Economic Growth and Trade in Europe’s Ancien Regime
Economic Growth in Europe’s Ancien Regime
A) Summary
Was there economic growth in Europe during the Ancien Régime? It was long believed that there was no economic growth due to consistently low productivity levels and a lack of structural change, as the percentage of the agricultural labor force remained the same. However, we now know that there was economic growth, albeit slow (50% between 1500 and 1800). Notably, two European countries deviated from this general trend: Holland and England, where growth reached 150%. Furthermore, this economic growth was not evenly distributed throughout the period but concentrated mainly in the 18th century. This was due to two primary causes:
- A response to the deep economic depression in Europe during the 17th century.
- The beginnings of industrialization.
The economic crisis of the 17th century should be understood as a prime example of the tension between the population and the era’s resources. Its origins can be traced back to the prospects for economic expansion sparked by the discovery of America and the influx of precious metals. This had a direct demographic impact, increasing the birth rate and, consequently, population growth. This growth required increased agricultural production, which, under the conditions of the time, was achieved by expanding cultivated land. Simultaneously, the massive influx of money led to an unprecedented phenomenon: an increase in the amount of money in circulation far exceeding the productive capacity of the period’s economy, ultimately resulting in inflation.
At this juncture, the law of diminishing returns began to take effect. What started as a demographic crisis evolved into an agrarian crisis, as the decline in food production impacted land rent and, particularly, agricultural wages. This eventually affected non-agricultural activities, as the fall in real wages led to a decline in the purchasing power of workers.
A) The State’s Role in Economic Development
The state played a more or less active role in economic activity, primarily in three ways:
- As an industrialist.
- Establishing security measures for other productive activities (agriculture, trade).
- Implementing populationist measures.
The doctrine supporting this state involvement was known as mercantilism, which was based on the following principles:
- Populationism: the belief that a country or state is wealthier the more populous it is.
- A country is wealthier the more precious metals (gold, silver) it can accumulate.
- Mercantilism advocated state support for all production activities. In the case of industry, this meant becoming an entrepreneur, and in the case of trade and agriculture, implementing measures to increase exports and ensure food supplies.
- Mercantilism aimed for countries to have a positive trade balance, i.e., to sell as much as possible and buy as little as possible.
- The primary goal of mercantilism was the strengthening of the state.
B) Trade: Formation of a Global Network
Around 1450, three major independent global networks existed, differing in size and the nature of the products exchanged: a network in the Pacific, one in Latin America, and the network of the Old World.
Old World Network: This network connected Europe and Asia via a land route, primarily based on the trade of luxury fabrics and spices. In Europe, it was controlled by the Venetians.
Simultaneously, an Asian maritime network operated, connecting Japan with the Persian Gulf.
European Network: This network generally connected Northern and Southern Europe. It circulated high-volume, low-cost, and mass-consumption products (iron, wood, fur, cod, and wheat) from North to South, while more expensive products with lower volume and weight (oil, textiles, wine, and salt) moved from South to North.
Events that changed this were:
- In 1453: The Turks captured Constantinople.
- In 1492: The discovery of America.
The fall of Constantinople meant that the land route between Asia and Europe was severely disrupted, as the Turks imposed new conditions on European control of trade. This situation accelerated the search for alternative routes. Two alternatives emerged:
- The Portuguese: To reach the East by sailing around Africa.
- To reach India by sailing west.
The result was that the Portuguese reached their destination in 1497, and the Spanish inadvertently discovered a new continent. The consequences were:
- The Portuguese managed to wrest control of the spice trade from the Venetians.
- The Spanish found something that would have profound economic consequences for Europe (gold and silver).
Throughout the 16th century, a very high percentage of world trade was controlled by Spain and Portugal. This model was modified during the 17th and 18th centuries in two ways:
- Hispano-Portuguese control was transferred to the Netherlands and Great Britain.
- The products traded and their origins expanded and shifted from Asia to America (from the Indian Ocean to the Atlantic).
The British became the leading global maritime power in the second half of the 18th century, controlling a large proportion of world trade and establishing a new exchange model primarily located in the Atlantic Ocean known as the Triangular Trade, which was based on:
(Content on the Triangular Trade would follow here)