European Economy in 19th century (until WWI)
Europe in International Economy 2015


•Great Britain – early being nation
•
•Purchasing power of the lower classes –> ability to buy beyond necessities
–great English middle class – merchants, shopkeepers, manufacturers, bankers, men of law;
•
•Mechanization -> higher productivity -> higher wages -> increased demand (for manufactures) ->
larger market and specialization…
–English have grown rich by consuming – ran against the folk wisdom – thrift and abstemiousness
(„habit of French peasants“, Aldcroft); (Calicoes, Corn Laws);
–
•Result: aimed at a large national and international market and focused on standardized (manu)
goods of moderate prices – the kind that lent themselves to machine production;
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•France – strongest on the continent…
–1815 lost sugar colonies (Caribbean), prosperity of Atlantic ports undermined;
–Markets for cheap machine produced goods dominated by GB;
–Large peasant class, rooted to land;
–New industries: lacked coal; transportation underdeveloped;
–Slow to adopt the new cost-reducing technology or expand into new product markets
–
–Alternative explanation (Aldcroft) - Different route;
•Less necessary to sell goods abroad to feed population;
•GB preempted overseas markets for cheap mass production – France did well to concentrate on
quality goods (skills, taste, designs – edge);
•Much slower population growth;
•Industrial labor more productive than in GB: high-quality production; low productivity agriculture
kept down overall figures;
–
–Quality engineering, construction and architecture, road system and canal network;
–Railway building on large scale since 1840s (1850: 2,5k km, 1870: 17,5 k) – helped develop iron
and engineering industries, investment banking skills
–Outside Europe very minor role compared to GB;

•Germany
–Soon to grow into leading industrial power – until 1870 collection of independent states (Custom
Union);
–Overseas trade through NED;
–GER territories in terms of modern industrial sector overtaking France 1850-1870 (2x coal, iron
1,1; steel 1,8x); large scale state intervention;
–Railway building: leading sector – outperformed FRA (1851-1869 10-20% of total investment) –
creating engineering industry out of nothing;
–Despite expanding mercantile fleet, foreign trade played a lesser part (92% exports to Europe);
–Major source of overseas emigration from 1840 onwards;
•
•Belgium
–Resembled GB most closely: tradition in metallurgy and textile, plenty of coal, iron, easy
international transport (+ early rail), GB example, neighboring FRA and GER – government inclined
to favor business;
–First install coke smelting, paper, glass, output coal, iron, machinery…
–Railway network closest to GB level; export per head even higher;
•

Switzerland
-No coal, no iron ore, no access to the sea, surrounded by large protectionist countries;
-Assets: skilled educated labor force, some capital accumulations, plenty of water power, trading
tradition (could not feed itself in grain; city belt);
-Cotton spindles (10x 1814-1870), machine building and engineering next;
-Conquered foreign markets with high quality products (cotton, embroidered goods, lace, silk,
watches);
-High degree of division of labor (decentralized production) - instead of a factory;
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-Unique – concentration on overseas markets (neighbors unstable and protectionist); 1845 64% went
overseas (US main market), only 36% to Europe;
-Free trade drive in Europe since 1860 (still 37% extra Europe);
-Per head export greatly exceeded GB, BEL;

•United States
•
–Starting as a colonial type economy ->  expanding primary exports at a fast rate -> 1870 major
industrial power;
–
–1870 – still essentially agrarian state, but shrinking employment and output   -> manufacturing;
–
–Leading industry: Cotton textile (value added 16k USD in 1805 -> 930k in 1820 -> 48,4mil in 1860),
coal, iron mining;
•Using GB technology first – innovations, different form of factory organization;
–
–US technology leading in wood-working machinery, high-pressure steam engines,
•American system of manufacture – the mass production of composite articles using interchangeable
parts;
–
–By 1870 US 23% of world industrial output (despite civil war);
–
–Rich in land and other NR as well as in capital – but short of labor:
•Tend to go for innovations - saving labor, capital (physical, human)  intensive economy;
–Europe main market for US primary product exports, creating ELG in critical period;
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•European Imperialism
•
–NWE forced (exploitation) its way into untouchable territories (China 1842+1860, Japan 1853+1868);
–Territorial imperium in others (India, Java);
–Atlantic triangular system (slave trade);
–Deindustrialization (China, India);
•
•Columbian exchange of the life forms (utilization):
–American: maize, cocoa, potato, tomato, tobacco, coca, hardwoods, rubber;
–Euroasian: sugar, coffey, bananas, cereals and animals (horse, cattle, sheep, chicken, pigs);
•
•Law of migration (development)- people go to improve their situation, enhance the bargaining power
of those left behind, while in their new home they create wealth to ship back;
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•India
–GB India most populous part of empire, second trade partner (US);
–EIC (monopoly in India 1813; China 1833; India to GB gov. 1858);
•Primary concern always to make money for shareholders, not to govern a colony – taxing and trading
– chief servants extremely wealthy;
•Bengal (1757 Plassey)– tax collection rights, enormous burden on peasants;
–Drain of the annual sums sent to GB by EIC impoverished the country, reduced its savings and
investment, government was required to borrow to meet its obligations- enlarged external debt;
•Indian taxpayers had to meet the cost of the GB army and of its various wars;
–
–GB brought internal peace, unified the country administratively, established the rule of law;
–
–Destruction of ancient handicrafts, particularly the production of cotton textiles by import of GB
machine-made goods;
•GB cotton sold to India rose form 800k in 1814 to 1bil yards in 1870 ;
•Weavers able to survive by turning to silk good, producing luxury good;
•1837 cotton imports only 6% of Indian consumption, 10% 1850; transport form the ports still
primitive, village craftsmen kept local customers – dual economy persisted for log time;
–
–Indian exports – primary commodities, 1820-30s indigo and opium (indigo declined 1830, opium
leading with 33% of exports); other rice, sugar, seeds, tea, later jute;
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•China
–Never turned into colony, hostile to foreign imports;
–Traditional flow of silver into china to pay for tea, porcelains, silks turned into reverse flow
of specie out of china from 1820s;
–Opium smuggled in –> China attempted bloc the trade, war 1830-42;
–GB enforced opening of ports, extraterritorial rights for merchants and cession of Hong-Kong;
•France and US similar privileges – much extended after second opium war – treaty of Tientsin 1860;
•Tea increasingly dominant in China‘s export;
•
•Japan
–Shut itself for centuries – forced to open its territories in the late 1850s – treaty of 1866:
•Not to rise tariffs above 5% while giving foreigners extraterritorial rights;
–Meiji restoration 1868;
•Liberal reforms (general opinion; men of ability; all classes equal; property rights; 1890
constitutional monarchy); modernization (industry, transportations);
•Economy was transformed with remarkable speed form 1870s;
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•Egypt
–
–Mohammed Ali (since 1805, left 1848) - attempted  to turn Egypt into a modern economy;
•Extensive irrigation and canal works – forced labor;
•Range of industrial plants was set up with European experts; founded schools and colleges –
sending students to Europe;
•
–Ali forced peasants to sell their crops at a fixed low price – reselling to finance his industrial
ventures;
–Continued by Ali‘s successors – built roads, railways, steam shipping; Egypt contributed to Suez;
–Most successful was growing of long stapled cotton -  production increased 8x 1820-1860 (but
textile industry failed);
–Despite partial success, no break through into modernity;
•Incomes remained low, the modern sectors remained enclaves;
–Causes: lack of skill, ability among managers and workers, unveiling coerced labor, corruption,
costly imported machinery, delayed spare parts, lack of coal;
–1860s and 1870s serious debt – forced to accept external fiscal control;
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•Ottoman Empire
–Classic example of economy starting out from a level comparable with that of Europe in 1800:
•Not only failed to keep up, but experienced decline and deindustrialization;
–Some traditional craft industries survived – silk robes, pearl goods, damascene arms, morocco
leather, but others – cotton textile– destroyed by European industry;
–Political and economic weaknesses – commercial treaty with GB 1838 opened country to foreign
imports, limited duties and privileged foreign merchants – exempt from provincial tariffs;
•1856 monopoly for coastal traffic granted to foreigners;
•Incompetent and corrupt administration;
•
–Contact with Europe encouraged the production of primary goods – cotton, tobacco for export;
–From 1854 government forced to take up foreign loans – 1860 it privileged the foreign run Ottoman
bank;
•By 1869 empire owed 76mil pounds abroad –received only about half – very little used on productive
enterprises;
•Growing foreign control over Turkish administration;
–
–Similar story Persia: forced open by treaty with GB 1841 – exports stagnated between 1830-1860
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First World War
•
•In a generation, Europe threw away a legacy that had taken centuries to accumulate (Aldcroft);
•
•Output and export levels well down on those of 1913, even by mid1920, markets lost for ever;
•
•European share of international trade down from 59 to 48% (1913-1920); US more manufactured output
than Europe combined;
•
•Later in period: increasing importance of totalitarian powers – USSR and GER (USSR, GER, ITA, JAP
increased share in industrial production from 22% to 38% 1929-1938);
•
•US failed to assert its leadership;
•
•Problem: longer boarders in Europe as a consequence of establishment of new countries (A-H, RUS
empires) –> nationalism and protectionism;

Relative manufacturing shares (% of world output)
1913
1929
1938
USA
35,8
43,3
28,7
USSR
5,5
5,0
17,6
GER
15,7
11,1
13,2
UK
14,0
9,4
9,2
FRA
6,4
6,6
4,5
ITA
2,7
3,3
2,9
BEL
2,1
1,9
1,3
JAP
1,2
2,5
3,8




Economic consequences of WWI
-US (CAN, AUS, ARG) production and sales grew during war:
-commodity and food prices were high; markets were secured (no competition form Europe);
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-Farmers invested into new technologies –> borrowing; after war return of E competition;
-
-Non-European countries (LATAM, Asia):
-lost source of imports of manufactured goods from Europe –> industrialized (or imported from US);
-
-European producers faced new competitors… at the same time was export revenues badly needed;
-