How important was colonial trade for the rise of Europe?

I recently gave an interview to Garret M. Petersen of the Economics Detective Radio where we discuss some of my work. You can listen to it in this link: Money, Trade and Economic Growth in the Early Modern Period (interview).

In the interview, we discuss at one point the matter of how important was colonial (and otherwise intercontinental) trade for macroeconomic outcomes such as growth and urbanization in Europe. As I notice in the interview, my position on this (see my Cliometrica article for details) stands between two extremes:

  1. that of Eric Hobsbawm or Immanuel Wallerstein, who argue Europeans profited a huge deal from the colonies. This view is very prevalent in some political circles today, if not the person on the street, who often believes that “imperialism” or “colonialism” is what what made the West Rich, through exploitation of the rest of the world. It is related to “dependency theory”.
  2. by contrast, that of many if not most economic historians, who believe that such trade (and the violence that came with it) didn’t matter very much for outcomes back in Europe.

The latter view became the orthodoxy among economists and economic historians after Patrick O’Brien’s 1982 paper, which in one of many of Patrick’s celebrated phrases, claims that “”the periphery vs peripheral” for Europe. He concludes the paper by writing:

“[G]rowth, stagnation, and decay everywhere in Western Europe can be explained mainly by reference to endogenous forces. … for the economic growth of the core, the periphery was peripheral.”

This is the view that remarkable scholars such as N. Crafts, Deirdre McCloskey, or Joel Mokyr repeat today (though Crafts would argue cotton imports would have mattered in a late stage, and my reading of Mokyr is that he has softened his earlier view from the 1980s a little, specifically in the book The Enlightened Economy.) Even recently, Brad deLong has classifyied O’Brien’s 1982 position as “air tight”.

Among economists and economic historians more on the economics side, I would say that O’Brien’s paper was only one of two strong hits against the “Worlds-System” and related schools of thoughts of the 1970s, the other hit being Solow’s earlier conclusion that TFP growth (usually interpreted as technology, though there’s more to it than that) has accounted for economic growth a great deal more than capital accumulation, which is what Hobsbawm and Wallerstein, in their neo-Marxist framework, emphasize.

Let me be clear from the outset that the idea that it was European exploitation of foreign peoples that made it rich is, by itself, highly simplistic, and, in short, nonsense. The view held by many historians and members of the public, that colonialism essentially equals why the west is rich is evidently false. This view is seductive in part because of the nasty violent means and institutions (such as slavery), clearly immoral from the normative standpoint of our times, which was often associated with it. Even if partially true it fails to ask why was Europe the part of the world capable of doing this, which in turn raises the obvious suspicion that the deep causal factor lies elsewhere.

To a degree in the interview I react more against the opposite version, the point (2) above, the idea that it did not matter at all. But this is because I hold the fact that (1) is false as more evident.

One irony with all of this is that for more than a decade now, Patrick O’Brien has changed his mind. He has, indeed refereed to this in writing (as far back as 2006), and several people have witnessed seminars where the speaker mentions “as Patrick O’Brien has concluded, colonies didn’t matter for European development…” only to have Patrick raise and kindly but firmly inform the speaker of his change of heart.

Last year at the American Economic Association meeting in S. Francisco, my good friend Deirdre McCloskey even told me in disappointment how me she feels Patrick should go back to his old view! But I feel there’s good reason for his change of mind. Patrick certainly hasn’t adopted a Hobsbawm-Wallerstein type of position. He is now simply of the view that, at the margin, trade with other parts of the world did matter for European development. It’s does not explain everything, but it mattered a bit. This is what I find empirical support for in my own work.

My discussion has focused on the impact of trade for the European economy.  As Brad deLong notices, a different matter is that of whether such trade had an impact on other parts of the world (positive or negative). Patrick O’Brien sometimes refers to himself as a “mercantilist”. So I conclude by noting that some ideas related to the benefits of protectionism (once an idea almost banished from the realms of “serious” economics), especially as it applies to countries that are not at the frontier, has been taking hold among some young and very competent economic historians, such as Réka Juhász or Luigi Pascali. Perhaps I’ll write more about this in a future post.

 

 

nbm

 

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4 thoughts on “How important was colonial trade for the rise of Europe?

  1. One of my collateral ancestors was.a Great Captain of the East Indian Company. He commanded all the ship’s between India and the UK.

    He invested his profits (the EIC allowed private trading) in a canal from Brecon, ultimately to Newport. This was just in time for the large scale production of iron in the mountains around Brecon. The low cost of transport enabled the industrial revolution in South Wales.

    After railways, South Wales exported rails to Russia, India and other continental scale countries – The rails were a Small Wales speciality.

    Colonial trade was vital.

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  2. Nuno: I really enjoyed the interview. And I think I like your position. Yet your post here is a good lesson on how difficult it is even to set the context in a satisfactory way for an issue as complex as the contribution of trade to growth. Some things that occurred to me as I read:

    1) First of all, for what period or periods are we making the judgment? The role of trade in growth is an issue over the entire period for which you construct your series, not just for the period of colonial expansion. For example, where and to what degree and by what mechanisms would the medieval “Commercial Revolution” have fostered growth? (Outside of Venice and Genoa, the trading volumes would be small compered to the local economies – but the period still saw a certain amount of urbanization, and one can imagine knowledge and institutional spillovers changing the rules even in areas that seemed to be backwaters at the time.)

    2) I love the Wallerstein vs McCloskey way you set the issue (I was once an undergraduate student of Wallerstein’s – I had no clue what he was getting at, but his assignments were my introduction to Fourastie, Schumpeter, Hobsbawm, etc.). But certainly we also need to look at how other economic historians (e.g., O’Rourke, Williamson) have taken a less ideological approach to core vs. periphery, and have drawn important distinctions between demand-driven early-modern trade and the kind of globalized, subject-to-general-equilibrium-adjustments sort of trade that appeared after 1800.

    3) I think Robert Solow might be surprised to hear himself mentioned at the center of this controversy, in that his 1956 and 1957 papers assumed closed economies. But you are right; TFP became the hot way to approach things. But we might keep in mind that Solow has remained skeptical that his standard theory has any application beyond developed economies. If he were somehow compelled to “go pre-modern”, he certainly would not exclude capital accumulation and workforce growth as mechanisms to consider in investigating the paths taken by the equilibria of pre-industrial economies to modern “steady states”.

    I don’t think any of the above detract from your middle-of-the-road argument. But the argument takes different form depending upon the period under discussion, and perhaps the above provide some resources for thinking about that.

    Thanks for the post.

    Liked by 1 person

    1. Thanks for the feedback. I don’t usually reply to anonymous comments/questions but the quality of your intervention certainly deserves a response! So let me react with the following:

      1) the period here refers to 1500-1800, as in the paper. There is of course variation across periods and countries. For instance, as I mention in the interview, my 2015 EREH paper with Leonor Costa and Jaime Reis shows that Portugal benefited the least from intercontinental trade (because it was too small relative to the overall size of the economy) in the sixteenth century, and it benefited the most in the eighteenth. As for the Netherlands, intercontinental trade was responsible for most of the observed increase in real wages and for a large share of the observed increase in urbanization between 1600 and 1750. For other countries, such as France, it never mattered much.

      2) Please see my previous post on “spending a windfall” or the paper with the same name for more discussion related to some of O’Rourke and Williamson’s work. Let me know what you think!

      3) For sure, but please note the following two points. First, TFP means more than technology, and for developing countries variation in efficiency matters a lot for productivity (see for instance, Weil’s Economic Growth textbook). Second, on the importance of capital itself, take a look at the recent work by Bond et al (2010), which I cite in the Cliometrica paper.

      thanks again for the feedback.

      Like

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