Economic and Business History: The Rise of the Global Economy

Economic and Business History UFV

20
21
12
21
22A
Economic and
Business
History
UFV
Year: 1
Subject code: 7111
Prof. Damián Rubianes
Universidad
Francisco de Vitoria
UFV MadridUnit 6: The rise of the global economy
in the nineteenth century

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 2UNIT 6
ECONOMY AND MODERN WORLD
The rise of the global economy in the nineteenth century
(1814-1918)

• 1 The first globalization: free trade and protectionism.
• 2 The industrial capitalism.
• 3 The rise of the modern corporation.
• 4 The economic thought of the 19th century: Marx,
  marginalism.

A CONCISE ECONOMIC
HISTORY OF THE WORLD
FROM PALEOLITHIC TIMES TO THE PRESENT [ Pdh Edelen
Larry Neal | Rondo Cameron
OXFORD
Source: Teaching guide.
Universidad
Francisco de Vitoria
UFV Madrid

Economy and Modern World

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 3UNIT 6
ECONOMY AND MODERN WORLD
The rise of the global economy in the nineteenth century
(1814-1918)

• 1 The first globalization: free trade and protectionism.
• 2 The industrial capitalism.
• 3 The rise of the modern corporation.
• 4 The economic thought of the 19th century: Marx,
  marginalism.

A CONCISE ECONOMIC
HISTORY OF THE WORLD
FROM PALEOLITHIC TIMES TO THE PRESENT [ Pdh Edelen
Larry Neal | Rondo Cameron
OXFORD
Source: Teaching guide.
Universidad
Francisco de Vitoria
UFV Madrid

The First Globalization

Major Determinants of Economic Growth

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 4THE FIRST GLOBALIZATION
MAJOR DETERMINANTS
Long-distance trade has existed since the dawn of
civilization, and it expanded rapidly after the European
discoveries of the ocean routes to Asia and the Americas
in the sixteenth century, thanks to the efficiency of
seaborne shipping.
But the importance of foreign trade to domestic product
in the world reached its highest level before the twenty-
first century in the second half of the nineteenth century.
Why 1848 would be a break point in this historical
development is explained looking at each of our four
major determinants of economic growth: (i) population,
(ii) technology advances, (iii) advances in finance and (iv)
changes in institutions.
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Source: "A concise economic history of the World", Cameron, Neal. Ed. Oxford University Press.

Determinants for Increased Long Distance Trade: Population Growth

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 5THE FIRST GLOBALIZATION
DETERMINANTS FOR INCREASED LONG DISTANCE TRADE
(i) Population growth certainly picked up as migration
flows from countries hardest hit by the agricultural
crises of the mid-1840s went overwhelmingly to the
countries that scholars lump together as "areas of
recent settlement" (ARS), such as USA, Canada,
Australia or Argentina.
There, the new immigrants, no longer bound by
limitations on the availability of arable land, increased
the average size of their families.
Relieved of local demographic pressure as a result of
sustained and heavy outmigration, population in the
European sending countries continent recovered quickly
from the mortality crises of the 1840s (due to repeated
harvest failures) and continued to grow thereafter.
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MAGASIN DE MEUBLES.
Source: "A concise economic history of the World", Cameron, Neal. Ed. Oxford University Press.

Determinants for Increased Long Distance Trade: Technology and Finance

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 6THE FIRST GLOBALIZATION
DETERMINANTS FOR INCREASED LONG DISTANCE TRADE
(ii) Technology advances were facilitated by the quick
completion of railroad networks, already underway in
the UK and US in the early 1840s ("railway mania") and
later developed in continental Europe.
By reducing transportation costs radically within each
country, railways made trade between countries less
costly and more varied.
(iii) Advances in finance enabled the completion of
railroads and accompanying infrastructure.
European investors eagerly took up the opportunity of
investing in foreign bonds and stocks, which were often
issued by local venture capitalists and nations to finance
infrastructure projects, creating a global securities
market.
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Francisco de Vitoria
UFV Madrid
Source: "A concise economic history of the World", Cameron, Neal. Ed. Oxford University Press.

Determinants for Increased Long Distance Trade: Institutional Changes

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 7THE FIRST GLOBALIZATION
DETERMINANTS FOR INCREASED LONG DISTANCE TRADE
(iv) Institutions changed radically and permanently
within a few short years around 1848.

• Britain, France, Germany, and the US (the "Big Four"
  countries) took advantage of improved military
  technology to expand the territory under their control.
• Other than the Big Four, countries that embraced
  institutional change to expand production and trade
  were successful, such as central and northern European
  countries, Canada, Australia, Argentina, Russia, Japan
  (despite authoritarian governments in the last two).
  Countries, like Spain, where traditional elites tried to
  maintain the bases for their leadership in the face of
  challenges from the new industrial world, failed to
  meet the challenge.
  e
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  Source: "A concise economic history of the World", Cameron, Neal. Ed. Oxford University Press.

The Case for Free Trade: Adam Smith and David Ricardo

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 8THE FIRST GLOBALIZATION
THE CASE FOR FREE TRADE
Adam Smith's eloquent treatise The Wealth of Nations,
developed intellectual arguments for free international
trade and elevated them to a new plane of respectability.

• Moreover, practical considerations forced governments to
  reconsider their prohibitions and high tariffs; smuggling was
  a lucrative occupation in the 18th century that reduced
  government revenue.
  Adam Smith's case for free international trade derived from
  his analysis of the gains that could be achieved from
  specialization and the division of labour among nations as
  well as individuals.
  David Ricardo, in 1819 stated the "principle of comparative
  advantage", the foundation of modern international trade
  theory.
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  UFV Madrid
  Source: "A concise economic history of the World", Cameron, Neal. Ed. Oxford University Press. Picture: David Ricardo.

The Case for Free Trade: Repealing the Corn Laws

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 9THE FIRST GLOBALIZATION
THE CASE FOR FREE TRADE
Free trade supporters had to fight against the
protectionist symbol of the Mercantilist era, whose
centrepiece and symbol was the so-called Corn Laws (in
British English, corn denotes all cereal grains, including
wheat, oats and barley).
The Corn Laws blocked the import of cheap corn
enhancing the profits and political power associated with
land ownership.
The laws raised food prices and the costs of living for
growing the British public, and hampered the growth of
other British economic sectors.
The Great Famine in Ireland of 1845-1852 forced an
urgent resolution for new food supplies, repealing the
Corn Laws together with other mercantilist legislation.
FRRE-
TRADE
ANTI.
ANTI-
CORNLAW
LEAGU
GORNLAW
LEAGUE
FREE-
TRADE
AGE.
AFREE.
ANTYR
CORN.
FREE
LAW
CENTRADE.
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Source: "A concise economic history of the World", Cameron, Neal. Ed. Oxford University Press. Investopedia.

The Case for Free Trade: Napoleon III and Most-Favoured-Nation Clause

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 10THE FIRST GLOBALIZATION
THE CASE FOR FREE TRADE
To gain political status and diplomatic respect, the
government of Napoleon III, which came to power in
a coup d'état in 1851, desired to follow a policy of
friendship with Great Britain.
Napoleon started trying in the 1850s to reduce the
strongly protectionist stance of French policy,
removing in 1860 all tariffs on imports between the
two countries.
A major feature of the treaty was the inclusion of a
most-favoured-nation clause. This meant that if one
party negotiated a treaty with a third country, the
other party to the treaty would automatically
benefit from any lower tariffs granted to the third
country.
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Source: "A concise economic history of the World", Cameron, Neal. Ed. Oxford University Press.

The Case for Free Trade: Increased International Trade

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIÁN RUBIANES | PG. 11THE FIRST GLOBALIZATION
THE CASE FOR FREE TRADE
The other European countries also negotiated
treaties with one another, and all contained the
most-favoured-nation clause.
As a consequence, international trade increased
significantly for decades, helping to promote both
technical efficiency and increased productivity by
encouraging the diffusion of new techniques and
products.
Most of the increase took place in intra-European
trade, but trade between Europe and the rest of the
world expanded as well, because American
agriculture also began to compete as steamships,
canning, and refrigeration altered the terms of
international trade in foodstuffs from 1870 onwards.
0
Miles
500
SWEDEN
TSCOTLAND
North Sea
DENMARK
GREAT
8 a
fric
BRITAIN-
Sea
SALES
ENGLAND
NETHER-
LANDS
GERMANY
ATLANTIC
BELGIUM
OCEAN
PRITZER Y
AUSTRIA HUNGARY
FRANCE - LAND
IT
SPAIN
CORSIC
LARDIMA
Me
diterranean Sea
FIGURE 11-1. The Europe of the trade treaties, about 1871.
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Francisco de Vitoria
UFV Madrid
Source: "A concise economic history of the World", Cameron, Neal. Ed. Oxford University Press. Britannica.

Free Trade Turns into Imperialism

ECONOMIC AND BUSINESS HISTORY | UFV | PROF. DAMIAN RUBIANES | PG. 12
PORTUGAL
NORWAYTHE FIRST GLOBALIZATION
FREE TRADE TURNS INTO IMPERIALISM
Imperialism refers to the policy of one nation extending its
authority over others through territorial acquisition or by
establishing economic and political control.
In general, the pattern of new imperialism of the late 19th
century flowed directly out of free-trade rhetoric and a
problem of unequal development between industrialized and
undeveloped areas of the world.

• The new imperialism followed a progression whereby an
  industrialized nation invested capital in a "less industrialized"
  country in order to develop methods to extract natural
  resources and to build infrastructure that was necessary for the
  industrialized Western nation to move resources back home.
  Imperialist development took the form of colonies,
  protectorates, and spheres of influence.
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  LA GUERRE A
  MADAGASCAR
  PAR
  PANE
  H. GALLI
  En LIVRAISONS à IO Cent
  PATRIE
  Une GRAVURE
  En COULEURS
  PAR
  LIVRAISON
  TANANARIVE
  chez tous les LIBRAIRES
  PREMIÈRE
  LIVRAISON GRATUITE
  Cap S" Marie
  GARNIER FRERES, Editeurs. 6, Rue des S. Pères, PARIS
  Imp. PAUL DUPONT, 5. Rur de Bralai - Paery
  trung PAL- d'après on Drygin de BOMBLED
  Source: "An economic history of the World since 1400", Donald J. Harreld.