The World That Trade Created: Book Review

The World That Trade Created: Society, Culture, and the World Economy, 1400 to the Present, Kenneth Pomeranz and Steven Topik (2013). Pomeranz wrote the book The Great Divergence, the rise of Western Europe to literally create the “Western World.” My primary interests are food and trade, but it took the necessary institutional development to create the modern world.

Introduction: “The Chinese traded their silks to the British and the Dutch, who bought them with Spanish pesos that had been minted by African slaves in what is today Mexico and Bolivia and mined by indigenous peoples recruited through adapted forms of Incan and Aztec labor tribute” (L132). Near-global trade happened; then the New World was discovered by the Old. “In Naples, meanwhile, enraged consumers threw a shipload of potatoes overboard during a famine, convinced that the Peruvian tuber was poison” (L148). Standards had to be set on weights, measures, value, and means of payment, even in early markets.

Chapter 1: The Making of Market Conventions. People don’t seem “economically rational.” An early question was whether the state (e.g., king) or competing merchants should determine prices. Aristotle talked about the “just price” not market forces. Eventually, supply and demand usually won out. The Aztec had enormous markets while the Incas did not seem to have markets, but trade conducted by the state. Where sea trade was common, private trading predominated—especially in Asia. Trade diasporas became common and efficient. European traders (like East India Companies) often married local women who were more experienced and usually outlived husbands and inherited their wealth.

Chinese and Muslims also moved to foreign countries for networking. “All over the world, trade was organized through networks of people who shared the same native place—and thus a dialect, a deity to swear on, and other trust-inducing connections” (L356). The Chinese diaspora was mainly from the Fujian region, with farmworkers and merchant networks, even the California goldrush.

“The density of exchange favored the worldwide diffusion of knowledge and products. Rice-growing, which had spread slowly from eastern Asia to India and parts of Mesopotamia, was now adopted in Egypt, Morocco, and Southern Spain; sorghum spread from Africa to the Mediterranean. Cotton was introduced from India to Iraq as early as the 600s; from there it followed the trade routes to Syria, Cyprus, Sicily, Tunisia, Morocco, Spain, and eventually to the Nile Valley. Islamic trade routes brought papermaking from China to Europe and Greek medicine back into a Europe that had lost it” (L528).

“The Portuguese government was the first to attack the principle—common throughout the region—that the sea belonged to no one, and the first to use force to redirect trade” (L539). They built forts to protect their interests and deter others. This was direct trade, replacing the use of intermediaries. Muslims redirected trade in the Middle Ages, which favored some like Venice. Marco Polo traveled the Silk Road after the northern trade routes were opened by the Mongols. Prince Henry the Navigator was a fan of Polo as was Columbus.

Champa rice was an improvement as it ripened faster and could be grown more quickly. Two and three harvests were possible in China.

Pre-Columbian Indians traded extensively. The Aztecs traded for New Mexico turquoise and silver, and many products from Central America. With fewer rivers and no livestock, much of the trade was walking overland. Cozumel (on the sea) became a trading center for the Yucatan. Aztecs had their own caste of merchants with massive markets in Tenochtitlan. “Commerce was an extension of statecraft and merchants essentially government officials” (L757).

The Portuguese used the native Tupi to harvest brazilwood and farm in near-slavery. This they resisted. African slaves were brought in. First sugar and then coffee were grown on plantations in Brazil and creating the world’s largest slave society with over a million slaves. Following Portugal, Brazil had essentially no capital markets or even banks and poor rule of law. Capital had to be borrowed from abroad, mainly England.

The Dutch created the Dutch East India Company with outposts in India, Southeast Asia, and Japan with agents often marrying independent native women—who controlled their own property and merchants themselves (an occupation beneath upper class men). Profit meant monopoly power—porcelain to pepper. Cannons and forts worked. Individuals often traded illegally within Asia—with the wives’ assist. The agents in Asia were not rich enough to own much stock, but they had latitude in Asia meaning trading on their own accounts.

The British East India Company established colonies at Madras, Bombay, and Calcutta. The Bengali merchants tried to set up partnerships with British agents using Bengali capital and local knowledge. Many manufacturing plants were established including coal mines, steam-driven pumps, iron bridges, tea plantations, railroads, and sugar refining. The collapse of indigo pricing ruined many, leaving the British increasingly in charge.

Chapter 2: The Tactics of Transport. In Mesoamerica “status and power, not economic calculation of gain and loss, motivated trade. … Transport shaped the geographic division of labor and the nature of demand. … Transport costs limited the size of cities as well, because bulky goods like food and fuel could come only so far before they became too expensive” (L1164). Shipping powers needed big trees for shipbuilding or allow others to do it. Portuguese ships were built in Brazil and Spanish in Ecuador. The job of an agent was easier if there was only a single good like tobacco.

World trade changed with railroads and steamships in the 19th century. Railroads moved goods in bulk fast and cheaply, more efficient with brief stops: the reason for grain elevators. Commodity markets and standardization were needed.

China as a sea power peaked with admiral Zheng He in massive ships sent as far as Africa. Then the Ming dynasty required ships to stay close to home. Smaller ships were used to carry silk and porcelain for cotton and indigo. Coal became available in Europe, ending shortages for cooking and heating.

Columbus (L1307), turned down by Portugal when Dias rounded the Cape of Good Hope. He reached the Bahamas 33 days after leaving the Canary Islands. In four voyages he spent a lot of time in Jamaica, Hispaniola, and Cuba.

Most farming was near subsistence, usually with no more than 20% of the crop to sell and then local trading was better. London worked because there was efficient farming nearby and water transportation. Paris was more difficult to supply. Cairo on the Nile and Istanbul between the Mediterranean and Black Sea worked as major cities. Beijing had to build extensive canals to ship rice grown further south.

European settlement in the Americas required the ability to market cash crops back to Europe; self-sufficiency was inefficient and most farmers started out in debt. Efficient shipping, stopping piracy, and limited ship time in port were useful. This worked for tobacco, a single product where pricing and ship were efficient. The goods shipped back to the colonies were more difficult. “Somewhere between 1 million and 2 million Europeans came to the New World between 1500 and 1800; by contrast, over 8 million Africans came via the slave trade” (L1444), but the Europeans had a high birth rate. Major exports were sugar, tobacco, and coffee; more so than furs. Migration usually meant land, after indentured servitude for the poor; elites got a lot of land.

Review of British East India Co. through employee Stamford Raffles, conquering Java and founding Singapore, where he created a government system, then emphasizing intra-Asian trade. Shanghai became a major trade center, including opium to China. Indonesia also became a trading center used for the advantage of the Dutch. India would have 85% of Asia’s railroad network by 1910, to benefit British interests, while Indians paid taxes to help pay for it. The benefits went to the British military able to move troops quickly, investors, and steelmakers.

There were many instances of coerced labor throughout the colonial rule: by Britain in India and elsewhere in Asia, the Spanish in Mexico, like coffee-growing in Mayan regions. The process of shipping coffee to New York and US processing at L1740, including final processing in Toledo, Ohio, then by train to retailers.

Chapter 3: The Economic Culture of Drugs, defined as products to produce an altered state, maybe for medicinal or religious reasons. Whether considered drugs or not, coffee, tea, tobacco, and sugar were the most important trade goods for three centuries. Most drug foods like coffee (Ethiopia) were indigenous to specific places, then produced in distant places becoming European colonies. They moved from aristocrat luxuries to common necessities as prices fell. Only tea remained in Asia (including Dutch Java in 1827 and British Ceylon in 1877). Coca (when turned into cocaine in the 19th century) and opium were real drugs and had real addiction affects, outlawed in the 20th century.

The cacao bean was turned into chocolate by the Olmecs then Mayas. In Spain chocolate as a drink with added sugar, cinnamon, and vanilla and cacao became a major Spanish export good, then became a plantation good around Spanish and Portuguese colonies. Coffee as a beverage probably started around 1400 in Mocha, then around the Muslim world by 1500 and the start of the café. Haiti was a big coffee producer until the rebellion of the slaves who then refused to grow coffee. Coffee was grown in Brazil.

The Arabs became sugar cultivators, with Venice dominating the European sugar trade in the Middle Ages. The Portuguese grew sugar using slaves on Atlantic islands, then Brazil. Major crops from India became rice, cotton, indigo, and opium.

Chapter 4: Transplanting: Commodities in World Trade. Potatoes were fed to Andean miners, ergo slave food. It worked in Ireland because it was easy to grow, store and survive attacks. They can be harvested or left until later, with high nutrition per acre. Gold beginning with the California goldrush in 1849 increased the money supply. Guano became valuable, increasing yields without expensive labor, then lost to synthetic fertilizers. Coffee shifted from Muslims to European colonies. Sugar was brought to the New World, using mass slavery. Rubber trees smuggled from Brazil to British tropical colonies. McCormick’s reaper made freehold family farming profitable. Cotton became the global standard with mechanization of spinning and weaving.

Specialization works against biodiversity, making ecosystems sensitive to external shocks. Mechanization and specialization make the labor theory of value difficult to defend.

By 1700 about 300,000 Portuguese hugged the coast of Brazil relying on natives farming native crops and sugar using slaves, a predatory and hierarchical society. Slaves replaced the indigenous Tupi people. Livestock was brought from Europe and all of this meant clearing the Atlantic Forest. Then coffee started at the end of the 18th century. “All animals and plants exist for the plunder” (L2531).

South American rubber tress were planted in Kew Garden, then transplanted to British Malaya. Charles Goodyear discovered the vulcanization process in 1839. The Dutch planted trees in Indonesia.

John Sutter and the California goldrush of 1849 (L2584); James Marshall found gold at his lumber mill. Sutterville became Sacramento. Thousands came from the US and elsewhere. The country became bicoastal and it encouraged the transcontinental railroad. Guano (L2738) as a soil supplement plus advances in transportation (sailing ships, steamships, and railroads). Hawaii allowed Americans to own sugar production, Chinese rice, and Portuguese cattle. The threat of tariffs resulted in annexation by the US in the 1890s.

The gauchos on the Pampas (L2846) became cowboys when Spaniards introduced livestock. Mechanization of wheat farming built up Chicago, plus railroads and canals, and land sold in 160 acre lots. Cyrus McCormick brought his mechanical reaper to Chicago in 1847, then the reaper-binder in 1878 by John Appleby, with twine from the Yucatan (from a cactus, henequen), using debt peonage for labor.

Potatoes in Ireland by 1600. After uprisings the British used a scorched earth policy, resulting in the importance of potatoes, with the tubers underground and only a spade needed for planting. Potatoes became the dominant source of Irish food by 1700, where a small plot of land was all that was needed. In England, potatoes were fed to pigs and the poorest like orphanages and workhouses. The French Revolution and after spread potatoes across Europe, including Russia.

Chapter 5: The Economics of Violence. “Primitive accumulation” was seizing property and coercing labor, with tribute and booty common in the ancient world. Wealth would be based on armies and tax collections. Venice compelled traders to travel in government-organized convoys. The Portuguese and Spanish had their own version. The Dutch and English did the opposite, using private companies to handle trade (and war). The Ottomans used their military and bureaucracy for an expanding empire. There was that military and merchant relationship, applied in different ways.

“The big winners from the looting of Mexico and Peru were the British, Belgians, Dutch, and Germans, who sold their wares to affluent Spaniards” (L 3276). How to win investors for overseas ventures: mention plunder, glory, and national pride. There could be relationships between merchants and pirates.

Slave trades in Africa were dominated by Muslims in North Africa and points west and the European colonies from West Africa (perhaps 12 million). Why use them in the New World and not Africa? They had colonies there, not yet in Africa until after 1880. The Africans could defend themselves, including with firearms. The Europeans got what they wanted from Africa through trade using small trading enclaves, while avoiding diseases including malaria, yellow fever and others were fatal to Europeans.

Potosi beginning on L3398. England used joint stock companies regularly, roughly 13 million pounds in overseas operations. Over a third supported government-licensed piracy, mostly against Spain. The East India Company arguably was the first multi-national. Merchant ships were armed for defense, meaning they could turn to piracy for the right opportunity. The Dutch built big slow ships (fluitchip) specifically to move bulk cargo like grain, controlling most nonluxury shipping.

British tea for opium trade was used because the Chinese wanted little the British had except silver. Why corporations? The Dutch and English East India Companies were anonymous, separating ownership from control, separate legal entities, and permanent. Part of their mission was to make mar on Portugal, also West India Companies on Spain. They had to colonize and farm. They found it hard to make money, as they were often undercut by smugglers (the Boston Tea Party came later). They collapsed by 1830 and colonies taken over governments.

The pirate business boomed by the 16th century, including Drake, Hawkins, and Raleigh, something of an extension of trade. Outright pirates followed, often unemployed privateers.

Virtually no joint stock companies were used for manufacturing or intra-Europe trade, which required less capital and were mainly family firms. The railroad industry post-1830 required a lot of capital.

Sugar was a common use of slaves on plantations. When abolished, former slaves had no interest in growing or refining sugar. The owners switched to indentured servants, often from China or India.

Ivory created colonies like Belgium’s Congo. King Leopold ran the colony through military power. The result was hundreds of thousands of elephants and millions of Africans killed. Europe took over much of Africa in the second half of the 19th century: Suez Canal in 1869; the 1884 Berlin Conference divided up the continent as “the scramble for Africa.” Coffee growing became important including around the Horn of Africa, with coffee growers small-scale subsistence farmers.

Jewish trading house of Samuel Rosenfelder (L3903), a similar story to the Rothschilds, but starting in the fur trade. The German member fled west after the Nazis came to power. The descendants are spread across the world.

Chapter 6: Making Modern Markets. The transformation was from subsistence production to market-driven commodities and profits. The relative importance of gold and silver, based on availability. The metric revolution of the 19th century created universal measures. Railroad storage elevators homogenized wheat in the US. Then time zones standardized by the railroads. Banks became corporations over partnerships. Packing went from protecting goods to marketing and intellectual property using trademarks started in the 19th century. Sometimes it took a long time for a necessary product, like a can opener after the tin can was invented.

New World gold and silver helped stimulate European commerce. Spain built a large navy and fortresses. Mexico used scrip or barter because the specie was headed for Spain. Lots of Portuguese came to Brazil once gold was discovered. They won their freedom in 1821 & 2, with banking coming from England. Spain, France, Texas, US and others invaded Mexico in the 19th century. The gold standard was used after the California and later gold rushes. Brazil’s economy was based on coffee and then rubber.

The Rothschilds started in Frankfurt, beginning with Mayer Amschel (1744-1812) from money changing, then moving funds and goods across international borders. He became a court agent to Hesse-Cassel and later the Holy Roman Emperor. The Germans rented their Hessians to Britain in the American Revolution. Family members moved around the capital of Europe. They lent money to those fighting against Napoleon. They favored a large volume of low-interest, low risk loans. Their clout declined as commercial banks grew and prospered.

The development of world markets in grains. The Atlantic wheat market included the American Great Plains farming and an industrializing Europe. Railroads and grain elevators increased efficiency. Rice was more difficult because cultures had strong preferences for particular types of rice. India became a major rice exporter based on British colonial policies.

Europe standardized time using Greenwich time, although the French wanted Paris.

The Great Merger Movement happened after the Panic of 1893. Banks invested heavily in Mexico, especially in mining and railroads while shaping monetary, banking, and railroad policies. International bond markets developed in London, Paris, then New York, dominated by a few underwriters including Rothschild, Barings, and Morgan; these names signaled quality. Few bonds were speculative (below 10%), and this has gone up especially from 1993-2007 (to 60%). Credit rating agencies began charging fees to rate securities, Making them less objective.

Food went from local for most of history to worldwide with canning. Nicholas Appert invented the tin can in 1810, which was widely used during the Civil War. Canners included HJ Heinz, Campbell, Borden, and Franco-American. Lighter weight tin and steel was used and packaging improved. The can opener had to wait until 1870 when American inventor William Lyman received a patent. Factories were often dirty. Then the Pure Food and Drug Act of 1906. Supermarkets made processed foods convenient and in demand with advertising. Packaging increased as part of the process,

advancing advertising. Foods were processed mechanically, moved rapidly, with urbanization increasing demand. Brand names were important.

States regulated trademarks in the 1840s, then federally beginning in 1880. Trademarks made franchises possible. Hygiene products grew mainly with advertising: soap, mouth wash, toothpaste, and deodorant.

The first railroads used Narrow gauge, which was followed for standardization, then adapted in the US and across Europe.

Chapter 7: World Trade, Industrialization, and Deindustrialization. The prototype for modern factories was the sugar mills of Latin America, where cane was crushed, boiled, and made ready for transatlantic sale. Then textile mills in England. The British navy pried open markets around the world, reduced shipping costs, like using Indian cotton for its textile industry. The mechanization of wool and flax were difficult and came later. However, Europe imported large amounts of food beginning around 1830, returning to self-sufficiency about 1950.

More on sugar: mill, boiling house, curing house, distillery for rum, and storage, but with most slave field hands. Sugarcane had to be quickly brought to curing house. Sugarcane produced various qualities of sugar, as well as molasses and rum. The better the production, the better the final products and revenue. Crushers were constantly fed cane, the residual (bagasse) used to stoke the fire. Sugar got cheaper and a mass food.

Silk was 40% of Japanese exports about 1900, total agriculture, 60%. Much of this paid for machinery. They imported up to 20% of rice consumed. This was because of hard work, some labor saving devices improved rice production, silkworms and production. Both silk and rice can yield a lot per acre, but required work. This did not help the farmers.

In the US, “those who hoped to get rich quick went to the South or New York or Philadelphia; New England was for those more interested in godliness” (L5539). The English policy was to make the colonies suppliers of raw materials and consumers of manufactured goods. The New England soil was poor and growing season short, just enough for subsistence. They made their own clothes and tools because they could not afford English imports. The South sold tobacco and cotton. When colonial manufacturing was banned, they turned to shipbuilding and cod fishing, then whaling and merchant shipping. After independence they turned to manufacturing, beginning with textiles using “stolen” English technology. They made their own markets based on merchant contacts.

Oil wells started in Pennsylvania, following Baku near the Caspian Sea. Kerosene was the primary product. Machines (steamships) often became hybrids of coal and oil. After WWII during the Marshall Plan, the US encouraged greater oil use. Petroleum became the most valuable traded good, especially when gasoline engines were adopted.

The Mexican oil industry was nationalized in the 1920s, much later in other Latin American countries. OPEC was created in 1960. Saudi and other Arab states discovered oil, creating a strict Islamic theocracy and the oil industry was nationalized.

US companies with brand names focused on design and marketing but moved manufacturing to low-cost countries beginning with the Asian Tigers, especially China, with Foxconn a major supplier.

Fair trade laws allowed manufacturers to set minimum retail prices, beginning with California in 1931. Retailers turned to selling their own brands like Kenmore at Sears. Who built them was of little concern to consumers.

Epilogue. “Local institutions do influence the degree to which global networks penetrate” (L5884). A push was made to reduce the government deficit, basically cutting spending, called “relying on the confidence fairy” by Paul Krugman.