FORGING A WORLD ECONOMY: 1400–1800

The period between 1400 and 1800 was characterized by profound economic changes that laid
the foundation for the modern world economy. From the age of exploration to the industrial
revolution, these developments shaped the trajectory of global economic history and continue to
influence economic dynamics today.Jared Diamond's argument in "Guns, Germs, and Steel"
suggests going back 11,000 years to uncover the fundamental causes of differences in economic
development between people and regions. The purpose of investigating the emergence of today's
global economy and patterns of inequality, focusing on the period from the late 1400s is
particularly crucial.By examining the historical record through the lenses of trade, production,
finance, labor, gender, development, environment, ideas, security, and governance, we can gain
valuable insights into the origins and continuities of economic disparities and the interplay
between different regions and societies.

Regions of the World Economy

In the year 1400, economic activity was primarily localized, with agriculture serving as the
mainstay. Market towns typically served as centers for agricultural production, with hinterlands
of about 30 kilometers. Despite this local focus, there were established intercontinental trade
routes for luxury goods that had existed for millennia. These civilizations formed overlapping
regions that facilitated economic exchange. Janet Abu-Lughod's research outlines eight such
regions, stretching from China to Europe, with additional regions added for Africa and the
Americas.

The Middle East

The Middle East's economic prosperity, military strength, and strategic position made it a central
player in the global economy and a key actor in shaping the dynamics of trade and political
relations between Europe, Asia, and Africa during the late medieval and early modern periods.
European merchants sought to bypass this region, leading to exploratory voyages into the
Atlantic and around Africa to reach the lucrative markets of Asia and the Americas. Military
clashes occurred from southern France through modern-day Egypt, Israel, Turkey, and up to the
gates of Vienna. Despite these conflicts, there were instances of cooperation, such as alliances
and economic exchanges between Europeans and Middle Easterners. The Ottomans and
Mamluks presided over a thriving trading economy, with Cairo being one of the largest cities in
the world during the 14th century. Arab traders engaged in economic activities along the coasts
of eastern Africa, the western coast of India, and into Southeast Asia. Zanzibar, off the coast of
eastern Africa, became a significant trading hub as early as the eighth century, demonstrating the
enduring legacy of Arab commercial activity in the region.
China
China's centralized political structure and emphasis on internal development contrasted with the
fragmented and constantly warring states of Europe during the same period. Its products,
particularly ceramics and silk, were highly coveted by elites in other regions. Despite Marco
Polo's initial observations being met with skepticism, China's technological advancements
predated the European Renaissance by many years. During the 14th and 15th centuries, China
underwent significant changes. The Ming dynasty, established in 1368 after driving out Mongol
rulers, marked a period of resurgence for Chinese rule. Politically, the Ming emperor held
absolute power, supported by a well-trained bureaucracy selected through examinations.
Confucian scholar-officials played a crucial role in governance and advising the emperor.

India
India's historical landscape was indeed marked by a mosaic of independent kingdoms, each with
its own cultural, religious, and political identity. The Delhi Sultanate and later the Mughal
Empire represented periods of Islamic rule in the northern regions, characterized by a fusion of
Persian, Central Asian, and indigenous Indian cultures. The Mughal era particularly stands out
for its architectural marvels like the iconic Taj Mahal.
Southern India was dominated by Hindu kingdoms like Vijayanagar, which engaged in conflicts
with neighboring powers such as the Bahmani Sultanate. Similarly, regions like Bengal and
Gujarat enjoyed varying degrees of autonomy under local rulers, contributing to the intricate
political landscape of the subcontinent. The west coast, dominated by Gujarat, facilitated trade
with the Middle East, while Bengal played a key role in connecting India to Southeast Asia.
Unlike the European colonial powers, such as the Portuguese, Spanish, Dutch, and British, who
built vast maritime empires, the Ottomans, Mughals, and Chinese focused primarily on territorial
expansion and consolidation.

Africa
Africa's history is characterized by resilience, adaptation, and interconnectedness, with its
diverse political economies linked together through trade and cultural exchange. In northern
Africa, states were integrated into the broader Islamic empire, fostering cultural and economic
ties with the wider Muslim world. Meanwhile, Ethiopia stood out as a Christian kingdom that
maintained its independence for centuries. The continent exhibited significant regional variations
driven by ecological factors, leading to the production of diverse goods and services. Periodic
droughts and famines disrupted trade and livelihoods, necessitating adaptive responses and
spurring technical innovation.

The Americas
It reshaped the course of history, leading to the eventual colonization and transformation of the
Americas by European powers. In the Andean region, the Inca Empire thrived with its
sophisticated agricultural practices and monumental architecture.The Maya were in decline by
the time of European contact, the Aztecs were ascendant, building a vast empire centered around
their capital, Tenochtitlan. The Spanish arrival in the Americas in 1519 brought them face to face
with these well-developed societies. Lacking domesticated beasts of burden and hindered by
geographic barriers like mountain ranges, indigenous peoples relied heavily on foot
transportation. The arrival of Spanish conquistadors like Hernán Cortés was met with mixed
reactions among indigenous populations.

Europe
The economic and political changes in Western Europe during this period laid the groundwork
for European expansion and global trade networks, shaping the trajectory of world history in
profound ways. One of the key developments during this time was the intensification of
economic activity and integration across Europe. Southern European cities such as Venice,
Amalfi, Pisa, and Genoa emerged as commercial hubs, tapping into the lucrative trade routes of
the Mediterranean. Europeans pursued various strategies, including seeking new sources of
precious metals, engaging in military conquests to seize desired goods, and developing their own
desirable goods for trade.
The development of accepted forms of money, credit, and banking institutions provided the
financial infrastructure necessary for European economic, political, and military expansion.
From the Age of Exploration in the 15th century to the industrial revolution and beyond, these
financial innovations have played a pivotal role in shaping the trajectory of European history and
global commerce. The problem of multiple coins and their varying values across different
jurisdictions further complicated trade and commerce. Deposit banks, investment banks, and
central banks gradually emerged, each serving different functions within the financial system.
Another significant development was the rise of companies with multiple shareholders, shifting
away from single ownership models. However, the acceptance of these forms of money has not
always been straightforward, with doubts often arising regarding their true value.

The transition from feudalism to sovereign territorial states in Europe between the 15th and 17th
centuries marked a profound shift in political organization and power dynamics, ultimately
laying the foundation for European expansion and global dominance. In France, merchant
alliances with the monarchy undercut the power of the nobility, leading to the creation of
centralized states. These states were characterized by both sovereignty and territoriality, meaning
that they possessed ultimate legal authority within their borders and recognized the authority of
other states over their own territories.

European Expansion
Its legacy continues to influence global geopolitics, economics, and cultural dynamics to this
day. European expansion unfolded in waves, with different powers dominating at different times
and regions. Portugal and Spain led the initial phase of exploration and colonization, particularly
in the Americas and parts of Africa and Asia. The Dutch, French, and English expanded their
influence in various parts of the world, engaging in trade, colonization, and the establishment of
overseas territories. The expansionist endeavors of Europeans were driven by various factors,
including economic motives such as the desire for valuable products from distant lands, fear of
competition from other European powers, and the need to circumvent Islamic control over
traditional trade routes to the Far East.

The Euro-American political economy

European powers exploited the Americas for resources and wealth, they also implemented
economic policies aimed at increasing their own power and wealth at the expense of other
European rivals. Spanish, Portuguese, French, and English crowns established colonies in the
Americas and reoriented local economies to meet European demands.Native American and
African slaves were forced into labor in dangerous mining conditions, leading to widespread
suffering and exploitation. The establishment of large landholdings known as haciendas further
entrenched the unequal distribution of land and power in the Americas, hindering economic and
political progress for centuries. Racial divisions of labor emerged in the Americas, with
Europeans and their descendants dominating elite positions, while Native Americans and
Africans were relegated to lower social and economic statuses. This pattern persisted for
centuries, shaping the social structure of the Americas.

Along Africa: the triangular trade

The slave trade reshaped African societies and economies, leading to political upheaval and
social dislocation. The profits from the triangular trade contributed to the economic development
of European nations, particularly Britain, which underwent the Industrial Revolution in the 18th
and 19th centuries. The transatlantic slave trade grew significantly over time, with millions of
Africans forcibly transported to the Americas between the 15th and 19th centuries. This trade
fueled the growth of plantation economies in the Americas, where enslaved Africans provided
labor for crops such as sugar, cotton, and tobacco.

On the peripheries of Asia

The European engagement with Asia also saw the emergence of modern corporations, such as
the Dutch and British East India Companies. The Portuguese were the first Europeans to
establish trade routes to Asia, focusing on strategic ports such as Goa, Hormuz, and Malacca.
Subsequent European powers, such as the Dutch and the British, also focused on establishing
trading posts and controlling key maritime routes rather than direct colonization. One notable
aspect of European trade in Southeast Asia was the reliance on a relatively egalitarian gendered
division of labor, where European traders often worked alongside native businesswomen. They
reorganized the Indian economy to benefit British interests, including shifting agriculture to
export crops and introducing English law and taxation.

Conclusion
European expansion during this period had far-reaching consequences for societies around the
world, reshaping economies, societies, and cultures in profound ways. As Europe increased its
wealth and power, it wrought destruction on some regions while being held at bay in others. The
legacy of this era continues to shape global dynamics today, underscoring the importance of
understanding the complexities of historical processes in order to navigate contemporary
challenges. Trade played a central role in shaping global interactions, driven by European desires
for luxury goods from the East and the exploitation of resources in the Americas and Africa.
However, trade was often marked by coercion, exploitation, and the tragic consequences of the
slave trade. Production patterns were radically transformed, with European conquests leading to
the reorganization of economies in the Americas and Africa. Native economies were disrupted or
destroyed, leading to the emergence of exploitative systems of labor. Finance played a crucial
role in facilitating European expansion, with the development of financial instruments and the
rise of powerful trading corporations like the Dutch and British East India Companies.Labor
relations were reshaped as Europeans imposed new divisions of labor, exploiting indigenous
peoples and importing enslaved Africans to work in plantations and mines.Gender relations were
also deeply affected, with European colonization often undermining the status of women in non-
European societies.

INDUSTRY, EMPIRE AND WAR: 1800–1945

The Industrial Revolution also saw the rise of corporations to manage large-scale investments,
particularly in railway expansion. One of the key technical challenges in the textile industry was
the lack of synchronization between spinning and weaving processes. British manufacturers
faced challenges in competing with Indian textiles, which were cheaper and of higher quality.
Cotton, a vital input, primarily came from outside Europe, with the US emerging as a major
supplier. The second phase of the Industrial Revolution saw developments in iron, coal power,
and railway construction, particularly in Britain and the US. Britain's Industrial Revolution was
shaped by a unique combination of factors including cultural, political, and economic
dynamics.Europe, including Britain, experienced a surge in intellectual inquiry during the
scientific revolution and Enlightenment. The liberal state curtailed the power of traditional
agricultural labor and landholders, allowing the emerging merchant class to freely engage in
commerce and labor practices. Britain's success wasn't solely attributed to indigenous
technological advancements but also its adeptness at adapting and implementing existing
technologies. Scholars like Hobson argue that Britain's role in the Industrial Revolution must be
viewed within a broader historical context.

Initially a serious rival to Britain, France attempted to modernize its economy by importing
British technicians to update industrial techniques. German theorist Friedrich List criticized
British free trade policies, advocating for protectionism to nurture fledgling industries and
prevent reliance on primary products. Post-war, high tariff barriers, immigration, and westward
expansion continued to drive economic growth, leading the US to become a leader in various
industries by the early 1900s. Japan's industrial prowess was demonstrated with its victory over
Russia in the Russo-Japanese War of 1904–1905, shocking Europe and solidifying Japan's status
as an industrial power in Asia.

Pax Britannica
The Pax Britannica, spanning from 1815 to 1914, refers to a period of relative peace and stability
in international affairs, named after the famous Pax Romana of the Roman Empire. The
international monetary system aimed to facilitate economic exchanges across borders. Under the
gold standard, participating countries fixed their currencies to a specific amount of gold and
allowed for the relatively free movement of gold across borders. Free trade agreements promoted
economic growth and cooperation among nations by facilitating the exchange of goods and
services without significant tariffs or restrictions. Maintaining a balance of power among
European nations was crucial to prevent any single state from dominating the continent. The gold
standard, in particular, played a significant role in facilitating international trade and economic
stability during this era.

Renewed Imperialism
Understanding imperialism requires examining the interplay of factors both within Europe and in
the target regions, as well as the interactions between colonial powers and local societies.
Industrialization provided Western states with the means to dominate other parts of the world,
while racist ideologies and political rivalries fueled the desire for expansion. Economists like
John Hobson and Lenin viewed imperialism as a response to underconsumption in Western
states. The scramble for colonies was seen as a result of competition between major powers like
Britain, France, Germany, and others. The belief in the superiority of Western civilization fueled
the desire to expand colonial territories and reshape societies according to European norms.
European powers often relied on local elites to manage relations with the colonized population.
When these local collaborators were weakened or faced opposition, European powers expanded
their direct involvement in governance.

War and Economic Disorder

The world wars and the subsequent economic dislocation fundamentally transformed the
international political economy, setting the stage for the emergence of a new global order
characterized by American hegemony and the restructuring of colonial relationships. European
states, weakened by the wars, faced difficulties in reconstructing their economies and
reestablishing trade relationships. Efforts to maintain peace through international law and
organizations like the League of Nations were ultimately ineffective, as evidenced by the
outbreak of the Second World War. The war provided a catalyst for economic growth in the US,
effectively ending the Great Depression and propelling the country to the forefront of the global
economy. Leftist groups gained popularity, advocating for greater social and economic equality
in the wake of the defeat of fascist regimes. Former European colonial powers, economically
drained by the wars, faced challenges in maintaining control over their colonies.

Interwar economic failure

The interwar period was characterized by economic instability, failed attempts to reestablish a
liberal economic order, and the emergence of alternative economic models. After the First World
War, there was a push to reestablish liberal trading and financial systems.This failure to
acknowledge the changed reality of the international political economy contributed to financial
disaster and eventually to the outbreak of the Second World War. This commitment to the gold
standard caused economic harm to several states. For example, Britain fixed its currency to gold
at prewar rates, resulting in overvalued currency and reduced exports, leading to
unemployment.This punitive measure contributed to the financial crisis of 1931 when Austria's
largest bank collapsed, spreading economic turmoil to Germany and beyond. Communism,
exemplified by the Bolshevik revolution in Russia, advocated for state-run economies, while
fascism, particularly in Germany and Italy, sought to maintain market economies while
eliminating democratic institutions. The US played a critical role in the establishment and
subsequent unraveling of the international financial system. Initially, there was support from the
US financial community for international financial leadership, free trade, and institutions like the
League of Nations. Some international relations theorists propose the concept of hegemonic
stability theory, suggesting that a hegemonic power is necessary for maintaining an international
liberal economic system. The decline of British dominance and the unwillingness of the US to
fully commit to sustaining the system during the interwar years led to its breakdown.

Conclusion
Reflecting on the similarities and differences between the 19th-century international system and
our present era offers valuable insights into the evolution of global dynamics.Both periods
experienced significant international economic flows, technological revolutions, and growing
economic inequality.While imperial activities characterized the 19th-century international
system, formal political control by Western states has largely diminished today.Information
technologies have transformed the speed and scope of economic activities, enabling new forms
of communication and collaboration. These institutions serve to facilitate coordination and
cooperation between states, businesses, and citizens on various global issues. Global issues such
as human rights, economic justice, and environmental sustainability have become prominent in
our era, leading to the formation of transnational coalitions and movements.

GROWING A GLOBAL ECONOMY: 1945–2019

The Cold War rivalry between the US and the Soviet Union influenced global geopolitics, while
Western powers, particularly the US, played a significant role in shaping the post-war economic
order. During the Cold War, the Western Allies and the Soviet Union, despite being wartime
allies against Germany and Japan, quickly became rivals. The division of Europe between the
two camps and the establishment of friendly regimes by the Soviet Union in Eastern Europe
intensified tensions. Global institutions, regional economic organizations like the European
Economic Community (EEC), later evolving into the European Union (EU), emerged in
Western. The US wielded significant power in shaping the post-war international economic
order. It constructed institutions like the International Monetary Fund (IMF).These neoliberal
reforms, often associated with the "Washington Consensus," emphasized market forces and
reduced state intervention in the economy.

The Communist political economy

The Soviet Union extended this model to Eastern and Central European countries after World
War II, and similar revolutions led to the establishment of communist states in countries like
China, Cuba, Vietnam, North Korea, Ethiopia, and Angola. By the 1980s, the Soviet growth
model reached its limits, leading to its eventual collapse in Eastern Europe in 1989. In 1979,
China began a gradual opening to Western economies, creating special economic zones to attract
foreign investment. Over the following decades, China transformed many sectors of its economy
into capitalist forms while maintaining authoritarian political control.

The Southern political economy

Decolonization had a profound impact, leading to the creation of numerous new states and
shifting the balance of power in international institutions like the United Nations. Despite
setbacks, several developing countries have emerged as thriving economies in the 21st century,
challenging Western economic dominance. China's export-led growth, India's liberalization,
Brazil's industrialization, and Russia's oil wealth have all contributed to the rise of new economic
powers. The process of decolonization varied in nature and pace across different regions. France,
for example, engaged in prolonged and often violent conflicts in places like Vietnam and Algeria
before granting independence.

The Post-Cold War Era: 1990–2019

The nature of the state evolved from welfare-oriented to competition-oriented, with states
focusing on ensuring a competitive economic environment rather than providing extensive
welfare programs. Different models of capitalism emerged, including the Anglo-American
model, Continental European models, and the Asian model with close government-industry ties.
Each model had its strengths and weaknesses, leading to periods of success and economic
turbulence. This shift occurred under various political frameworks, with some states retaining
authoritarian control while others democratized. tax havens, located in small states, allowed
companies to avoid taxation and regulation. Other states created special economic zones to
attract foreign investment and foster economic growth. While offshore activity provided
economic flexibility and attracted investment to some states, it also undermined the ability of
other states to tax and regulate in the public interest.

The information revolution

Beginning in the 1970s with the advent of microprocessors, technologies like personal
computers, smartphones, and the internet have become ubiquitous, accelerating technological
change. Information technology (IT) has facilitated globalization, allowing for 24-hour financial
transactions and dispersed production across geographical areas. The information revolution has
profoundly affected social life, enabling people to organize through networks rather than
traditional hierarchies. Groups advocating for various causes, such as environmental protection
and labor rights, have utilized the internet to mobilize support globally. The US military, in
particular, has leveraged IT to improve its effectiveness in conflicts like the Gulf War and the
Iraq War. Institutions like the United Nations, the International Monetary Fund (IMF), and the
World Trade Organization (WTO) play crucial roles in shaping global economic policies.Non-
governmental organizations (NGOs) and citizen groups have become influential actors in
international development and advocacy, leveraging the internet to mobilize support and
influence policy-making.

Conclusion

The postwar era saw significant increases in trade volume and liberalization efforts, culminating
in the creation of the WTO in 1995. The rise of East and Southeast Asia as manufacturing hubs,
particularly China, reshaped international production dynamics. Information technologies
accelerated financial market movements, leading to rapid transmission of financial crises across
borders. The emergence of a global middle class alongside increased inequality within and
among states characterized this trend. Gendered divisions of labor persisted, with women
disproportionately affected by economic restructuring and globalization. The rise of Brazil,
China, and India signaled potential shifts in economic power dynamics, yet significant
challenges to meaningful development persist. Despite international efforts, many states
struggled to transition to clean energy and curb environmental damage. Globalization emerged as
a dominant concept, describing supraterritorial relations across cultural, economic, and political
domains. Domestic politics increasingly shaped foreign economic policies, challenging the
traditional notion of automatic economic adjustment. The end of the Cold War shifted security
concerns towards terrorism, nuclear proliferation, and internal conflicts.