THE WORLD
ECONOMY
EXCHANGES, CAPTIALISM,
COLONIALISM, AND EMPIRE
BUILDING
VOYAGES OF EXPLORATION
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Christopher Columbus, Genoese mariner
 Proposed sailing to Asian markets by a western route
 Sponsored by Catholic kings of Spain; sailed to Bahamas in 1492
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Columbus's voyage inspired others
 England, France, Holland begin to explore
 Spain, Portugal sent out more expeditions, conquistadors
OTHER VOYAGES
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Ferdinand Magellan, Portuguese navigator, in service of Spain
 Crossed both the Atlantic and Pacific Oceans 1519-1522
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Exploration of the Pacific took three centuries to complete
 Trade route between the Philippines and Mexico, by Spanish merchants
 Other European mariners searched for a northwest passage from Europe
to Asia
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The English, French, Dutch
 France: Explored Northern North America, Settled Canada, exploited furs
 English
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Atlantic seaboard of North America, Hudson Bay area
English East India Company opened Indian Ocean to English trade
 Dutch
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Tended to prey on Spanish, Portuguese existing holdings
Won independence from Spain, seized control on much of Indian Ocean
Dutch East India company established to exploit Indian possessions
By 18TH century, Europeans had accurate knowledge of the world
GLOBAL EXCHANGES
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Biological exchanges between Old and New Worlds
 Columbian Exchange
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Global diffusion of plants, food crops, animals, human populations, diseases
 Permanently altered the earth's environment
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Epidemic diseases
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Smallpox, measles, diphtheria, whooping cough, and influenza
Led to staggering population losses
Smallpox reduced Aztec population by 95 percent in one century
Contagious diseases had same horrifying effects in the Pacific islands
Between 1500/1800, 100 million people died of imported diseases
New foods and domestic animals
 Wheat, horses, cattle, sheep, goats, and chickens went to Americas
 American crops included maize, potatoes, beans, tomatoes, peppers,
peanuts
Growth of world population: from 425 million in 1500 to 900 million
in 1800
► Migration of human populations
► Enslaved Africans were largest group of migrants from 1500 to 1800
► Sizable migration from Europe to the Americas
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ORIGINS OF EUROPEAN TRADE
European intermediaries
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Absolute Advantage
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European advantage was to act as middle men and shipping for others
One country has natural advantage in producing certain goods, services
Absolute advantage is often a natural monopoly
Asians produced spices, goods, which Europeans could not
Europeans began by trading with silver, gold
European establish monopolies
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Europeans establish choke points at areas where all trade had to pass
Seized lands where spices grown, destroy competition, create monopoly
Transoceanic trade
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European merchants created global trading system
Based on supply and demand; linked ports of the world
Manila galleons
Heavily armed ships sailed between Manila, Mexico
Asian luxury goods to Mexico; Silver from Mexico to China
East Asia became dependent on American silver
WORLD TRADE
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Terms of Trade
 Agreements on what will be exchanged
 Agreements on payments, amounts to be exchanged
 Bilateral is when two nations negotiate equally
Europeans had to negotiate with China, Japan, Muslims, Russia (too
powerful)
► Only allowed to trade though one port
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 Canton (Guangzhou) in China
 Nagasaki in Japan
 Unilateral is when one nation dictates terms of trade
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Composition of Trade
 Europe and Trade
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Europeans traded finished goods, especially manufactured( Guns, cloths)
Europeans purchased unfinished goods to trade (Silver, sugar)
Europeans sought luxuries, spices, slaves, gems, silks, porcelain
 World and Trade
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Low-cost goods: gold, silver; sugar, spice, tobacco, cotton; slaves
Africa, Latin America became one commodity exporters
E. Europe sold commodities through W. Europe (grains, timber, tar, fish)
E. Asia, S. Asia, S.E. Asia, S.W. Asia: balanced agreements of trade
Balance of Trade
 Amount to the profit or loss involved in trade
 Europeans had an enormous surplus or positive balance of trade
INTERNATIONAL INEQUALITIES
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International Inequality
 Center or Core of world trade was Western Europe
Most of world in an unequal relationship to Europe
► Most countries did not control own economies
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 Local trading elites often grew rich trading
Worked with Western Europeans on seas, coasts
► Controlled their own interior economies
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 Most of locals not involved in world economy
Population existed at subsistence level
► Contacts limited to coasts, ports
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Coercive Labor
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Most of world labor was unfree
Slavery differed little from serfdom, caste slavery, peasants
Profits often depended on keeping labor cheap
Europeans often established plantations with cheap labor
WAS THERE A WORLD
ECONOMY, c. 1600?
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Yes
 Western Europe
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European Atlantic Seaboard
Colonial possessions in North America, South America
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Poland and Russia
Coasts of West, East Africa
Coasts of India, S.E. Asia, E. Asia
Muslim S.W. Asia
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European areas of Ottoman Empire
Interior of Africa
Interior (steppes, deserts) of Eurasia
Interior of South Asia
Indochina
Australia and New Zealand
Interior of North and South America
Pacific islands of Micronesia, Polynesia, Melanesia
No
EAST ASIA
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Benefited from global trade
 Allowed Limited Contacts
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Strong government disincentives to trade
Used Chinese navy to keep pirates, Europeans out
Tended towards official isolation
Japan, Korea equally apprehensive
 Chinese manufacturing better than Europeans
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Tended towards luxury goods
Chinese demanded silver in payment
 Not active participants on scale of Europe
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China failed to appreciate European threat
 Neo-Confucianism clouded understanding
 Technology considered beneath Chinese
 Profits, trade considered inferior occupations
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Japan understood impact of Europeans
 Most troubled by European firearms as un-samurai
 Eventually limited trade to one yearly ship at Nagasaki
 Officially closed Japan until 1854
OTHER PARTS OF WORLD
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Muslim World: Mughal India, Ottomans, Safavids
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Interested in trade, cooperated to a degree
Allowed small port colonies to arise
External trade often handled by ethnic minorities
Exchanged goods for silver, luxuries, processed goods
Eventually became dependent on European manufactured goods
Internal expansion, development over external trade
Russia
 Agricultural economy
 More concerned with steppe nomads, internal problems
 Not involved until 18th century
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Africa
 Except for coasts, Cape Colony generally outside world economy
 Diseases, climate kept Europeans out of Africa
 Contacts limited to coastal states
COLONIAL EXPANSION
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The Americas
 Spain: Began with control of Caribbean, Invaded Mexico 1521, Peru 1531
 Portugal: Cabral visit coast of Brazil; Treaty of Tordesillas granted Brazil
 Colonies developed
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By small band land hungry conquistadors, colonial rulers exploit Indians
Only later did formal Iberian rule replace corrupt conquistators
 Direct Rule
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Colonial administrators sent out from Spain, Portugal
Established agricultural (ranching or plantation) colonies
Colonial societies with Europeans at top created rarely had European majorities
Missionaries sent out to covert Indians
English, French, Dutch create smaller empires on fringes
 Caribbean holdings more profitable than North American colonies
 Caribbean islands and Southern American colonies
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Export sugar, rice, tobacco, cotton, indigo rice
Dominated by slaves, plantations; relied on importation of Africans for labor
 Atlantic Seaboard: settler colonies for Europeans (called Neo-Europes)
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Land grants made to encourage colonization
European populations surpassed native Indians
European society, economic systems reestablished; mini copies of Western
European
Europeans displaced, drove off most Indians and converted land to agriculture
TRADING POST EMPIRES
No attempt to create empires but control trade, wealth
► Portuguese built 50+ posts between west Africa and east Asia
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 Alfonso d'Albuquerque
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16TH century Portuguese commander in Indian Ocean
Seized Hormuz in 1508, Goa in 1510, and Melaka in 1511
Forced all merchant ships to purchase safe-conduct passes
 Portuguese hegemony grew weak by the late sixteenth century
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English, Dutch established trading posts in Asian coasts
 English in India, the Dutch at Cape Town and Indonesia
 Created efficient commercial organization
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Joint-stock company
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Shares could be bought by anyone with money
% of shares correspond to percentage of profit due
Allowed for larger, richer entities to operate
Limited risk of any one participant to cost of the stock purchased
Privileges, terms often guaranteed by government, which often also owned stock
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Companies arose which insured ventures
Lloyds of London is the oldest in world
Insurance
Formation of powerful, profitable joint-stock companies
 English East India Company, founded in 1600
 United East India Company (VOC), Dutch, founded in 1602
 Private enterprises, enjoyed government support, little oversight
EUROPEANS IN INDIAN OCEAN
Posts were commercial ventures not areas of colonization
Portuguese controlled area initially
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Established ports in India, dominated trade to, from India
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Goa was capital for Indian Ocean Portuguese Empire
Conquered Sri Lanka, several other ports with permission of Mughals
Introduced Catholic missionaries to Indian Ocean
Seized port of Malacca on Malay peninsula to do same as in India
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Traded with locals for spice
Later conquered parts of Spice Islands
Spanish conquest of the Philippines
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Manila, bustling port city, became Spanish capital; Spanish tended to live in cities
Islands divided into plantations to grow sugar
Spanish, Filipinos massacred Chinese merchants
Christianity spread by Dominicans throughout archipelago
Muslim resistance on southern island of Mindanao
Conquest of Java by the Dutch
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Began with VOC trading city of Batavia in 1619
Drove Portuguese out, seized their possessions
Policy: secure VOC monopoly over spice production, trade
Enormous monopoly profit led to prosperity of Netherlands
Forced locals to grow rich, coffee in place of regular crops
English arrive 17th century to attack Portugal, later displaced Dutch
Establish British East India Company
Relied heavily on Royal backing, Royal navy, and acquisition of Indian lands
COMMERICAL RIVALRIES
Global competition and conflict
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Dutch forces expelled most Portuguese merchants from southeast Asia
Conflict between English and French merchants over control of India
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Began as rivalry with Portuguese
Each side made alliances with local rulers to establish trading rights
Cotton and tea from Ceylon, early eighteenth century
Competition in the Americas among English, French, and Spanish forces
Anglo-Dutch Wars (1640s to 1670s)
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English and Dutch fight three wars for control of seas
English win and take New Netherlands (New York); Dutch reduced in world role
War of Spanish Succession (1704-1714)
Hapsburg family has no heirs to Spanish throne
France set to inherit empire; England, Dutch, Austrians oppose
The Seven Years' War (1756-1763)
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In Europe: British and Prussia against France, Austria, and Russia
In India: fighting between British and French forces, each with local allies
In the Caribbean: Spanish and French united to limit British expansion
In North America: fights between British and French forces
Outcome of All: British hegemony
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British gained control of India, Canada, Florida
Dutch allowed to retain Ceylon, South Africa, Indonesia as English allies
In Europe, Prussian armies held off massive armies of the enemies
War paved the way for the British empire in the nineteenth century
British influence paramount in Latin America
EARLY CAPITALISM
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First arose in Italian city-states, Dutch controlled Netherlands
Early capitalism and proto-industrialization
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Capitalism is use of capital, money, investments to create industry, profit
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Relies on freedom to invest capital in most profitable venture
Relies on minimal government regulation and right of investors to make a profit
The nature of capitalism
Private parties sought to take advantage of free market conditions
► Economic decisions by private parties, not by governments or nobility
► Forces of supply and demand determined price
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Supply and demand
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Joint-stock companies like EEIC and VOC organized commerce on a new scale
Capitalism actively supported by governments, especially England, Netherlands
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Protected rights of private property, upheld contracts, settled disputes
Chartered joint-stock companies authorized to explore, conquer, and colonize distant lands
The putting-out system of seventeenth and eighteenth centuries
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Merchants built efficient transportation and communication networks
New institutions and services: banks, insurance, stock exchanges
Entrepreneurs bypassed guilds, moved production to countryside
Rural labor cheap, cloth production highly profitable
Mercantilism is government supported national capitalism
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Nations should not important products from outside its own empire
Goods should be shipped only on national ships
National tariffs, taxes discourage importation, stimulate local production
Economic health reflected in positive balance of trade
Wealth measured in positive amounts of gold, silver earned
All currencies backed by gold, silver
EARLY CAPITALIST SOCIETIES
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Mindset about capitalism
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Profits and ethics
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Reformation
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Protestants saw success as vindication of God’s favor
Many Protestants in upper middle class, Protestant states supported capitalism
Population growth and urbanization
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Population growth
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American food crops improved Europeans' nutrition and diets
Increased resistance to epidemic diseases after the mid-seventeenth century
European population increased from 81 million in 1500 to 180 million in 1800
Urbanization
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Medieval theologians saw profit making as selfish and sinful
Renaissance altered concepts of wealth, profit
Rapid growth of major cities (Paris from 130,000 in 1550 to 500,000 in 1650)
Cities increasingly important as administrative and commercial centers
Social change in early modern Europe
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Early capitalism altered rural society
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Societies became monetary based and not barter
Improved material standards if grains sold for high profits
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Increased financial independence of rural workers
Society would prosper as individuals pursued their own interests
New propertied classes, especially urban middle classes began to appear
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Generated deep social strains
Aristocrats, peasants on fixed incomes, payment of wealth in kind hurt
Crime associated with wealth, poverty arose
Massive importation of gold, silver led to massive inflation
Capitalism created problems
The nuclear family strengthened by capitalism
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Families more independent economically, socially, and emotionally
Love between men and women, parents and children became more important
EUROPEAN IMPACTS
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Western Europe
 Commercial impacts
Beginning of Commercial Revolution, Capital Revolution, Price
Revolution
► Incredible wealth generated
► Wealth funds European internal development
► New products, foods imported
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 Diplomatic impacts
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European trans-Atlantic empires created
Colonial rivalries
War for colonies
 Social Impact
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Rise of groups with wealth based on money not land
Rise of cities, urban groups
Commercialization made new products available
Dependence on agriculture reduced
 Intellectual Impact
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European ideas, religions, philosophies began to spread abroad
Europeans began to borrow foreign ideas if it suited their needs
Contacts with the world challenged traditional European beliefs
NEW WORLD ORDER
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All continents eventually connected by trade
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American silver, foodstuffs spread throughout world
Terms of trade tend to favor Western Europeans for first time
Commerce generateS wealth which only agriculture had in past
Europeans began to dominate world trade
Increase of unfree labor systems to support commercialization
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Rise of Atlantic Slave trade
Spread of serfdom in Russia
Changes in non-European social classes
 Non-European landowners in Asia make money from trade, too
 Muslim merchants largely replaced by European merchants
 Rise of African slave trading states, kings who made great wealth