Les 2: The Great Divergence (1500-1700)
When did a modern economy start? Innovation before 1750
Premodern economy enabled the population to grow, but as Malthus made clear pre-industrial
economy had Little space for economic growth
→ Malthusian limit to growth: Nature determined a pre-modern maximum
Before 1500:
- Some technological innovation, but no breakthroughs => innovations mainly in China and the
Arabic world
After 1500:
- Innovations mainly in Europe, as tradition and religion was increasingly questioned and replaced
with knowledge based on mathematical reasoning and experiments (Scientific Revolution)
Specialization before 1750
Smithian Specialization depends on the size of the market, but little room for specialization due
growth to cost of exchange over long distances
- Before 1500: long distance trade within EuroAsian space limited to luxury
goods (ex: pepper)
- After 1500: more intense trade and cheaper transport under European
leadership offered opportunities for the extension of the market and
specialization (Plantation Economy)
How the global economy came about?
Before 1300 China and Islam vast influence in EuroAsia
- In China 200 before C.E.
o Major irrigation works for rice production
o National network of canals and road + start
great wall
o One written language, one coin
- Islam world
o Mohammed born in Mekka
o Umayyad and Abbasid caliphates and the
Arabian empire
1
,“Medieval” capitalist islands
Pioneers: capitalist development in China and Arabia
- Umayyad and abbasid caliphates in the Arabian empire (661-1250)
o Persian and arabic merchants dominate trade routes, but no share in political power
- Commercial revolution in a mixed-economy system of the Chinese Song-Dynasty (960-1279):
very succesful as it enabled population to triple
Central state - Built Canals for transport
- Respect private property (landowning)
Economic growth - Technological innovation
(problem: flawed data) o Compass, gunpowder,..
- Capital deeping in agriculture raised agricultural yield to pre-
modern maximum:
o Investment in irrigation
o Use of oxen,..
- Merchants no input in politics, but politics allowed trade
In late medieval Europe capitalistic practices caught on in long-distance trade
- Italian city-states, German Hanse towns
- Closely tied to politics: a corporative urban policy that allocated privileges to merchants. Power
sharing in Exchange for financial support of emerging states
- Innovation in the economy:
o Trading companies which evolved in firms with legal personality of its own
o Creation of banks as firms specialized in financial transactions
▪ To acquire shares in and advance credits to commercial enterprises
▪ To engage in financing in the budget of the public authorities
o From 13th century onwards merchants expand their activities from the sphere of
circulation to the sphere of production
▪ Cottage industry (putting out by merchants-entrepeneurs)
Temporary unification of EurAsia by Monguls 13th-14th century
Ghenghis Klan created an empire from Pacific Ocean to Caspian sea – conquered Nord of China
Intensive interconnectness of the known world: more long-distance trade
- Very high transport costs => only the rich could afford it
- Only luxury goods: color pigment ultramarine, fine spices, pepper, sugar, porcelain, silk, cotton,
textiles (chintz, muslin and calico), cacao,..
2
,The increase in trading also caused an increase in
virusses:
- Eurasian contacts: Black Death 1/3 Europeans
died (1347-1350)
Ming-China (1368-1644) starts by showing the flag to impress
the world they knew
- Map of the routes the “Zheng He” did
- Other famous great explorers:
o Vasco da gama (Portugese)
o Columbus: in service of Spanish King on mission
to India
By 1500 a global economy:
1. Asia was owned by China
2. Europe was expanding their trading to America (Columbus) and the Cape (Vasco da Gama)
→ We made an interconnected world under the leadership of Europe in the period of the “First
globalization”
Columbian exchange enables population growth
In contrast to what Malthus said: “there is a limit to population growth” => due to innovation
(Columbian Exchange):
→ America and Europe + Africa started trading in for example: potatoes, tomatoes,..
→ More people could be fed => population growth
3
, The rise of the west (1500-1700)
A small world beyond European influence
The danger of tropical world: only trade posts
China from 1433 and Japan from 1630 developed in isolation from Europe
Ming china - Agrarian economy, little wage labor
(1368-1644) - The Chinese wall completed
- The state trusts the market
o Ban on foreign trade lifted (1567), Chinese merchants
involved in Asian trade
o Supply and demand with use of silver money regulates market
Japan during - A partly centralized state for more than 2 centuries guaranteeing
Takugawa period peace and stability
(1603-1867) o One currency, a homogenous road network
- An industrious and comercial society
o Constructed castle towns with wealthy urban class, active in
trade and in service to the non-productive class of samourai
(soldier-local managers)
o Intensified farming combined with home industry
o Human capital investment: +50% literarcy
European invasion of the world under Iberian leadership in 16th century
Portugal and Spain divided the world.
Portugese monopoly over the Cape
route (little drop in prices, mainly
trade diversion), but by 1540 older
Eurasian trade routes over land
resumed trade
The 17th century: the Dutch Golden Century
Battle in the core of the systems for who dominated the global economy with Eurasian and Atlantic
trade
- 16th century: Spain and Portugal
o End of the century Dutch and British traders entered Asian waters
o Silver from America, spices from Asia
4
When did a modern economy start? Innovation before 1750
Premodern economy enabled the population to grow, but as Malthus made clear pre-industrial
economy had Little space for economic growth
→ Malthusian limit to growth: Nature determined a pre-modern maximum
Before 1500:
- Some technological innovation, but no breakthroughs => innovations mainly in China and the
Arabic world
After 1500:
- Innovations mainly in Europe, as tradition and religion was increasingly questioned and replaced
with knowledge based on mathematical reasoning and experiments (Scientific Revolution)
Specialization before 1750
Smithian Specialization depends on the size of the market, but little room for specialization due
growth to cost of exchange over long distances
- Before 1500: long distance trade within EuroAsian space limited to luxury
goods (ex: pepper)
- After 1500: more intense trade and cheaper transport under European
leadership offered opportunities for the extension of the market and
specialization (Plantation Economy)
How the global economy came about?
Before 1300 China and Islam vast influence in EuroAsia
- In China 200 before C.E.
o Major irrigation works for rice production
o National network of canals and road + start
great wall
o One written language, one coin
- Islam world
o Mohammed born in Mekka
o Umayyad and Abbasid caliphates and the
Arabian empire
1
,“Medieval” capitalist islands
Pioneers: capitalist development in China and Arabia
- Umayyad and abbasid caliphates in the Arabian empire (661-1250)
o Persian and arabic merchants dominate trade routes, but no share in political power
- Commercial revolution in a mixed-economy system of the Chinese Song-Dynasty (960-1279):
very succesful as it enabled population to triple
Central state - Built Canals for transport
- Respect private property (landowning)
Economic growth - Technological innovation
(problem: flawed data) o Compass, gunpowder,..
- Capital deeping in agriculture raised agricultural yield to pre-
modern maximum:
o Investment in irrigation
o Use of oxen,..
- Merchants no input in politics, but politics allowed trade
In late medieval Europe capitalistic practices caught on in long-distance trade
- Italian city-states, German Hanse towns
- Closely tied to politics: a corporative urban policy that allocated privileges to merchants. Power
sharing in Exchange for financial support of emerging states
- Innovation in the economy:
o Trading companies which evolved in firms with legal personality of its own
o Creation of banks as firms specialized in financial transactions
▪ To acquire shares in and advance credits to commercial enterprises
▪ To engage in financing in the budget of the public authorities
o From 13th century onwards merchants expand their activities from the sphere of
circulation to the sphere of production
▪ Cottage industry (putting out by merchants-entrepeneurs)
Temporary unification of EurAsia by Monguls 13th-14th century
Ghenghis Klan created an empire from Pacific Ocean to Caspian sea – conquered Nord of China
Intensive interconnectness of the known world: more long-distance trade
- Very high transport costs => only the rich could afford it
- Only luxury goods: color pigment ultramarine, fine spices, pepper, sugar, porcelain, silk, cotton,
textiles (chintz, muslin and calico), cacao,..
2
,The increase in trading also caused an increase in
virusses:
- Eurasian contacts: Black Death 1/3 Europeans
died (1347-1350)
Ming-China (1368-1644) starts by showing the flag to impress
the world they knew
- Map of the routes the “Zheng He” did
- Other famous great explorers:
o Vasco da gama (Portugese)
o Columbus: in service of Spanish King on mission
to India
By 1500 a global economy:
1. Asia was owned by China
2. Europe was expanding their trading to America (Columbus) and the Cape (Vasco da Gama)
→ We made an interconnected world under the leadership of Europe in the period of the “First
globalization”
Columbian exchange enables population growth
In contrast to what Malthus said: “there is a limit to population growth” => due to innovation
(Columbian Exchange):
→ America and Europe + Africa started trading in for example: potatoes, tomatoes,..
→ More people could be fed => population growth
3
, The rise of the west (1500-1700)
A small world beyond European influence
The danger of tropical world: only trade posts
China from 1433 and Japan from 1630 developed in isolation from Europe
Ming china - Agrarian economy, little wage labor
(1368-1644) - The Chinese wall completed
- The state trusts the market
o Ban on foreign trade lifted (1567), Chinese merchants
involved in Asian trade
o Supply and demand with use of silver money regulates market
Japan during - A partly centralized state for more than 2 centuries guaranteeing
Takugawa period peace and stability
(1603-1867) o One currency, a homogenous road network
- An industrious and comercial society
o Constructed castle towns with wealthy urban class, active in
trade and in service to the non-productive class of samourai
(soldier-local managers)
o Intensified farming combined with home industry
o Human capital investment: +50% literarcy
European invasion of the world under Iberian leadership in 16th century
Portugal and Spain divided the world.
Portugese monopoly over the Cape
route (little drop in prices, mainly
trade diversion), but by 1540 older
Eurasian trade routes over land
resumed trade
The 17th century: the Dutch Golden Century
Battle in the core of the systems for who dominated the global economy with Eurasian and Atlantic
trade
- 16th century: Spain and Portugal
o End of the century Dutch and British traders entered Asian waters
o Silver from America, spices from Asia
4
