Topic 3

The Discoveries and Europe in the

Early Modern Period, 1492-1815
Topic organisation:
1. The Price Revolution
2. Trade flows and mercantilism
3. The Atlantic Economy and Asian Trade
4. The limits of globalisation in the early
modern world
Possible exam questions:
Why was the inflation in the sixteenth century
a revolution?

What was mercantilism?

Was there a global economy in the
seventeenth and eighteenth centuries?
15
th
century trade
Transport costs very high: long distance trade
is in goods with high value relative to volume
and/or weight: spices, porcelain, silk
Silk route: dominated by Arab and Venetian
traders
1492: looking for spices, Columbus finds
America
1498: Vasco de Gama reaches India going
round the south of Africa

The decline of the Mediterranean?
Long-distance indirect trade in
the 16
th
century
One consequence of the
Discoveries: the price revolution
Monetary system: metallic


Greshams Law, bad money drives out good
money"
Quantitive theory of money
I.Fisher (true by definition)

MV = PT

Gold and silver shipments in 16
th

century
1503-1600
153 tns of gold
7.400 tns of silver

1556, Money worth more when it is scarce
than when it is abundant"
Inflation - 1
1. price increases:
Sevilla wheat bread, x5 o x6
olive oil, x4
bacalao, x2 o x3
lead, small fall

Why differences?
Changes in relative prices (labour: land or food
prices)

Inflation - 2
2. Spanish silver, European inflation

3. Rate of inflation does not correlate with silver
shipments

4. Other monetary influences

5. Cities and the velocity of circulation
Contracts and imperfect information
Wheat prices Extremadura

1802/3 50
1803/4 80
1804/5 164
1805/6 100
1806/7 60
So.
Why is it called a price revolution?
- Contemporaries, inflation, and imperfect
information

And did Spain / Castilla suffer from Dutch
disease?
What is mercantilism?
Conserve bullion by encouraging exports,
restricting imports
Zero-sum game (i.e. quantity of trade fixed)

Royal factories
Tariffs / bans

Rent-seeking (beer producers in the UK?)

Dutch Republic:
Mercantalism versus Smithian growth

Smithian growth depended on the efficient
distribution of goods, people, capital and
information
First Modern Nation see Allen reading

Entrept European trade + colonial
commerce

Dutch Republic
(i) entrept for European commerce
good geographic location (Mar norte)
good communication (internal / external)
cheap energy + efficient export orientated industries
cheap and efficient shipping (fluitschip)
development of Amsterdam (Ambers) at first low
transaction costs for trade in northern Europe.
(ii) rise of mercantilism limited this function
The Dutch Republic & Europe
an industrial economy that was large relative to the
size of its home market and depended on imported
raw materials was .. the ideal target for the
mercantilist policies of its trading partners (de Vries+Woude,
p. 341).
1st Anglo-Dutch war 1652, 25 years of repeated
attacks
1651, 1660 English Navigation Acts
yet in 1680 Dutch merchant fleet larger than the
combined fleets of England, France and Spain
The Dutch Republic & Asia
(iii) growth of entrept function associated with colonial
products
rapid development of VOC monopoly attempts to corner the
market in spices (co-operation possible
Buy cheap, sell dear
Allowed Dutch dominant trading nation in Europe 1650-1700
VOC - early 18th, 20% of 20 year olds in Holland died in VOC
service
About 36,000 employed in late 17th century
Over 193 year history, 1 person returned for every 3 who left
Mercantilism Britain
Foreign markets seized, created and protected
by high levels of investment in naval power
Exports to GNP:
1700: 8 %
1760: 15 %
1801: 16 %
1700: 81 % of exports are manufactures
1801: 88 % of exports are manufactures

British exports by destination
Exports Europe Americas Rest of World
1700 85% 10% 5%
1772 49% 37% 14%
1818-20 47% 44% 10%



Exports 1560- 1700 x 4 (1% anual)
Industry (proto-industria)

1700 1801
Exports Imports Exports Imports
Manufactu
res
81% 28% 88% 5%
Raw
materials
8% 45% 5% 56%
Food 11% 27% 7% 39%
British Trade
1700-1772 95% of the increased volume sold on
imperial markets which underlies the significance
of sea power, imperial connections, slavery and
mercantilist regulations for the sale of British
manufacturing overseas (OBrien & Engerman, 1991, p.186)
except under duress .. Britains imperial markets
were never opened to rival European powers for
something like seven decades after the radical
suggestions for free trade were first published in
The Wealth of Nations (OBrien & Engerman, 1991, p.190)
Geographical structure of import trade
in the 1770s (millions of guilders)
Britain France Nether-
lands
Total % of all
imports
Western
Hemispher
e
57 72 22 152 32.3%
Asia
24 9 20 53 11.2%
Europe
70 90 105 265 56.5%
Total
151 171 147
Mercantilism Spain
Merchant fleet unimportant in Spain
Colonial market small 10% - and agricultural
products
Re-exports of European goods
Distance; small population
Until end of 18th century precious metals
more than market for manufactures
Flows of trade 16
th
& 17
th
centuries
Europe
European trade financed with gold and silver
Means Spain continuously loses gold and
silver
Via financing of expensive wars in foreign territory
Via imports of manufactured goods from northern
Europe (that were consumed in the Iberian
peninsula or exported to America)

Flows of trade in 16
th
& 17
th
centuries
Asia
Europeans import spices and luxury goods
Financed with an eastward flow of silver
Huge demand for silver in China and India
Sophisticated, dense and commercialised
economies
Re-monetization after 1400 following experiments
with paper money and a poorly managed copper
system.

Atlantic trade & 18
th
century
Rise of two American crops sugar and
tobacco
Informed investors quickly realized that with
suitable labour sugar plantations in the West
Indies and North-Eastern Brazil could be
produced at far lower prices than traditional
producers (sugar very expensive)
Capital and labour imports (slaves) into the
the large plantations

Slave trade and the Atlantic
economy
Europe- plantation economies
Europe has high demand for sugar and tobacco
West Indies do not consume European skill-intensive
manufactures
North America is crucial
Buys (imports) the sugar and tobacco
Sells (exports) agricultural goods to the plantation
economies
Exports sugar, raw materials to Europe in exchange of
manufactured goods.

The Triangular trade
Organisation of long-distance trade
Demands large capital and new forms of
organisation
Joint stock companies (monopolies)
Profits not distributed at the end of each trip but
at the end of the year.
Companies success was mobilising large capital
that guaranteed permanent presence in the east
Military strength.

Europe-Asia trade (annual)
Europe to Asia Asia to Europe

ships
000s
tons

ships
000s
tons
% ton
1501-10
15 4 7 2 49
1581-90
7 6 5 4 71
1681-90
40 21 28 17 81
1781-90
103 67 81 50 74
Growth in Asian trade
1500-1795 annual growth 1.1%
1.1% *300 years = x 25
Late 18th century 50,000 tons/ year = 1
large container ship today

1770s New World sugar to Europe *4 volume
of all European imports from Asia
Atlantic slave trade 2.1% year growth 1525-
1790
Nature of Asian imports
16th century pepper, fine spices, etc. non-
competing with European goods
17th century cotton textiles, porcelain, silk
encouraged the creation of European imitations
18th century Asian coffee competed with W.I.
The existence of alternatives and the rise of import
substitution influenced the prices at which many
Asian goods could be sold in Europe, limiting the
pricing power of the trading companies
Was there a global economy in the
early modern world?
Flynn & Giraldez: yes

Why? Permanent existence of direct trade
between continents from 16
th
century
A global economy...?
Acemoglu, Johnson & Robinson (AJR)

a. Urban growth
b. Institutional change
A global economy....?
Williamson & ORourke
intercontinental convergence of commodity &
factor prices

Price convergence not volume of trade

No convergence before 1820 (non-competing
luxuries & monopolies)
A global economy....?
Jan de Vries
Luxuries (pepper, coffee) do show long-term
price declines in European prices relative to
broader European prices
Non-competing but encourage European
imitations (cotton, porcelain)
Competitive markets (national monopolies,
European market)