How has the international economy developed in the last 250 years?

Industrialisation and Economics’ Development.

________________________________________________________________________________

Answer:

In order to be aware of why a truly international economy first evolved during the nineteenth century it is necessary to consider the economic, technical and other changes which were responsible for the massive expansion of capital movements, migration and foreign trade that occurred during these years. For it was through these flows of money, men and goods that countries until this time economically independent were fused into the international economy. The industrial revolution, which began in Britain in the late eighteenth century and which spread first to Europe and then to the United States during the nineteenth century, enormously increased the opportunities for trade between countries, for the new technology presupposed a wide variety of resources and an expanding market. Industrialisation would never have happened so rapidly if it wasn't for the rapid development of new ideas, methods and machinery. Industrialisation brought about the widespread use of factories, around which towns and cities developed. Many of the factories of the industrial age remain intact today and can be visited to make your understanding clearer.

Factories developed simply because the new machinery that was developed in the Industrial Revolution was too large to fit into small buildings and were more efficiently used in a new type of building. Ideally the factory owner could house all of the elements of his manufacturing process in one building, reducing the cost of producing goods and the time it took to make these goods. Different parts of Britain saw the growth of different types of manufacturing industries. Coalbrookdale is famed for its Iron works; the Pennines for wool and cotton manufacturing, the area around Stoke is still referred to as being the 'Potteries' today. These areas built up due to close proximity to raw materials, the intended market for the produce and to ports. Each areas population grew rapidly as impoverished agricultural workers sought a new life and guaranteed work in the apparently prosperous cities.

Besides providing expanding opportunities for the international exchange of manufactured goods, modern industrial technology also created increased opportunities for trade in raw materials. In the early stages of the industrial revolution, when textile production expanded rapidly, and machinery continued to be constructed largely of wood, agricultural raw materials dominated these exchanges, especially raw cotton and timber. Later on, however, as industrial technology continued to evolve, manufacturing industry came to rely more on minerals and relatively less on agricultural raw materials. This growing industrial dependence on mineral resources was reflected both in a widening of the range of minerals for which an industrial use was found and in the development of mass consumption of a few of them. While the output of coal and iron ore increased substantially throughout the nineteenth century, after 1850 the output of other metals, such as copper and zinc, grew even faster, and other previously little used minerals such as petroleum and aluminum, had achieved a considerable economic importance by the beginning of the twentieth century.

This is a preview of the whole essay

Through cheapening and speeding up the movement of goods and people, improved transport and communications played a vital role in the growth of the world economy in the nineteenth century. By promoting the exchange of a growing volume of goods; by expanding markets, as well as opening up new sources of supply of many products; by permitting the concentration of certain types of production in fewer centres, thereby encouraging specialization and assisting the realization of economies of scale; and by allowing a greater interregional flow of men and capital, the new forms of transport and communications made possible that growing economic interdependence of the whole world which is so remarkable a feature of nineteenth-century economic development. Moreover, by making possible a significant relocation of economic activity throughout the world, transport improvements contributed substantially to the rising productivity that lay behind the growth of real incomes in the world economy during these years.

The importance of capital accumulation for increasing production has long been recognized by economists. Capital accumulation facilitates the introduction of new techniques and provides tools and equipment for a growing population. It also brings about, through increases in the supply of tools and machinery per worker, the use of more efficient ‘roundabout’ methods of production. In particular, the process of industrialization, with its emphasis on more mechanized methods of production, a rapidly growing consumption of raw materials, and the need to supply wider markets, results in substantial additions being made to a country’s stock of capital equipment. At the same time, technical progress and continued population growth make necessary a continuous increase in this capital stock if living standards are to be maintained or raised.

Economic growth in the nineteenth century was also accompanied by a rapid increase of population. World population grew from just over 900m in 1800 to approximately 1,600m in 1900. At the same time, the distribution of world population changed in a number of significant ways. The rapidly growing world population had a number of important consequences for world trade. In itself a growing population would have meant some increased demand for those commodities already traded internationally. Taken in conjunction with changes in the other factors of production, however, it greatly enhanced the possibilities of trade. For example, in Europe, with the possible exception of Russia, the land-labour ratio became less favourable as population grew, despite improved farming techniques and the reclamation of waste lands. Land became scarce and rose in price, so that agricultural products became more expensive relative to those obtained from other countries overseas. As agricultural price differences widened, therefore, the opportunities for trade increased correspondingly, while in those countries where the growth of domestic production of foodstuffs failed to keep pace with the population increase, foreign imports had to be relied on increasingly to fill the gap. Moreover, the unfavourable land-labour ratio in Europe had another consequence for the international economy. It forced people from the land into the towns and, when domestic urban employment was unavailable, overseas to the new regions of primary production. In these areas, where labour was short, the rapid growth of the indigenous population, aided by immigration, served only to create more favourable conditions for the exploitation of economic resources, particularly natural resources, which had previously remained un-worked partly because of the lack of labour. Even if accurate measurement of natural resources in economic terms is difficult, if not impossible, the available evidence suggests that a substantial increase in the world supply of natural resources occurred during the nineteenth century. Within Europe the supply was added to by the cultivation of previously unused land and the discovery and exploitation of new sources of mineral supply.

Despite the high rates of population growth, there was a marked rise in real incomes in a number of countries as a result of the increase in productivity brought about by new production methods, better organization, and improved transport. While there are obvious difficulties in measuring this improvement in statistical terms that emphasize the approximate nature of the available national estimates, they suggest a three-fold classification of countries based on the annual rates of growth of real incomes which they experienced in the course of the nineteenth century. Changes in income levels have much to do with changes in demand and consequently with changes in the structure of output and the composition of foreign trade. As incomes rise, there is an increased demand for capital goods, manufactured consumer goods, and services, and a relatively slow expansion in demand for food, textiles and clothing. Moreover, rising living standards, involving as they do changes in tastes, incomes and, consequently, in consumption patterns, not only influence the structure of domestic output but also affect the volume and composition of foreign trade. Thus, the shift in the diet of the United States and other Western nations from cereals towards meat and dairy products as the standard of living rose was important both for the domestic producers of these commodities and for the trade flows that existed between these countries. Another example associated with the rise in real incomes is the increased demand for colonial products. Items of trade, such as sugar, tobacco, tea, coffee, and cocoa, largely luxuries to previous generations, came to be regarded as necessities during the nineteenth century, while the consumption of tropical fruits also became important for the first time towards the end of this period.

The period between 1820 and 1913 was characterized by the gradual liberalization of controls over the flows of capital, labour and trade that were to link the countries of the world more closely together as the nineteenth century progressed. The gradual removal of restrictions on the movement of people, both within and between countries, while encouraging international migration, also gave to these movements of population their distinctive feature, namely, their quality as a free movement of individuals, almost entirely without control from either the receiving or sending countries and undertaken almost entirely by single individual or family units. Controls over financial transactions were also minimal. Short- and long-term capital could move unsupervised in any direction and these movements could take any form. Direct foreign investment was undertaken, and was often encouraged by the governments of the receiving countries. Foreign securities were freely traded on most stock exchanges. Repatriation of profits was unhampered, and the fear of confiscation of foreign investment almost completely absent. In the form of gold coins, foreign currencies mixed freely with the domestic currencies of many countries. Moreover, like migration, individuals (and enterprises) dominated international financial and commercial transactions before 1914, and only rarely were dealings conducted among countries acting as a whole. Finally, whereas international trade had to overcome tariffs during the latter part of the nineteenth century, these were exceedingly low by comparison with those introduced during the interwar years. Furthermore, quotas, import prohibitions and other quantitative restrictions on trade hardly existed before 1913, nor did ideas of economic self-sufficiency, towards the furtherance of which these restrictions on trade were often introduced.

Before turning to a consideration of the forging of the international links of capital, men and trade that constituted the growth of the international economy in the period since 1820, it is necessary to say something about the growth of foreign trade itself as a major cause of the economic growth of nations. In most countries export growth was a very powerful promoter of domestic economic growth and development. What is also clear from Table 4, which describes the long-run growth of the greater part of the world export trade over the period 1820 to 1989, is that the pace of world economic growth is very closely tied to the rate at which world trade grew during these years.

The evolution of the international economy during the period 1820 to 1998 has been largely a response to the changes that have occurred in the political, economic and technological environment within which economic relations between countries are conducted. The record demonstrates the slow but inexorable movement among the regions of the world economy towards greater integration. As a result of a number of developments, international trade increased dramatically in the second half of the nineteenth century, outstripping the growth of world output. Particularly important was the movement towards free trade up to the 1870s, even though it had faltered by the 1880s and was kept alive only by the United Kingdom and a few Continental countries, and the vast strides in steam transport technology which rapidly increased the flows of people and commodities across continents and from one continent to another by sea. This expansion of the international economy provided the mechanism for widespread economic growth in Western Europe and its ‘offshoots’ abroad.

Bibliography/References

Ashworth, W., A Short History of the International Economy since 1850, (London, 1962). Chapters 1-6

Habbakuk, H.J., and Postan, M. (eds.), The Cambridge Economic History of Europe, Vol. VI, ‘The Industrial Revolutions and After, Part 1’ (Cambridge, 1965). Chapters 1-4.

Harley, C.K., ‘Ocean Freight Rates and Productivity 1740-1913. The Primacy of Mechanical Inventions Reaffirmed’, Journal of Economic History (December, 1988). Pages 851-876.

Headrick, D.R., The Tentacles of Progress. Technology Transfer in the Age of Imperialism, 1850-1940 (Oxford, 1988).

Headrick, D.R., The Tools of Empire. Technology and European Imperialism in the Nineteenth Century (Oxford, 1981).

North, D.C., ‘Ocean Freight Rates and Economic Development 1750-1913’, Journal of Economic History (December, 1958). Pages 537-555.

Maddison, A., Monitoring the World Economy, 1820-1992 (Paris, OECD, 1994).

Kindleberger, C.P., Foreign Trade and the National Economy (New Haven, 1962).