to a long-term increase in the terms of trade, or the price of tropical exports as a ratio of the price of its imports. W. Arthur Lewis among others considered that the rise in the terms of trade was one of the drivers of tropical development. Williamson agrees, but adds to the picture the negative deindustrializing effects of relative price changes.

Chapters 1-5 of the book demonstrate, with facts and theory, the link between trade and inequality; place the timing of the terms of trade movement earlier than the conventional date, that is, in the first half of the nineteenth century rather than the second half; and with reworked datasets compares the major third world regions on the extent of terms of trade changes. Chapters 6-8 conduct three case-studies of deindustrialization ? India, Mexico, and the Ottoman Empire. Chapter 9 asks whether inequality within the commodity exporting regions increased, and if so, whether the increase was due to the terms of trade changes. Chapter 10 shows that price volatility in commodity export was relatively high, adding to the growth depressing effects of terms of trade changes. Chapters 12-14 add afterthoughts and draw out the ?morals of the story.?

Deindustrialization is the main moral of the story, and it is necessary to discuss the idea fully. The terms of trade boom had comparable effects upon the Atlantic economy and the rest of the world. In both cases, there was specialization and economic growth. The tropics experienced a better utilization of idle land and mining capacity, and could buy manufactured goods in increasing quantity and increasingly better quality over time for an unchanging bundle of primary products. But then, industrialization entailed greater prospects of endogenous growth, human capital accumulation, and increasing returns to scale; land-intensive growth faced diminishing returns. The tropics were deprived of the spill-over benefits of industrialization. Furthermore, the tropics experienced a decimation of its own artisan manufactures. There was ?Dutch disease? or a shift of resources away from other sectors towards exportable goods, and more exposure of the export economies to commodity price fluctuations. These effects could reduce the gains from trade for the commodity exporters compared with the gains that accrued to the manufactured goods exporters. This is how trade led to more inequality. Williamson is silent on ?poverty,? which figures in the title of the book but not in the index. Did trade cause poverty, or fail to remove it?

To show how the mechanism works, a model of a third world economy is developed. The economy has three sectors, grain, exportable commodity, and import-competing textiles. The real wage in grain units is set at the subsistence level. A fall in textile price (domestic producers are price takers) implies a rise in own wage in textile production, and consequently, a fall in labor demand in textile production. This is classic deindustrialization, and the effect is stronger the greater are the specialization and terms of trade shifts. The model allows for another pattern of deindustrialization, however. A rise in grain prices due to ?war, pestilence or the absence of the monsoon? (p. 56) would raise the nominal wage in textiles and again impart a depressing effect on labor demand there. War, pestilence and failure of monsoon live uneasily with the main thrust of the book, namely globalization. But Williamson needs them, as we shall see.

For the most part, the empirical-illustrative section of the book is persuasive. Given the economical yet versatile analytical frame, the reader never loses sight of the point of the numbers. Williamson?s own previous work, singly or with others, has been seminal in establishing the empirical foundations of globalization and world inequality. This book benefits from that accumulation of statistics and analytical insight. The three case studies ? India, the Ottoman Empire, and Mexico ? are excellently researched and executed. Above all, the book is mindful of the exceptions to the rule.

Over half of the population of the third world does not fit the predicted mechanism of divergence neatly. In East Asia, terms of trade fell in the long run. In South Asia, the rise happened earlier and to a much smaller extent than in Southeast Asia, Latin America, the Middle East, and the European periphery. In India, a large deindustrialization coexisted with moderate terms of trade gains, whereas the theory predicts that big specialization entails big changes in terms of trade. How does the book handle these exceptions? China?s trend is only briefly discussed. And chapter 6 handles the Indian situation with originality, but not sufficient persuasive power.

Williamson?s solution to the Indian paradox is war, pestilence, and failure of the monsoon. The disintegration of the Mughal Empire and more frequent droughts caused agricultural productivity to fall and grain prices to rise in India, which ushered in a deindustrialization. The evidence for any of this is ?particularly thin? (p. 81). The wage and price statistics quoted are not detailed enough for a part of the world where regional differences were large. Historians of India have long known that Mughal collapse and economic dislocation did not go together. For example, the regions that led cotton textile production in the eighteenth century were located near the seaboard or within easy access from it, whereas imperial collapse affected regions that were located hundreds of miles into the interior. Anarchy in Rohilkhand, which is discussed, should not affect the weaver in Bengal. The peninsula by and large did not form a part of the Mughal Empire. In textile producing seaboard states, such as Bengal, which broke away from the Empire about 1715, there was agrarian expansion and clearing of the forests. It is not definitively known if the frequency of droughts did in fact increase; where in India it did; whether the droughts were a random risk or a systemic one; if a systemic one, why environmental change affected only India; and why the failure of rains should reduce land yield permanently.

If we remove war-pestilence-drought from the analysis, does the analysis lose bite? Not necessarily. One possible response to the paradox is that India did not deindustrialize as much as the book claims, and as much as the other regions did. After all, in 1911, four million artisanal textile workers earned a living in India. Williamson thinks India was exceptional in suffering an acute deindustrialization; in fact, India was exceptional on the point of survival of artisanal textiles on a gigantic scale. Such survival can be explained by (a) adding to the story a differentiated consumption pattern in the textile importing countries, and (b) making a distinction between cotton yarn, where price effects were devastating, and cotton cloth, where they were not. The upshot is that the extent of the fall in textile employment was of a comparatively moderate order in India. Recent scholarship on craft history has followed these roads; the book seems unaware of the literature.

More fundamentally, it remains questionable how much of world development globalization explains after all. The world is actively trading now. And poverty persists too. Clearly, some poverty and some poor regions are immune to globalization. Because they are, the big challenge that the present pattern of economic growth poses in India, China, or Africa is emerging regional inequality. Likewise in the tropical trading world of the nineteenth century, globalization transformed some regions and left others untouched. Bombay narrowed its gap with the Atlantic world, Bundelkhand fell further behind. Seen from the third world perspective, the so-called ?great divergence? would seem to be a trivial issue. The really useful question is not why ?India? fell behind Britain ? ?India? did not ? but why Bundelkhand fell behind Bombay. Williamson?s method of explaining inequality, with reference to the wage-rental ratio, does not answer the question. A simpler model would note the persistence of high trade costs and the availability of too little tradable surplus over subsistence in large parts of the arid tropics, where land yield continued to be very low.

A further problem with the approach is anticipated in the book. It takes industrialization as a given. But why did industrialization have to start in Europe in the first place? What factors prevented the third world from industrializing first? Why did the industrializing impulse cross some borders but not others? These questions the book wisely does not engage in save a few customary citations from the institutionalist literature, which does not offer much on the institutional history of the five and a half billion people who live in the poorer world today. But then, a very important part of the phenomenon of forging ahead and falling behind remains outside the model.

Still, Trade and Poverty is undoubtedly an important and authoritative work, one that should take the current discourse on globalization and divergence to a new level. It shows the utility of thinking about world development in terms of patterns of trade, and also shows the pitfalls, thanks to Williamson?s cautious and reliable handling of the data. It justifies the reputation of its author as one of the architects of neoclassical economic history.

Tirthankar Roy is the author of The Economic History of India, 1857-1947 (Oxford University Press, Third Edition, 2011), and India in the World Economy from Antiquity to the Present (Cambridge University Press, forthcoming).

Copyright (c) 2011 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (July 2011). All EH.Net reviews are archived at

Subject(s):Economywide Country Studies and Comparative History
International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
Latin America, incl. Mexico and the Caribbean
Middle East
Time Period(s):19th Century
20th Century: Pre WWII

The Futures: The Rise of the Speculator and the Origins of the World?s Biggest Markets

Author(s):Lambert, Emily
Reviewer(s):Santos, Joseph M.

Published by EH.NET (June 2011)

Emily Lambert, The Futures: The Rise of the Speculator and the Origins of the World?s Biggest Markets. New York: Basic Books, 2010. xiv + 226 pp. $27 (hardcover), ISBN: 978-0-465-01843-7.

Reviewed for EH.Net by Joseph M. Santos, Department of Economics, South Dakota State University.

In The Futures, Emily Lambert, a senior writer for Forbes, highlights some of the personalities, commodities, and controversies that catalyzed and shaped the growth of futures trading in Chicago and, to a lesser extent, elsewhere.? The author describes how agricultural marketing evolved and then focuses on events surrounding the Chicago Board of Trade and the Chicago Mercantile Exchange after the Second World War.? (The two exchanges merged in 2006 to form the CME Group.)

Many EH.Net subscribers are familiar with the broad history of events that inform this book.? In essence, commodity futures trading in North America was spurred by the Illinois-Michigan Canal (1848), the growth of Lake Michigan commerce that followed, and a confluence of innovations, including grain elevators, railroads, grain exchanges, and forward contracts.? The canal allowed farmers in the hinterlands along the Illinois River to ship grain to Lake Michigan dealers, who sent much of it to Chicago.? Elevators and the railroad facilitated high-volume grain storage and shipment, respectively.? Meanwhile commodity exchanges, spawned from boards of trade along Lakes Erie, Michigan, and St. Clair, established a system of staple grades, standards, and inspections that rendered grain fungible and so made possible organized trading in spot and forward markets (Baer and Saxon 1949, p. 10, Chandler 1977, p. 211).? The Board of Trade of the City of Chicago was established in 1848.? In March, 1863 it adopted its first rules and procedures for trading in forward contracts and in May, 1865 it transformed actively traded and largely homogeneous forward contracts into futures contracts (Hieronymus 1977, p. 76).? Futures trading ripened in the 1860s, by which time the Board was the premier organized grain exchange.? The Chicago Mercantile Exchange — then, the Chicago Produce Exchange — was established in 1874.? Since then, futures trading has grown enormously, while the public?s perception of its legitimacy and their calls to proscribe or, at the very least, more-heavily regulate it have waxed and waned.

Lambert writes to entertain as much as to inform a general audience.? As such, she loosely chronicles this history in several well-told stories about unfailingly colorful individuals who created, marketed, and/or manipulated contracts that derived from fifteen commodities and financial assets; Lambert devotes a chapter to each of these.? For example, in chapter one (titled, ?Grain?), the reader meets Joseph Leiter, who nearly cornered the Chicago wheat market in the early winter of 1897.? Leiter?s efforts failed when Philip Armour, determined to thwart the corner, hired ice-breaking ships and tugboats to ensure timely passage of wheat from Minnesota (through Duluth harbor and the Soo Canals) to Chicago.? The Leiter episode inspired Frank Norris?s classic, The Pit (1903), in which the protagonist, Curtis Jadwin, is ruined by his need to corner the Chicago wheat market.? In chapter four (titled, ?Onions?), the reader meets Vincent Kosuga and Sam Siegel, who cornered the Chicago onion market in the fall of 1955 –when the two owned 98 percent of the onions in Chicago — and, then, sold their positions en masse.? Onion prices and farm incomes collapsed.? Politicians including Michigan Congressman Gerald Ford argued to ban futures trading in onions; the Onion Futures Act of 1958 ultimately did.? The Chicago Mercantile Exchange responded with a new contract derived from a slab of uncured hog meat; yes, pork-belly futures are the unintended consequence of regulation.? And, in chapter seven (titled, ?Currencies?), the reader meets Leo Malamed, a lawyer who became a member of the Chicago Mercantile Exchange in 1954, and its chairman in 1969.? In 1972, the Mercantile Exchange introduced futures contracts on currencies — an innovation that failed to take flight at the New York Produce Exchange, where such contracts first appeared two years earlier.? The result was the Mercantile Exchange?s International Monetary Market (IMM) — so called because Malamed believed it ?sounded grand? and disassociated the new currency pits with those of, say, pork bellies (p. 79).? Milton Friedman famously endorsed the IMM; and Paul Samuelson famously criticized it.? In any case, the timing proved perfect: Bretton Woods ended in 1971, the dollar essentially floated freely thereafter, and trading in currency futures thickened tremendously.

In other chapters, Lambert chronicles in similar fashion the evolution of futures contracts on soybeans, eggs, cattle, oil, carbon, and stock indices; interest-rate futures contracts on (Ginnie-Mae) mortgages, Treasury bonds, and Eurodollars; and options contracts on stocks.? Moreover, throughout the book, Lambert profiles Chicago?s trading culture, which she describes as entrepreneurial, risk loving, clubby, male dominated, reckless (to a point), selfish (in the pits), and dynamic — the cultural profile of a business that she concludes, ?balance[s] individual freedoms with an unlikely social responsibility? (p. 201).? Hence, like so many courts, legislatures, and economic historians before her, Lambert essentially maintains that futures markets improve welfare, though she does not substantiate this claim.? Moreover, Lambert infers from the recent financial crisis, to which futures exchanges were seemingly immune, a strong case for more exchange-based trading, complete with daily (mark-to-market) clearing mechanisms and other such rules of the game.

The Futures entertains readers with stories about the evolution of futures exchanges in Chicago, and it encourages them to consider the constructive role that these institutions have played in our financial system.? It is neither a primer nor a rigorous economic history.? Hence, the book will probably appeal most to readers who are familiar with the practical aspects of the business.? Newcomers to futures trading might wish for more detailed explanations about each of these contracts, including how traders value, settle, and clear them; and how hedgers use them to mitigate their exposure to market risk.? Meanwhile, economic historians might wish for more evidence, backed by a more extensive bibliography, to support and expand upon the interesting twists and turns that make up this very readable book.


Baer, J. B., and O. G. Saxon. (1949) Commodity Exchanges and Futures Trading: Principles and Operating Methods. New York: Harper & Brothers.

Boyle, J. E. (1920) Speculation and the Chicago Board of Trade. New York: The MacMillan Company.

Chandler, A. D. (1977) The Visible Hand: The Managerial Revolution in American Business. Cambridge, Mass.: Belknap Press.

Hieronymus, T. A. (1977) Economics of Futures Trading for Commercial and Personal Profit. New York: Commodity Research Bureau, Inc.

Rothstein, M. (1982) ?Frank Norris and Popular Perceptions of the Market,? Agricultural History, 56, 50-66.

Joseph M. Santos ( is Professor of Economics at South Dakota State University, where he teaches courses in macroeconomics and monetary policy.? His study of contemporary Canadian and U.S. monetary policy frameworks, ?What?s So Special about Inflation Targeting? A Comparative Analysis of Canadian and U.S. Monetary Policy? is forthcoming in the American Review of Canadian Studies.

Copyright (c) 2011 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2011). All EH.Net reviews are archived at

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Trade and Empire in the Eighteenth-Century Atlantic World.

Author(s):Hamilton, Andrew
Reviewer(s):Coombs, John C.

Published by EH.NET (October 2010)

Andrew Hamilton, Trade and Empire in the Eighteenth-Century Atlantic World. Newcastle upon Tyne, UK: Cambridge Scholars Publishing, 2008. vii + 168 pp. $70 (hardcover), ISBN: 978-1-84718-837-0.

Reviewed by for EH.NET by John C. Coombs, Department of History, Hampden-Sydney College.

Readers of Andrew Hamilton?s Trade and Empire in the Eighteenth-Century Atlantic World are going to find something quite different than the broad-ranging, and perhaps even comparative study that the book?s title suggests.? What Hamilton offers instead is a relatively short, accessible, and focused examination of new ideas about political economy, particularly concerning the subject of free trade, that circulated among English and Scottish (and to a lesser extent French) intellectuals in the latter decades of the eighteenth century, as well as the failed attempts — undertaken by British prime minister Lord Shelburne and his personal secretary Benjamin Vaughan on the one hand, and U.S. president John Adams on the other — to translate those ideas into policy during the years following the American Revolution.?

After an introduction in which Hamilton describes his interpretive approach and its grounding in the works of J.G.A. Pocock, Bernard Bailyn, and Felix Gilbert, the book?s argument progresses along two threads.? The first is a sort of primer on key elements of free-trade ideology — from ideas about the proper role of the state in the economy and the genealogy of ?laissez faire,? through the problem of trade imbalances between states at differing levels of economic development, to the belief that unfettered commerce could bring an end to conflict and encourage amity among nations. The second thread has an almost biographical character, as Hamilton sketches the backgrounds of Shelburne and Vaughan and their connections with various economic theorists and religious nonconformists, as well as the ties Vaughan had developed with the American diplomats negotiating the 1783 Treaty of Paris, particularly Benjamin Franklin. The two tracks come together in a penultimate chapter discussing Vaughan?s 1788 treatise New and Old Principles of Trade, which is followed by a brief conclusion in which Hamilton analyses how restrictive British trade laws prompted the Adams administration to abandon its free trade position and adopt a more protectionist stance.?

Interweaving these two threads, Hamilton contends that Shelburne sought to apply Enlightenment notions of political economy at the peace negotiations in Paris, which he hoped would lead to either a reformed empire tied together by commerce rather than territorial dominion or, failing that, a mutually beneficial relationship between Britain and an independent America based on free trade.? Hamilton elucidates this connection between theory and policy quite well, and his arguments for the importance of Vaughan?s contributions, both as a thinker and as a vital intermediary during the Paris talks, are also compelling and persuasive. But the British government issued an Order in Council prohibiting the United States from trading with the West Indian colonies and Parliament?s dissatisfaction with the peace treaty forced Shelburne to resign as Prime Minister, thus begging the question of why the policy he and Vaughan wanted and worked for was ultimately rejected. If Britain?s protectionism brought an end to the ?liberal moment? in American foreign policy, as Hamilton asserts, what caused British officials to pursue the course they did in the first place?
Hamilton all but ignores this question, including no discussion of Parliament?s deliberations over the peace treaty or the arguments put forward by Shelburne?s political opponents.? Similarly, although he notes that Vaughan unsuccessfully fought to have the Order in Council rescinded as a member of the Committee of West India Merchants and Planters, he does not explain what this organization did or examine the reasoning behind the government?s response.? Was it simply that a majority of the men in power were just too lacking in vision and too wedded to established conceptions of empire to see the potential benefits of embracing free trade? Because of Hamilton?s silence, the reader can only guess. To be fair, in the introduction Hamilton sets for himself the task of revealing how new theories of political economy were practically applied in the pursuit of a political settlement to the problems confronting the British Empire in the late eighteenth century, and he does a solid job of meeting that objective.? Yet by declining to more fully describe the intellectual and political resistance to policy grounded in the ?new principles? espoused by theorists such as Adam Smith and Vaughan, he does not provide the reader with any real sense of the debate over trade and empire in the period, and the result is a book that is less satisfying than it otherwise might have been.
Still, Trade and Empire has much to recommend it.? Although it is difficult to say how helpful experts in the history of political economy will find the book given its heavy reliance on secondary scholarship that is likely well-known to specialists, graduate students who are less steeped in the literature will doubtlessly find Hamilton?s concise summary of key concepts and syntheses of disparate works to be quite helpful and thought provoking.? At a time when issues relating to free trade are constantly in the news, the book would be an excellent addition to any history or economics class focusing on the subject of political economy, and could potentially add an interesting angle to courses on the American Revolution.? Unfortunately, its rather steep price renders adopting it for undergraduate teaching a rather problematic proposition.

John C. Coombs, Associate Professor of History at Hampden-Sydney College, is co-editor, with Douglas Bradburn, of Early Modern Virginia: Reconsidering the Old Dominion and author of The Rise of Virginia Slavery, both of which are forthcoming with the University of Virginia Press.

Copyright (c) 2010 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (October 2010). All EH.Net reviews are archived at

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Europe
North America
Time Period(s):18th Century

Power and Plenty: Trade, War and the World Economy in the Second Millennium

Author(s):Findlay, Ronald
, Ronal

Published by EH.NET (August 2008)

Ronald Findlay and Kevin H. O?Rourke, Power and Plenty: Trade, War and the World Economy in the Second Millennium. Princeton: Princeton University Press, 2008. xxvi + 619 pp. $39.50 (cloth), ISBN: 978-0-691-11854-3.

Reviewed for EH.NET by ?evket Pamuk, London School of Economics and Bogazi?i-Bosphorus University.

Ronald Findlay of Columbia University and Kevin H. O?Rourke of Trinity College, Dublin have written a magisterial account of the history of international trade during the last millennium. They provide a theoretically coherent account of the interaction between the patterns and evolution of inter-regional trade, on the one hand, and long-term global economic and political developments, on the other. The two way interaction between power and plenty as formulated by Jacob Viner but going back much earlier in its origins, constitutes the analytical backbone of the volume. Findlay and O?Rourke argue convincingly that no history of international trade can ignore conflict, use of force, military exploits, and in turn, geopolitics. They draw upon a large volume of secondary historical and political literature as well as economic theory and succeed in integrating a vast amount of detail as well as their own research into their conceptual framework.

A large part of the exposition and analysis of the major developments in international trade proceeds in terms of the interaction between the seven regions of Eurasia as defined by the authors and the contributions arising from these interactions, in terms of the movements of people, crops, ideas, and techniques as well as commodities. A good deal of emphasis is placed on the importance of geography in explaining the interactions between the seven regions with very different physical features and endowments. This skillfully written volume is a work of extraordinary scope, a major achievement.

For the first half of the millennium, the authors should be commended for focusing on two key events, the Pax Mongolica and the Black Death, both of which involved most, if not all, of the seven regions. The unification of the central Eurasian landmass by the Mongols in the thirteenth and early fourteenth centuries facilitated the interaction of Western Europe and different regions of Asia from the Atlantic to the Pacific Ocean. Mongols encouraged trade and made the routes across Eurasia safer and busier. Arguably, this was the first episode of globalization in history. Moreover, it was the disintegration of the Pax Mongolica and the shift of the trade to the southern routes across the Indian Ocean and the Middle East that led to the search for alternative ways of reaching Asia by western Europeans. As the authors point out, the ultimate legacy of the Pax Mongolica was not, perhaps, the increase in the interaction between Europe and Asia but the mutual discovery of Europeans and native Americans.

The Black Death, which originated in Mongol-controlled Asia but ended up in the Middle East and Europe, brought about far-reaching consequences for these regions. The sharp decline in the population led to an even sharper rise in wages. This high-wage environment, which lasted for at least two centuries, brought about very different demographic, economic, social and other responses not only between Europe and Asia but also within Europe, between the northwest and the south. As the authors make clear, the long-term consequences of the Black Death have not been fully analyzed and deserve more attention from economic historians.

For the second half of the millennium the focus of the volume is on the rise of an international economy and its contribution to the Industrial Revolution. The authors see the Industrial Revolution as the culmination of a long historical process involving the interaction of all the world?s regions through trade and transfer of technology. Findlay and O?Rourke emphasize that any account of the ?Rise of the West? that focuses purely on domestic developments ? such as western institutions, cultural attributes or endowments and ignores the vast web of interrelationships between Western Europe and the rest of the world ? is hopelessly inadequate. They argue that the Industrial Revolution needs to be understood as the outcome of a historical process with multiple causes going back to the medieval era in which international movements of commodities, warriors, microbes and technologies all played important roles. They also make clear that the Industrial Revolution not only transformed the international trading system but also gave rise to huge disparities around the globe as the spread of industrialization has been very uneven in the two centuries since.

Plunder or primitive accumulation may not have fueled the Industrial Revolution directly, but the authors emphasize that by expanding markets and ensuring the supply of raw materials, mercantilism and imperialism were an important part of the story. Violence did matter and often shaped the environment in which this exceptional event took place. The authors acknowledge that Asians and those from other regions of the world were not passive actors. They also ask two key questions with regard to the Industrial Revolution: why Britain and why Europe? The answers to both include not only the domestic factors but also control of long distance trade, overseas markets and raw materials. They emphasize in many parts of the text the key role played by the British navy in a world in which nations systematically excluded their enemies from protected markets.

The remaining chapters of the book are devoted to the analysis of the unprecedented expansion of international trade during the last two centuries, based on the ?Great Specialization? (manufactures vs. agriculture) that emerged in the aftermath of the Industrial Revolution and remained in place until recently. The ratio of world trade to GDP is sharply higher today than it was two centuries ago, but this rise has not been continuous. The powerful trend for globalization during the nineteenth century was followed by the collapse of world trade or deglobalization after 1914 and a more or less steady expansion of trade once more or reglobalization since the end of World War II.

One theme that is conspicuously absent in this volume is institutions ? which have occupied center stage not only in the economic history literature but also in economic theory in recent years ? and their impact on trade and economic development. While the authors emphasize the importance of international trade for the ?Rise of the West,? they could have focused more explicitly on the linkages between international trade and institutional change. One can think of at least two major channels through which long distance trade facilitated institutional change in Europe. During the period before 1000 and even until 1500, trade with other regions allowed Europe to learn about and then adapt some commercial, monetary and financial institutions. The transmission of the Islamic institution of business partnership or the mudaraba to the north of the Mediterranean in the form of the commenda is an important example of such borrowing and adaptation. These exchanges were very important for the development of western European institutions and the authors mention some of them. In the early modern era (that is after 1500) trade with other regions of the world led to institutional change in Europe through another mechanism. By giving greater power to merchants, long distance trade enabled them to shape the institutions in early modern Europe more forcefully in the direction of capitalism, as Acemoglu, Johnson and Robinson have recently emphasized. Arguably, greater political as well as economic power for merchants is an important characteristic that sets Europe apart from the other regions. It also provides another dimension to Viner?s power and plenty couple which is at the analytical center, as well as the title, of this book.

This is a well researched volume which is simply delightful to read. In most of the topics about which I have some knowledge, I found the analyses and the judgments offered by the authors both balanced and insightful. I expect this book will remain the standard text for many years to come.

?evket Pamuk teaches economic history and political economy at the London School of Economics and Political Science and Bogazi?i-Bosphorus University, Istanbul. His recent publications include A Monetary History of the Ottoman Empire (Cambridge University Press, 2000) and ?The Black Death and the Origins of the Great Divergence inside Europe, 1300-1600,? European Review of Economic History, 2007.

Subject(s):Military and War
Geographic Area(s):North America
Time Period(s):Medieval

At the Centre of the Old World: Trade and Manufacturing in Venice and the Venetian Mainland, 1400-1800

Author(s):Lanaro, Paola
Reviewer(s):D'Amico, Stefano

Published by EH.NET (July 2007)

Paola Lanaro, editor, At the Centre of the Old World: Trade and Manufacturing in Venice and the Venetian Mainland, 1400-1800. Toronto: Centre for Reformation and Renaissance Studies, 2006. 412 pp. $32 (paperback), ISBN: 978-0-7727-2031-3.

Reviewed for EH.NET by Stefano D’Amico, Department of History, Texas Tech University.

The eleven essays in this volume, edited by Paola Lanaro, Professor of History at the Ca’ Foscari University of Venice, represent an important contribution to our knowledge of the economy of the Venetian State in the early modern period and, more generally, to the debate on the Italian economic decline in the seventeenth century. Traditionally, Venetian economic history focused on the capital city and its prosperous trading activities. In the last two decades, however, the argument advanced by Cessi and Luzzato that commercial interests and the protectionist measures supported by the great international merchants had hindered the development of urban industries, has been questioned, and the role of the industrial sector of the economy reevaluated. New studies have also shown the importance of the economic development of the lesser cities of the mainland and their proto-industrial districts. Following these lines, At the Centre of the Old World calls for a reexamination of the economic history of Venice and Veneto from the fifteenth to the eighteenth centuries, focusing on the interaction between the capital city and its dominions, and their successful attempt to adjust to the changing European economy.

The volume is divided into two parts, the first analyzes the economy of Venice, and the second that of other centers and areas of the mainland. Paola Lanaro’s introductory essay very clearly and effectively discusses the historiography on Venetian economic history and the new directions of research. The analysis of the Venetian economy is opened by an essay by Andrea Mozzato, who demonstrates convincingly how wool manufacturing did not develop only in the sixteenth century when commercial opportunities declined, but was already prosperous in the previous century. Mozzato argues that the industrial sector actually took advantage of Venice’s commercial power, which could easily provide raw materials and sell the finished products on international markets. Marcello Della Valentina examines the organization of the urban silk industry in the seventeenth and eighteenth centuries, stressing a flexibility that allowed it to adjust to the changing market and to remain competitive. Fewer high quality cloths were woven and Lyons fabrics were copied and exported to the East where Venice still enjoyed an undisputed supremacy. At the same time, cheap female labor gradually replaced that of guild workers. Although they were unable to innovate in terms of technology and fashion, trade guilds never opposed the introduction of technical innovations or foreign technicians and weavers and were able to adapt to an evolving market.

Francesca Trivellato examines a similar flexibility in the Murano glass industry which, facing competition in crystal glass by northern European countries, moved to Venice and employed women in bead manufacturing and immigrants from Friuli in the production of small-size mirrors. Glass beads were shipped to the Levant and Western Europe for re-export to the colonies, while mirror plates were sold mainly to the Italian market. In a more general essay on the industries of Venice in the seventeenth and eighteenth centuries, Walter Panciera argues that the urban economy was remarkably resilient. In the eighteenth century, besides the glass industry, new manufactures, like printing, chemistry and cotton, were able to flourish. In the more traditional textile sector, silk replaced wool, which did not disappear, but was simply transferred to the Terraferma. Panciera stresses that, the economy of Venice cannot be considered separately from the economy of the rest of the Veneto, especially starting from the seventeenth century.

The first essay of the second section, by Edoardo Demo, examines the urban textile industry of the Venetian mainland between the fifteenth and seventeenth centuries. Demo effectively shows how this area represented one of the most important European industrial regions during this period. A growing sericulture counterbalanced the decline of the wool industry, and the latter still flourished in Bergamo and in many centers of the foothills area like Schio and Valdagno. Francesco Vianello explains how the crisis of the 1590s led either to the beginning of or to an acceleration of the processes of territorial diversification and specialization for rural manufactures in the area of Vicenza, Padova and Treviso. Carlo Marco Belfanti focuses on hosiery manufacturing stressing its resilience and its growing role in the textile market, while Giovanni Favero illustrates the contribution to the regional economy of the new factories of fine majolica in small and medium sized towns of the mainland, such as Bassano, since the early eighteenth century.

Luca Mocarelli studies the case of Venetian Lombardy which, in the seventeenth and eighteenth centuries, became one of the more lively European economic districts. Bergamo and Brescia could count on their privileged economic relations with both Venice and Milan and developed important wool, iron, paper and silk manufactures. At the end of the eighteenth century they produced 10 percent of Italian thrown silk.

In the conclusion to the volume, Maurice Aymard stresses not only the flexibility and adaptability of Venice to variations in demand, products and techniques, but also the creation of a new economy for the region, whose resources were used more effectively. The Venetian case clearly illustrates how in pre-modern Europe “the growth of the urban sector, and especially of the largest city, can no longer be considered … as the only indicator of the vitality of an economy” (p. 369).

The eleven essays successfully synthesize the most recent trends in the economic history of early modern Italy. They represent an invitation to historians to continue the analysis of the countryside and the rural industries, whose role ? especially after the seventeenth century ? became essential; and at the same time, to reevaluate the role of the urban economies and their ability to adjust to the new trends due to a flexible productive organization that was not always hindered by and in some cases even favored by the presence of the guilds. As Francesca Trivellato writes in her essay, the guilds “in the hands of capable entrepreneurs … became malleable tools of winning short- and medium-term economic strategies” (p. 145).

However, more than in the importance of the single contributions, the value of the volume lays in the successful attempt of providing for the first time an analysis of the economy of a large and important Italian region, and to study its development within the Italian and European contexts. Hopefully other regional syntheses will soon follow this model, allowing us to reach a better understanding of the characteristics and transformations of the Italian economy in the early modern period.

Stefano D’Amico is Associate Professor of History at Texas Tech University. He is the author of a book and several articles on the social and economic history of Milan in the sixteenth and seventeenth centuries. He is currently working on a manuscript tentatively titled A City within the Empire: Spanish Milan, 1535-1706.

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Europe
Time Period(s):Medieval

Housing the Stranger in the Mediterranean World: Lodging, Trade, and Travel in Late Antiquity and the Middle Ages

Author(s):Constable, Olivia Remie
Reviewer(s):Greif, Avner

Published by EH.NET (July 2005)

Olivia Remie Constable, Housing the Stranger in the Mediterranean World: Lodging, Trade, and Travel in Late Antiquity and the Middle Ages. Cambridge: Cambridge University Press, 2003. xii + 427 pp. $65 (hardcover), ISBN: 0-521-81918-0.

Reviewed for EH.NET by Avner Greif, Department of Economics, Stanford University.

Building on her impressive command over historical sources — particularly in Latin, Arabic, and Spanish — Constable has produced an interesting book about the ways in which travelers were housed, particularly those involved in trade in the Mediterranean world in late antiquity and the middle ages. The discussion centers on the classical Muslim funduq (a structure in which, generally speaking, travelers resided, stored their goods, traded, and were often taxed). The book also examines in impressive detail the funduq’s origins in the ancient world, its importance to European trade in Muslim lands, its adoption in various European states (where it was often called fondacos), and its relationship to other lodging facilities. The book provides a wealth of information regarding the particularities of the different histories of funduqs and fondacos in various areas. It also reaches some general conclusions: the importance of the funduq, in its various forms, in fostering cross-cultural exchange, how it was shaped by rulers’ interests in trade and changing economic and political circumstances, and that late medieval European fondacos in Muslim states were not, as one might intuitively expect, precursors of colonization.

The short introduction states the purpose of the book, emphasizing that the Mediterranean world constituted one economic unit for much of the period from the fall of the Roman empire to the rise of the early modern empires. Yet, relatively little work has been devoted to the actual means that enabled people to live away from their homelands while traveling around the Mediterranean. Chapter 1 discusses the nature, functions, and history of the pandocheion (meaning, ‘accepting all comers’) from the first to the seventh centuries, highlighting its particular prevalence in the Syrian area of the Byzantine empire. In this historical episode, the pandocheion was mainly a paid lodging establishment and was not particularly devoted to commerce. Chapters 2 and 3 discuss the transformation of the pandocheion into the funduq during and after the emergence of the Muslim empire. These chapters discuss how, from the seventh to the thirteenth centuries, the funduq became the characteristic establishment from Syria to Spain, where it began to increasingly serve as a lodging for pilgrims and traveling merchants. As such, it evolved into a place to also store goods, and thus became an important resource for rulers who wished to direct, control, and benefit from trade. Funduqs specialized in dealing with particular goods, merchants from specific localities, and pilgrims. Interestingly, the Byzantine pandocheion was influenced by these developments in the Muslim world and changed its form and function in the same manner.

Chapter 4 discusses the establishment of European fondacos in Muslim areas during the eleventh and twelfth centuries. A fondaco in a Muslim state functioned like a funduq, but was dedicated to the accommodation of merchants from a particular European “nation,” such as Genoa, Venice, or Catalan. Christian merchants, who came from outside the Muslim world, presented new problems regarding security, religious freedom, interactions with locals, the law, control of the establishment, etc.. The chapter presents the mitigating responses to these problems which were crucial to enabling trade between Europe and the Muslim world during this period.

Chapters 5 and 6 consider the implications of the European conquest of previously Muslim areas in Spain, Sicily, and the Crusaders’ States. These chapters emphasize that because the new rulers’ recognized the importance of the funduqs in facilitating, controlling, and taxing trade, they incorporated them into their economic administration. This implied various changes in the ownership and nature of the funduqs, which, in particularly, were increasingly owned by the crown.

Chapters 7 and 8 discuss the relative decline, particularly from the thirteenth to the fifteenth centuries, of the funduqs in the Muslim states. It argues that two forces contributed to this trend, and to the rise of alternative establishments such as khans and wakalas. The first is political change, changes in trade routes, and greater oversight of commerce by the state. The second is the increasing association of funduqs with non-Muslim traders. The movement away from the funduqs was less pronounced in North Africa, and the chapters discuss the sources of this distinct development. Chapter 9 returns to the adoption of the fondaco in areas of the European Mediterranean that traded with the Muslim world but did not have a Muslim residence for visiting traders. In these areas — northern Italy, southern France, and the Dalmatian coast — fondacos were established from the twelfth to the fifteenth centuries. Because merchants in these areas shared the same religion, by and large, these fondacos did not provide lodging. They served only as places to store, tax, and control trade; trading activities were conducted in alternative commercial spaces such as the loggia. The short conclusion emphasizes the importance of the pandocheions, funduqs, and fondacos as facilitators of cross-cultural exchange and that the European fondacos in Muslim lands were not precursors for colonization but represented a distinct trading system.

This book will be an asset to any economic historian interested in the mechanism through which long-distance, pre-modern trade was actually conducted. It is rich in illuminating details regarding the location, size, administration and function of the pandocheions and their later derivatives in the Muslim and European worlds. The overall analysis, however, is guided by tracing particular terms in the historical records. Focusing on terms rather than on issues (e.g., storing goods, residing abroad, controlling trade, etc.) limits the benefits of the analysis. The reader is left without a comprehensive understanding of the broader phenomenon that motivated this study, namely, the means by which cross-cultural movements of people and goods were facilitated. There were substitutes for the funduqs in the Muslim world and there were other establishments that hosted foreigners in European political units. How do the pandocheions and their derivatives fit into this broader picture? Constable is well aware of the limitations of her study and provides some discussion of alternatives to the funduqs in the Muslim world (e.g., the khan). Hopefully, future comparable studies on these alternative establishments will enable us to better understand the pandocheion and its derivatives in a broader context. Constable’s contribution is a first promising step in this direction.

Avner Greif’s publications include “A Theory of Endogenous Institutional Change,” (with David Laitin) American Political Science Review (2004) and “Cultural Beliefs and the Organization of Society: Historical and Theoretical Reflection on Collectivist and Individualist Societies,” Journal of Political Economy (1994). His book, Institutions and the Path to the Modern Economy: Lessons from Medieval Trade, will be published by Cambridge University Press.

Subject(s):Markets and Institutions
Geographic Area(s):Middle East
Time Period(s):Medieval

A Trading Nation: Canadian Trade Policy from Colonialism to Globalization

Author(s):Hart, Michael
Reviewer(s):Marr, Bill

Published by EH.NET (August 2004)

Michael Hart, A Trading Nation: Canadian Trade Policy from Colonialism to Globalization. Vancouver: University of British Columbia Press, 2002. xv + 556 pp. $29.95 (paperback), ISBN: 0-7748-0895-0.

Reviewed for EH.NET by Bill Marr, Department of Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada.

Michael Hart of Carleton University has written an important, interesting, and readable account of Canada’s trade policy from the sixteenth century to the end of the twentieth century, with emphasis on the years since the Second World War. About 28 percent of his book is devoted to the history before the 1940s, about 40 percent covers the 1940s to the early 1970s, with 32 percent for the remainder of the twentieth century. Hart’s book is important for at least two reasons. First, it sets out in one place the history of Canada’s trade policy over a long period of time. Anyone who wants to read about the basic outline and features of that policy will find it here. Second, because Hart relates that trade policy to the general economic history of Canada, the reader appreciates, in general terms, how that policy may have affected Canada’s economic growth and economic development. This is a book about general themes and features; if interested, readers can look for specific details in other places.

Hart appears to have two goals for writing his book. First, he wants us to understand and appreciate the history of Canada’s trade policy. This descriptive goal is admirably achieved in this book. He believes that we need to understand the past in order to appreciate present trade policy; it did not appear full blown, but evolved over the decades and centuries. Second, Hart endeavors to set out the contribution that trade policy made to Canada’s economic growth and development, and to Canada’s place in the world economy. Whenever possible, he relates a particular policy to the Canadian and world economies, and tries to evaluate its effects. This is easier to do for some time periods than for others because the mix of other causal factors (besides trade policy) is much larger in some of those periods than in others. But give him credit for attempting this largely impossible task. Since Canada and British/French North America has always been an “open” economy, trade policy, which affects trade, has been an important causal factor in the region’s economic growth and development. Hart’s exposition of those policies is therefore almost an economic history of those regions; his book could almost stand alone as a textbook for a course in Canadian economic history.

The first part of Hart’s book, covering the period before the 1940s, describes and assesses the impact, among others, of mercantilism, the Corn Laws, the Navigation Acts, Reciprocity with the United States, free trade by Britain, bilateralism, and protectionism from the viewpoints of Canada’s or British North America’s trade policy, but also the trade policies of Britain and the United States. This becomes one important method of presentation that Hart develops in this first period and uses throughout his book. The trade policies that Canada follows are important, but the policies of those other two countries also need to be considered. Of course as Canada moves through the twentieth century, other countries in Europe, and countries in Asia, are considered, but Hart always returns to the importance and place of the United States and Britain. The subsequent chapters follow the evolution of multilateralism from GATT in the 1940s and the European Union of the 1950s to the Auto Pact of the 1960s. The various trade negotiations under GATT are described in their chronological order. The chapters covering the decades of the 1980s and 1990s emphasize the Free Trade Agreement and the North American Free Trade Agreement within the context of multilateralism, changes to the European trade system, and the emergence of Asia as more important to Canada’s trade policy than in the past.

It is time to mention three quibbles (a.k.a, three trivial points of criticism). The least important is the lack of a traditional bibliography. There are notes to each chapter and they document the author’s sources very well, but, since the second time a source is noted, it contains only an abbreviated reference, it would have been useful to have a traditional bibliography where the source could be located. Hart does a very good job of relating both Canadian and foreign trade policies to economic developments both here and abroad, including the flow of savings into and out of Canada. But he spends almost no space relating trade and its policies to the flow of population and labor into and out of Canada. This comment also relates to the discussion in the trade literature between moving goods and services versus moving people: trade can be a substitute for labor and population movement, and vice versa. This discussion might have been used to good account when dealing with, for example, the economic boom of the 1850s in the Canadas, the net exit of people from Canada during the last quarter of the nineteenth century, the so-called Wheat Boom from 1896 to the 1920s, and the early years of freer trade in the 1950s and 1960s. Finally, I would disagree with Hart when he writes on page 13 of his book that it is not a contribution to Canadian economic history, which he goes on to define as “the application of economic analysis to historical phenomena” (Hart 13). Taking a broader, but more useful, definition of economic history, Robert Mundell described economics as the science of choice (i.e., the study of the choices that are made). If resources, again defined broadly, are scarce and wants are unlimited, then choice is necessary and economic agents, including governments, must decide how best to use those resources to meet the wants. Choice suggests a selection from alternatives: which path to follow. So, economic history studies economic agents’ choices in particular time periods and the consequences of those choices, where those agents may be individual consumers or producers, cooperatives, not-for-profit organizations, trade unions, governments, etc. The trade policies that Canada and other countries chose are certainly the core of Hart’s book. It is economic history.

This is an interesting book that will be helpful to anyone who wants to study the general contours of Canadian and related trade policies for some time period during the last three hundred years or so. It is accessible to all and could be used as a textbook or as a supplemental book in Canadian history, economic or otherwise.

Bill Marr’s recent publications have been in the areas of population mobility, both within Canada and internationally, and he is currently examining the significance of using the individual versus the household as the unit of analysis in such mobility research.

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

The Arabian Seas: The Indian Ocean World of the Seventeenth Century

Author(s):Barendse, Rene J.
Reviewer(s):Heston, Alan

Published by EH.NET (February 2003)

Rene J. Barendse, The Arabian Seas: The Indian Ocean World of the

Seventeenth Century. Armonk, NY: M.E. Sharpe, 2002. xvi + 589 pp. $85

(hardcover), ISBN: 0-7656-0728-x; $34.95 (paperback), ISBN: 0-7656-0729-8.

Reviewed for EH.NET by Alan Heston, Departments of Economics and South Asia

Regional Studies, University of Pennsylvania.

This is an extremely rewarding book to read, but not at one sitting. It is

quite long, focusing on one century of transport, finance, business practices

and commerce in the economic center of the world at the time, the seas from the

Ottoman to Mughal Empires. The command of detail that Barendse displays is

impressive. The extensive use of Dutch, Portuguese and French materials

provides a very rich base for his study, as these include many translations of

Arabic materials. Begun as a dissertation in 1985, published in Dutch in 1998,

and now in English, it is a mature study that continually tries to relate its

findings to other work in the field. The author, an Associate Research Fellow

at the International Institute for Asian Studies in Amsterdam, provides a

curious mixture of traditional scholarship combined with the vocabulary of

contemporary industrial organization.

In terms of the buzzword, globalization, The Arabian Seas is right

there. Kirti Chaudhury conceptualized trade in Asia at the time of European

incursions as involving three circles, joined at major ports that served to

assemble and disperse cargoes for shipment to other Asian ports with a small

percentage to Europe. In the East was Canton and Macao linked to Malacca, a

circle embracing at times Japan and of course, the Spice Islands. From Malacca

merchants went to Calicut or Cambay on the west coast of India, this circle

also embracing Bengal and Ceylon. Some ships covered more than one circle, such

as the Portuguese annual voyage from Goa to Macao, but the bulk of the shipping

in volume and value was within these circles and remained that way during the

seventeenth century, the focus of this book. The third circle and the major

focus of this book was from Cambay or Calicut to Hormuz and the overland route

through Alleppo and Damascus, and to Aden and the Red Sea. This third circle

also provided access to silk route goods at a number of points.

What Barendse does very nicely is document the fourth and fifth circles that

took in the trade on the East Coast of Africa and linked that to the West Coast

and the Caribbean and the Americas either directly or through Europe. The fifth

circle had its own independent relationships with Europe through the trade of

Spain with the Americas, with links to the fourth circle through several common

commodities including textiles, coffee and silver. Barendse does not attempt

any treatment of the world-closing circle from the Spanish Pacific ports to

Manila, Formosa and Macao; his story is full enough as is.

The book begins with a tour of the terrain providing some maps, though still

more would have been useful. The maps are informative though not well

reproduced. In Chapter 3 Barendse introduces the “European Natios in the

Arabian Seas,” intentionally rejecting diasporas as a term which he thinks does

not capture the nature of relationships in the seventeenth century. It is

doubtful his terminology will catch on, but Barendse does have a point in that

there was a grouping of all Europeans in many ports. Chapter 4 “Diplomacy and

the State,” deals with the very different relationships of merchants and rulers

prevailing in Europe compared to those in the Arabian Seas, which in turn

varied greatly among different states. In Chapter 3 and later in his treatment

of the Dutch, Barendse makes clear the tension between the perception of the

Atlantic Ocean as mare liberum where all vessels are free to trade in

times of peace and the perception in other seas. The Dutch East India Company

(VOC), though nominally under Dutch authority, was clearly a state in Asia and

asserted mare clausum not only around the Spice Islands but also in

parts of the Indian Ocean. This took the form of issuing, upon payment of a

fee, navicerts, which like the Portuguese cartaz was a safe

passage certificate.

Chapter 5 on the “Merchants’ World,” is one of the most interesting in the

book. A large section is devoted to information, and though Barendse does not

seem enamored by the concepts of agency or information asymmetry, they are very

much up front in the way he describes the world of trade. He tells us of

“bazaar walkers” who spent their days collecting price information in markets

like Surat, in order to know both whether there was a probable return on

trading an item, but also the risk as indicated by the extent of price

fluctuations in various markets. The price information was then conveyed back

to Europe or other relevant locations. And Barendse describes the attempts to

mail or courier this and other information overland through the Ottoman Empire

domains so as to avoid the cost in time by ship around the Cape. Needless to

say the opportunities for undermining the competition were immense as were the

temptations of agents to switch masters. Further, the very current notion of

dis-information was a common way to divert potential competitors from direct

access to suppliers or buyers, e.g., Egyptian traders embellishing the dangers

to Europeans of being eaten alive along the routes to interior markets in


The book includes separate chapters on the Portuguese, Dutch and British

experiences in the century; the Portuguese were in relative decline, the Dutch

reaching their peak, and the British finally getting their act together by

1700. Barendse sees little difference between the rent-seeking behavior of the

trading companies and the Portuguese; in the case of the companies, it was

centrally directed and the fruits were shared with employees, while for the

Portuguese, it was mostly private citizens who took advantage of their

situation. Holden Furber (1976) provided similar coverage in Rival Empires

of Trade in the Orient, 1600-1800, a book curiously absent from the

extensive bibliography, even though references are made to earlier research by

Furber. The two books are very complementary. Furber focuses much more on what

is going on in Europe and of course, includes East Asia in the discussion.

However, Furber treats trading, markets and the like in a very traditional

manner while Barendse’s illustrations and discussion are much more in touch

with recent microeconomic concepts. It should be mentioned that neither book is

very strong on the macro-world economy of money supply, prices, and currencies,

though both are good on forms of commercial paper and credit.

It is hard to read the Arabian Seas without learning something new about

old subjects. For example, Europeans had many ships built in Asia, often

because teak was more durable in warm seas. And often the ships were replicas

of ships built in Europe, but not necessarily because of design; rather pirates

were less likely to attack European appearing ships because retribution was

more likely. Interestingly, there often was no cost advantage to building ships

in Asia as opposed to Europe.

Barendse makes a good case against received views that the Dutch permitted much

less private trading than the British and this reduced their innovativeness in

developing new sources of supply and new markets. It is true that the British

explicitly permitted private trading by company servants and the Dutch did not

formally permit it. However, Barendse suggests the VOC employees carried on

substantial private trade. If there was anything inhibiting trade innovations

by the Dutch it is more likely due to the highly centralized administration of

Asian affairs at Batavia and the obsession with monopoly in Holland. And on

some matters the VOC was ahead of the times. Their armies were not composed of

mercenaries but were employees of the company, unusual practice for the time.

And the VOC introduced more merit into appointments than most institutions of

the time, and certainly their British counterpart.

In discussing issues of agency and corruption in the companies Barendse notes

that the Verenigde Oostindische Compagnie, or VOC, was often referred to as

“Vergaan Onder Corruptie” (sinking under corruption). Many of the VOC outposts

were so remote and removed from easy communication, that activities were hard

to monitor as suggested by this quote of a supervisor in Bandar Abbas about his

employee in Persia (p. 403), ” I do not know what the Hon. Mr. van de Heuvel is

doing at Isfahan. I believe he sleeps the whole day. Yet he has delicious

roasted game, good wine and beautiful girls there, as well as healthy air,

while we here, have to muddle through in such a miserable way.”

Other issues dealt with in an innovative way are overhead and piracy. The VOC

was a large multinational organization with 18,000 employees worldwide at its

peak. They faced formidable accounting problems not only between Europe and

Asia, but within Asia. How do you treat centers that primarily have a military

function of facilitating Dutch trade but produce little in revenue compared to

costs. The VOC simply did not have any satisfactory system to allocate overhead

among its various profit centers.

Throughout the book Barendse examines piracy in its various forms, including

interlopers, of whom Elihu Yale was considered the King in Madras (p. 443). A

principal center where the paths of traders sanctioned by the British, Dutch,

French and Portuguese crossed those of non-sanctioned traders was Madagascar.

In addition to plantations there developed in Madagascar by the middle and late

1600s a very active slave trade both to Asia and the Americas. Given its

strategic location Madagascar became a center for a large volume of trade of

trade and commercial activity.

Beyond a wealth of detail and insights, is there a big picture that emerges?

Barendse uses the term world system and clearly sees his study as contributing

to that literature, though not in its more grandiose forms. Rather he presents

the seventeenth century as a major period of expansion of trade between Asia

and Europe and especially Africa, Brazil, the Caribbean and eventually North

America. And he persuasively argues that the Arabian Seas are the crucial link

area for this trade expansion, not a new idea, but one which Barendse

impressively documents.

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Middle East
Time Period(s):17th Century

Merchants to Multinationals: British Trading Companies in the Nineteenth and Twentieth Centuries

Author(s):Jones, Geoffrey
Reviewer(s):Wilkins, Mira

Published by EH.NET (August 2000)

Geoffrey Jones, Merchants to Multinationals: British Trading Companies in

the Nineteenth and Twentieth Centuries. Oxford: Oxford University Press,

2000. x +404 pp. ISBN 0-19-829450-6.

Reviewed for EH.NET by Mira Wilkins, Department of Economics, Florida

International University, Miami, Florida.

Geoffrey Jones’s book is on British merchant houses in the nineteenth and

especially, the twentieth centuries, trading firms that had foreign direct

investment (FDI) outside the United Kingdom. Jones is an authority on the

history of multinational enterprise; he has written extensively on

manufacturers that became multinationals and on banks that expanded

internationally; his Evolution of International Business (published in

1996) was a general history. In the present volume, he turns his attention to

British traders. And, what a rich subject this turns out to be. This is an

archive-based work that provides information not available elsewhere.

Many studies have been made of British international trade; Jones’s concern is

with the companies that made this trade a reality. He is interested in how

these firms functioned and how they performed (whether these family firms

reflected a “decline” in Britain’s global role). He pays attention to both

substance and form. Thus, he finds that when a number of these companies moved

from partnerships to incorporation this did little to change the pattern of

ownership and control; often incorporation was designed to perpetuate rather

than to end family dominance (p. 97).

After a brief introductory discussion on theories of multinational enterprise,

Jones tells his reader about the complex origins of the nineteenth and

twentieth century British merchant houses. He writes of the foreign merchant

houses in Britain that evolved into merchant bankers (Rothschild and Schroeder

for example) and suggests that the great majority of the leading British

merchant banks were set up by emigrant merchants. By contrast, the trading

companies as distinct from the merchant bankers tended overwhelmingly to have

British roots (p. 24), although the roots could be established by expatriates.

For example, Wilson, Sons & Co. was set up in Bahia, Brazil, in 1837 by two

brothers of British birth; the firm subsequently opened a London head office in

1845 (p. 28). Yet, frequently the distinctions between merchants and merchant

bankers was muddy (p. 42, on 1870). Interlocking partnerships, separate houses

(set up by family members and associates), new locales and shut-downs of older

ones made for a webbed network with continuities and discontinuities.

British merchants were clearly in the vanguard of the creation of the

international economy that had emerged by 1914. Their activities went with

(followed) the expansion of British imperial frontiers; yet, they also went

beyond “empire,” playing a major role in Latin America. The traders were

closely connected with the expansion of British shipping. There were also

associated with the growth of overseas banks.

At home, three centers for the mercantile developments emerged: Liverpool,

London, and Glasgow (the principal trading companies, as of 1870, were

identified with each center, see p. 43). Jones shows how each group of

merchants arose and how the three centers interacted with one another. He is

careful to document the particular British exports and imports that the firms

handled and how rapidly the merchant houses engaged in trade that involved far

more than two countries.

The story that Jones unravels is global. Traders did not confine themselves to

commerce; they became involved in storage facilities (from warehouses to timber

yards), in manufacturing abroad (from jute mills to sugar mills, from silk

filatures to cotton spinning and weaving, from flour mills to breweries), as

well as in producing primary products (sugar, fruits, tea, rubber, nitrates,

coal, oil). Typically, the traders participated in banking activities,

providing credit to customers and suppliers, financing trade, and by necessity

dealing in foreign exchange; they also became active in “investment banking,”

aiding and prompting company flotations. In addition, the traders became agents

for British insurance companies. handling not only trade-related insurance but

far more extensive insurance transactions. The developments took on a jagged

and uneven process. The degree of backward integration varied substantially

from firm to firm and from one host country to another. Many of the firms

engaged in labor intensive operations and had in less developed countries huge

numbers of employees (after Bird & Co.’s merger with F.W. Heilger in 1917, the

new firm employed over 100,000 individuals in India; in 1930 Jardine Matheson

employed about 113,000 in China; in 1945, James Finlay’s total work force

principally in India, Ceylon, and Kenya came to 160,000); “local” employees in

each case were supervised by relatively small expatriate staffs.

Through time, the merchants increased their diversification, in product lines

and including substantial intra-regional trade (particularly in Asia). Here,

there is, of course, the problem of defining a region. While the British

trading companies did not take part in intra-regional Latin American trade,

they did participate in intra-regional Western Hemisphere trade, thus bringing

Latin American commodities to US markets. Over the decades, on most continents,

their role in host economies deepened, with added FDIs. By 1914, Jones suggests

that the traders “functioned in part as venture capitalists, identifying

opportunities and placing potential British investors in touch with them” (pp.

50-51). This was done in the main by their assisting in floating separate “free

standing firms,” that, in turn, made the overseas investments. The merchant

houses often had managing agency arrangements with the free-standing firms;

they might handle the trade of these firms; they were a critical part of the

cluster associated with the free-standing firms. Jones’s work adds to the

existing literature on free-standing firms, confirming the validity of the

concept. The trading firms that Jones studies operated within business groups.

Jones is superb in showing the variety; he not only discusses the traders but

also their long-standing and complex external business relationships.

Jones knows well the stories of individual traders and reveals the differences

between and among trading houses. For 1913-1914, he ranks major firms by

estimated size of capital, by major host regions, and by “outposts,” that is,

areas where the firms had a presence although not a large one (pp. 54-55).

Interestingly, of the ten “multi-regional business groups” in 1914 that he

documents, seven had a US presence, while four had Indian business (the next

highest ranking country). Typically the largest British trading companies

required a US office. However, the really sizable activities of most of these

firms was in the East, where regional trading companies were of immense

importance and also in Latin America, where the firms were crucial in

developing international trade. Only one of the multi-regional groups had

African trade; indeed, the trade with Africa seems to have been differently

constituted (pp. 75-80).

Jones is excellent in tracing the multiple problems British trading companies

faced in the years of the First World War, the 1920s, the 1930s, and of the

Second World War. It was not a happy time for companies that lived through

international commerce. As the world economy was torn asunder, these firms felt

the consequences. Jones writes that the entrepreneurial dynamism of the

pre-1914 era “looked decidedly weaker subsequently….” (p. 114). The sharp

post World War One downturn more than the War itself was the turning point.

Nonetheless, he finds that “it is robustness of the traders and their ability

to sustain ‘reinvention’ strategies which is so striking” (p. 350). By 1945,

the roster of British traders still closely resembled the list in 1914. In the

post-Second World War period, the companies – many of which operated within the

British Empire – now faced new uncertainties with decolonization, as the

“umbrella of British colonial rule” was removed.

The “corporate landscape” for the British trading houses changed dramatically

in the 1950s, 1960s, and 1970s. In 1958, Inchape was floated on the London

Stock Exchange, a holding company with 17 subsidiaries, based mainly in Britain

and India; beginning that year, Inchape acquired full ownership of a large

group of family trading companies with long histories in East and South East

Asia. It was in the post Second World War years that Lonrho assumed importance

as a trading company; it had its origins in 1909 as a London-based mining

enterprise in Rhodesia (now Zimbabwe); it took the name Lonrho in 1963;

meanwhile, beginning in the early 1960s, it acquired substantial trading

interests along with other investments (it remained, however, involved in

mining); in the late 1960s and in 1975, it took over the trading firms John

Holt and part of Balfour Williamson. But, finally, in the late 1990s Lonrho

divested its non-mining interests to return to its origins and concentrate on

mining. Booker McConnell (as the firm–the successor to the 1900 merger of

Booker Brothers & Co., founded in 1834, and John McConnell & Co.–was known

after 1968) diversified from a sugar trader and producer in British Guiana (the

largest property owner there in the 1920s) to a vast international business.

Jones traces the complex story of the many trading company mergers and

acquisitions. In the 1960s and 1970s, several British overseas banks bought

trading companies, but they soon sold off their non-financial assets. In the

changed post-World War II world, in the 1950s, 1960s, and 1970s, host country

groups or governments frequently acquired (often through nationalizations)

British trading companies that had important roles in their particular

economies, or alternatively, took over major parts of their international

business. It became harder for the trading companies to recruit personnel, as

the risks of retention of the very business itself multiplied.

Yet Jardine Matheson and John Swire continued on, notwithstanding Chinese

nationalizations; and Booker McConnell survived the 1976 Guyana expropriations.

In 1979, in terms of turnover, the London Times ranked Inchcape (19),

Lonrho (20) and Booker McConnell (64) among the top British “industrials.” The

huge United Africa Company (UAC) was excluded from the Times list,

because it was a subsidiary of Unilever; also omitted was the sizable Jardine

Matheson, because of Hong Kong registration. Incape in 1979 operated in 44

countries and sold the products of 2,750 manufacturers.

Many of the trading companies served the automobile industry (in the first half

of the twentieth century as agencies, before sales and assembly affiliates were

established by car companies); in the post-Second World War years, as

dealerships (in the trading companies’ traditional markets but also in the

United Kingdom). The British trading companies did this for American, Japanese,

German, and British car companies. Automobile industry historians have

understood this, but a scrutiny of the trading companies provides the other

side of the coin. The trading companies’ experience in post-Second World War

representation beyond dealerships (i.e. as wholesalers and assembly plant

operators in their traditional markets) is explained well in Jones’s volume.

In the 1960s and 1970s a number of British trading firms started to manufacture

in less developed countries in non-traditional sectors; these projects tended

not to be successful, for the trading companies had no advantage. Often these

ventures were short-lived. In search of new opportunity, companies made

investments in developed countries in a range of manufactured products; when

there was unrelated diversification, the results were frequently


As I read this book, it provoked me to ask many questions. In 1998, Jones

published an edited book, entitled the Multinational Traders, which

covered German, Dutch, Swedish, Swiss, as well as Japanese merchant houses.

That volume argued that the British were far from alone in having important

trading companies. In the present book, there are brief references to trading

companies of these other nationalities, but neither Merchants to

Multinationals nor Multinational Traders dealt systematically with

the differences by nationality in the trading in specific commodities. Why, for

example, did the large British grain traders, Sanday and Smyth, lose out to

international grain traders of other nationalities? why in the twentieth

century was Clayton more important than any British raw cotton trading house?

There are hints to the answers to these questions in Merchants to

Multinationals, but one would like to see a sequel on trading companies

involved in particular commodities that for much of the nineteenth and

twentieth centuries represented a sizable portion of world trade. These

companies participated on a large scale in intra-company commerce.

This is a splendid book. It not only delineates the trading companies’

expansion (and contraction), but also puts that story in the context of the

evolving world economy. It shows how in the first round of internationalization

before 1914, trading companies played a major role and how in the 1990s, as a

new round of globalization emerged, the trading company era was in “end game.”

As the century concluded, key surviving companies were no longer “trading

companies.” By the end of the 1980s, for example, Booker McConnell had become a

food distributor. Lonrho with about 190,000 and Inchape with about 50,000

employees “broke themselves up” in the mid-1990s. On the other hand, at the

close of millennium, John Swire & Sons (with 120,000 employees) and Jardine

Matheson (with 170,000) persisted. With changes in China, the trading companies

were able to return to the arena of their historical competency. Swire

participated in a variety of Chinese ventures, from Coca Cola bottling to paint

manufacture. In quite different industries, in 1996, Jardine Matheson had 70

joint-ventures in China! These multinational enterprises were, however, by the

1990s far from confined to the “China trade.” Jones attributes the continuity

of these two firms to the on-going “family” control, which meant the absence of

pressure from British “capital markets,” i.e. institutional investors. They

were firms that developed skills, whose management learned Chinese, and which

had “real advantages.”

This book is original and subtle, careful to pick up nuances, and to delineate

properly its topic. It is a major accomplishment. Jones is ready to generalize

and to theorize, but he does not oversimplify. The book will set the reader

reflecting on British economic development and the British role in the global

economy. It is essential reading for every economic and business historian

interested in the history of multinational enterprise, in British economic

history, and also in where British business fits in the evolution of the “world


Mira Wilkins is one of the foremost authorities on multinationals and

globalisation. She wrote a two-volume study of American multinationals, as well

many other studies of this subject. On British overseas business, she coined

the phrase ‘free-standing companies’ to describe the large number of firms

established in Britain that operated exclusively abroad.

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

Project 2000/2001

Project 2000

Each month during 2000, EH.NET published a review essay on a significant work in twentieth-century economic history. The purpose of these essays was to survey the works that have had the most influence on the field of economic history and to highlight the intellectual accomplishments of twentieth-century economic historians. Each review essay outlines the work’s argument and findings, discusses the author’s methods and sources, and examines the impact that the work has had since its publication.

Nominations were received from dozens of EH.Net’s users. P2K
selection committee members were: Stanley Engerman (University of
Rochester), Alan Heston (University of Pennsylvania), Paul
Hohenberg, chair (Rensselaer Polytechnic Institute), and Mary
Yeager (University of California-Los Angeles). Project Chair was
Robert Whaples (Wake Forest University).

The review essays are:

Braudel, Fernand
Civilization and Capitalism, 15th-18th Century Time
Reviewed by Alan Heston (University of Pennsylvania).

Chandler, Alfred D. Jr.
The Visible Hand: The Managerial Revolution in American Business
Reviewed by David S. Landes (Department of Economics and History, Harvard University).

Chaudhuri, K. N.
The Trading World of Asia and the English East India Company, 1660-1760
Reviewed by Santhi Hejeebu.

Davis, Lance E. and North, Douglass C. (with the assistance of Calla Smorodin)
Institutional Change and American Economic Growth.
Reviewed by Cynthia Taft Morris (Department of Economics, Smith College and American University).

Fogel, Robert W.
Railroads and American Economic Growth: Essays in Econometric History
Reviewed by Lance Davis (California Institute of Technology).

Friedman, Milton and Schwartz, Anna Jacobson
A Monetary History of the United States, 1867-1960
Reviewed by Hugh Rockoff (Rutgers University).

Heckscher, Eli F.
Reviewed by John J. McCusker (Departments of History and Economics, Trinity University).

Landes, David S.
The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present
Reviewed by Paul M. Hohenberg (Rensselaer Polytechnic Institute).

Pinchbeck, Ivy
Women Workers and the Industrial Revolution, 1750-1850 
Reviewed by Joyce Burnette (Wabash College).

Polanyi, Karl
The Great Transformation: The Political and Economic Origins of Our Time
Reviewed by Anne Mayhew (University of Tennessee).

Schumpeter, Joseph A.
Capitalism, Socialism and Democracy 
Reviewed by Thomas K. McCraw (Harvard Business School).

Weber, Max
The Protestant Ethic and the Spirit of Capitalism
Reviewed by Stanley Engerman.

Project 2001

Throughout 2001 and 2002, EH.Net published a second series
of review essays on important and influential works in economic
history. As with Project 2000, nominations for Project 2001 were
received from many EH.Net users and reviewed by the Selection
Committee: Lee Craig (North Carolina State University); Giovanni
Federico (University of Pisa); Anne McCants (MIT); Marvin McInnis
(Queen’s University); Albrecht Ritschl (University of Zurich);
Winifred Rothenberg (Tufts University); and Richard Salvucci
(Trinity College).

Project 2001 selections were:

Borah, Woodrow Wilson
New Spain’s Century of Depression
Reviewed by Richard Salvucci (Department of Economics, Trinity University).

Boserup, Ester
Conditions of Agricultural Growth: The Economics of Agrarian Change under Population Pressure
Reviewed by Giovanni Federico (Department of Modern History, University of Pisa).

Deane, Phyllis and W. A. Cole
British Economic Growth, 1688-1959: Trends and Structure
Reviewed by Knick Harley (Department of Economics, University of Western Ontario).

Fogel, Robert and Stanley Engerman
Time on the Cross: The Economics of American Negro Slavery
Reviewed by Thomas Weiss (Department of Economics, University of Kansas).

Gerschenkron, Alexander
Economic Backwardness in Historical Perspective
Review Essay by Albert Fishlow (International Affairs, Columbia University).

Horwitz, Morton
The Transformation of American Law, 1780-1860
Reviewed by Winifred B. Rothenberg (Department of Economics, Tufts University).

Kuznets, Simon
Modern Economic Growth: Rate, Structure and Spread
Reviewed by Richard A. Easterlin (Department of Economics, University of Southern California).

Le Roy Ladurie, Emmanuel
The Peasants of Languedoc
Reviewed by Anne E.C. McCants (Department of History, Massachusetts Institute of Technology).

North, Douglass and Robert Paul Thomas
The Rise of the Western World: A New Economic History
Reviewed by Philip R. P. Coelho (Department of Economics, Ball State University).

de Vries, Jan
The Economy of Europe in an Age of Crisis, 1600-1750
Review Essay by George Grantham (Department of Economics, McGill University).

Temin, Peter
The Jacksonian Economy
Reviewed by Richard Sylla (Department of Economics, Stern School of Business, New York University).

Wrigley, E. A. and R. S. Schofield
The Population History of England, 1541-1871: A Reconstruction

Project Coordinator and Editor: Robert Whaples (Wake Forest