Lecture 2. The Beginning of Trade]
Recommended reading : 【Economic History】 Economic History Table of Contents
1. Laws of Trade
2. Example 1. Europe’s geographic and economic continuity
3. Example 2. Russia’s exceptionalism
4. Example 3. The history of the spread of the metric system
1. Laws of Trade
⑴ Gravity theory of trade: The volume of trade between two countries is proportional to the size of their economies and inversely proportional to the distance between them.
① It fit especially well in the past, when overland transport costs were extremely high.
○ Luxury goods such as silk could be transported over land, but bulky goods such as grain could not.
② Sea freight costs were far cheaper than overland transport costs.
○ As ships’ carrying capacity continued to increase and maritime transport costs decreased, the feasible distance of sea trade expanded greatly.
○ This became a foundation of the Commercial Revolution.
⑵ Henri Pirenne’s border effect: Cultural, religious, and legal differences have a more negative impact on trade than distance does.
① Example: Although geographically close, North and South Korea—politically very different—have a strong border effect.
② Cultural, religious, and legal differences are variable, unlike fixed geographic distance.
③ Mitigation 1. Because trade promotes a common language and commercial law, border effects tend to be reduced by trade itself.
④ Mitigation 2. In long-distance transactions, sellers and buyers cannot meet face-to-face or inspect the goods directly, so demand emerges for shared standards for weight, volume, quality, etc.
⑤ Mitigation 3. Towns provided legal services to facilitate the resolution of contract disputes.
○ As trade expanded, these towns were replaced by permanent trading hubs in major European cities.
○ Populations re-concentrated into these cities.
○ Merchant courts → replaced by local courts : Maritime law developed into the Hague–Visby Rules.
⑥ Mitigation 4. Standardization/unification of language
○ During the period when Germanic tribes entered the Roman world, Europe was linguistically heterogeneous.
○ Traders and merchants adopted a single language within each region.
2. Example 1. Europe and the Laws of Trade
⑴ Europe’s geographic and economic continuity: Similarity, proximity, and the absence of border effects stimulated trade.
① Similarity 1. 80% of the total population of the Roman Empire lived within the borders of today’s European Union.
② Similarity 2. The territory of the Carolingian Empire is quite similar to the boundaries of today’s Europe.
③ Similarity 3. Thereafter, until the age of empires in the 19th century, self-governing cities persisted, including city-states such as Venice.
④ Most of EU countries’ trade occurs within the EU.
⑤ Proximity: Denmark trades more with smaller Sweden than with larger Britain or France.
⑥ Absence of border effects: Countries that are intensive in trade tend to trade more with one another.
⑵ Europe’s center shifts northward
① After Arabs conquered North Africa and the Iberian Peninsula in the 8th–9th centuries, Mediterranean trade declined.
○ Henri Pirenne explained this as cultural/religious division creating a border effect for trade.
○ Recent research suggests the decline was not that severe, and that reduced income, in addition to border effects, also played a role.
○ The economic level of the Mediterranean world did not recover for several centuries after Arab expansion.
② In late Rome, high-quality pottery was shipped from production sites in southern France throughout the empire, but it is not found north of the Rhine in Germany.
○ Reason: Trade networks were underdeveloped, and tastes and preferences differed across regions with the river as a boundary.
○ These border effects were effectively reduced during Germanic expansion and the medieval revival of the European economy.
○ As a result, Europe’s center shifted to the north.
3. Example 2. Russia’s Exceptionalism
⑴ Russia’s substantial isolation
○ Europe’s Renaissance had little effect on Russia.
○ Unlike Europe, political absolutism survived for a long time in Russia.
○ While other parts of Europe abolished serfdom in the 16th century, Russia introduced serfdom.
○ Industrialization, standardization of weights and measures, and the spread of schooling were delayed.
○ After the Germanic migrations into the Roman world, local alphabets were replaced by the Latin alphabet (Latinization), but Russia was an exception.
○ Russia did not participate in the late-19th-century shift toward free trade.
○ It did not contribute to the scientific awakening of Western Europe in the 19th century.
○ Anti-Westernism—opposition to commercialization, individualism, and rationalism—emerged as a pioneering ideology in the 19th century.
○ Catch-up and modernization began in the late 19th century, but did not proceed in the direction of integration into Europe.
○ In fact, this isolationism persists : In 2005, Russia’s share of total exports among European countries was only about 1–2%.
⑵ Why Russia failed to be incorporated into Europe
① Reason 1. Limits of imperial expansion
○ The formation of an empire tends to create homogeneity in language, religion, and law, but expansion has limits.
○ Examples include soaring costs of maintaining security in border regions and declining imperial revenue due to the inflow of low-income populations.
○ As a result, the integrative force of the Roman Empire and trade did not reach Russia’s core.
○ Because Russia did not experience a history of integration with Europe, cultural heterogeneity between Europe and Russia strengthened (border effect).
② Reason 2. Gravity theory of trade — Russia’s relative poverty
○ Russia’s vast area and low population density make it difficult to generate trade at sufficient scale.
○ Lacking exposure to the knowledge, culture, goods, and institutions brought by trade → relative backwardness is prolonged and isolation persists.
③ Reason 3. Another aspect of Pirenne’s border effect — Russia’s harsh land
○ Russia ran its empire by extracting resources from the periphery and offering them to the Tsar.
○ This naturally formed due to Russia’s uniquely harsh natural environment.
○ As a result, whereas European empires—based on colonial development overseas and wealth—advanced free trade, Russia, with strong autocracy, pursued policies unfavorable to merchants and caused commercial cities to decline.
○ Therefore, it failed to develop free trade.
④ Reason 4. Historical context for anti-Westernism
○ Russia was once incorporated into the Mongol Empire.
○ Watching the Mongol Empire collapse under strong crusading forces from Poland, Lithuania, Hungary, etc., Russia developed fear of Western society.
○ As a result, anti-Westernism spread, suppressing individualism and rationalism, blocking Renaissance culture, and reducing free trade with the West.
○ In fact, the emergence of socialist ideology was driven by backlash against Western material civilization.
4. Example 3. The History of the Spread of the Metric System
⑴ France
① In 1789, the French Revolution broke down various institutions and redefined almost all systems of weights and measures.
② In 1790, France adopted the metric system and worked to standardize it internationally.
⑵ Britain and the Commonwealth
① Why Britain adopted the metric system late: Because its rival, France, devised it.
② Reasons Britain eventually adopted the metric system
○ Most countries trading with Britain had adopted the metric system.
○ The British public was already aware of the metric system.
③ Because Britain led the Commonwealth, other Commonwealth countries also transitioned to the metric system after Britain did.
○ India : 1954
○ United Kingdom : 1965
○ Ireland : 1967
○ Pakistan : 1967
○ New Zealand : 1969
○ Australia : 1970
○ South Africa : 1971
○ Malaysia : 1972
○ Canada : 1973
○ Hong Kong : 1976
○ Jamaica : 1998
○ To this day, Liberia and Myanmar are the only countries using the yard–pound system.
⑶ Russia
① Because of Russia’s exceptionalism, it adopted the metric system only in 1924.
⑷ United States
① Industries that depend on communication with scientists worldwide and heavily on trade—such as pharmaceuticals—adopt the metric system.
② Industries producing mainly for the domestic market, such as beer, still use customary measures.
③ International brands such as Coca-Cola use the metric system even in the United States.
④ Reason 1. A base-3 (ternary) system had been established for a long time (the irrationality of history).
⑤ Reason 2. Because the U.S. is large and powerful, there may be a psychological barrier to adopting France’s patriotic system of measures.
⑥ Reason 3. Because the U.S. values freedom—independence war, 50 states, etc.
Input: 2019.07.04 18:48