Class notes
Topic 2: trade before the IR notes
- Course
- Institution
Notes on trade before the IR from the lectures and seminars
[Show more]
Seller
Follow
bethwalton03
Reviews received
Content preview
Trade and empire before the Industrial RevolutionThe Great Divergence
● GD is the difference in economic performance between China and Europe
○ China was more developed than Europe in 1000 (Song Peak) and had
greater inventions - paper, printing
○ Europe industrialised first, creating a gap by 1800
Measurement
● Silver wages suggest an early divergence (before the IR)
○ Silver wages - local wages divided by silver. Gives the amount of silver
that can be bought with daily nominal wages
○ Indian silver wages were 21% of English wages in the late 1500s
○ Early divergence due to institutional differences
■ Emphasis on commerce, productivity and urbanisation in Europe
● Grain wages suggest a late divergence
○ Grain wages - how many kgs of grain can be bought with a daily wage
○ Indian wages were 20% of English wages in the 1800s
○ Useful as grain is used by everyone
○ However - some countries (LDCs) have a CA in agriculture, reducing
the price of grain and increasing the grain wages
● Real wages tell us how much the nominal wage can afford
● Allen (2011) calculates welfare ratios - how many goods baskets a family can
buy
○ Barebones basket covers essentials - no improvement in SoL
○ European Respectability Basket allows for some comfort
Why
Different demographic regimes
● Europe had a delayed marriage pattern, a later age of first marriage and not
all women married (average age of 23-26, 1600-1850)
● China had younger universal marriage (average of 17-20, 1550-1930)
● China had a higher fertility rate and higher resource pressure
○ Asia remained Malthusian for longer
● Europe had higher wages due to preventative checks and higher labour costs
● More technology in Europe decreased the need for labour
Government formation
● Roving bandits create no incentive to produce > subsistence - surplus is taken
○ Bandits monopolise theft and become stationary, creating tax
● Stationary bandit is better than the roving bandit as they do not tax at 100%
, ● Lower taxes encourage production - generates more revenue than 100% tax
● Democracy increases production and competition - competing revenue down
● Challenging the autocrat decreases tax rates - increased competition
● China had a stable autocratic regime with few challengers
● Europe was fast transitioning to “democracy”
● Glorious Revolution started the transition to democracy following the English
civil war and exile of James II (1688)
○ Generated functioning credit markets and rising state capacity
○ Led to the division of powers and constrained the executive via the
independent judiciary - more democratic institutions and more revenue
The European Miracle
● European miracle - rise in GDP pc from the eve of the industrial revolution to
the mid 1700s (phase 2)
● Features of the European miracle:
○ Competing and decentralised states
○ Private institutions
■ Independent legal system, religious authorities, merchant class
■ Development of banking institutions
○ Late medieval commercial revolution increased trade and finance
○ Late medieval agricultural revolution - structural change and movement
away from agriculture
Phase 1: 1300-1600
● European revival of trade after the fall of the Roman Empire - Venice, Genoa,
Florence
● Technological dominance in shipping / commerce
● State involvement
○ Shipbuilding - naval defence for merchant’s ships in Venice
○ Organisation of trade convoys for safety
● Institutional quality and reduction of transaction costs
○ ‘Democratic’ governance, political and legal institutions, property rights
Innovative institutions in Europe
● Medieval merchant guilds (Greif 2000)
● Guilds are a set of rules to ensure trade occurs
○ Force individuals to commit to the rules before trading
○ Prevented commitment problems by having punishments
○ Ensured coordination across markets
● Stronger in Europe from 1300-1500 (present -1600)
● Protect the interests of merchant travellers
○ Makes it harder to trade with other cities due to a lack of trust
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller bethwalton03. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $3.91. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
60904 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now