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15 Cards in this Set
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The repeal of the Corn Laws reduces the economic power of the aristocracy, complementing their loss of political power as a result of the Reform Act of 1832.
influx of “New World” grain depressed land prices which continued to sink until 1914. -Corn laws: import tariffs on food, protected British farmers from cheaper grain imports. –(Whigs) Factory manufacturers opposed corn laws, bc they wanted lower tariffs generally. Also food would be cheaper and they can pay their workers less without lowering their living standards. -British grain tariffs declined over time, in 1846 there was “full repeal.” -1849 Navigation Acts were repealed |
Repeal of the Corn Laws (1846)
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In his classic An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith sought to show how it was possible to pursue private gain in ways that would further not just the interests of the individual but those of society as a whole. Society's interests are met by maximum production of the things that people want. In a now famous phrase, Smith said that the combination of self-interest, private property, and competition among sellers in markets will lead producers “as by an invisible hand” to an end that they did not intend, namely, the well-being of society.
o Trade not a zero-sum game o Strongly against Mercantilism o Importance of the market o The Invisible Hand o Law of Supply and Demand o Division of Labor o Criticism of Mercantilism o Lassez Faire ___is against mercantilism, wealth of nation book famous for invisible hand and nationalization. - Believed that trade isn’t a “Zero-sum” game. - Both parties in the transaction can benefit, exchanged goods are more valuable to the new owner. International trade creates wealth and need to let this concept flourish. |
Adam Smith
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Priniciples of Political Economy and Taxation (1817), uses his theory of comparative advantage to justify free trade policy.
- Comparative advantage: comparing goods Ex.- Portugal good at producing wine and cloth than England - Leave England to produce cloth and cheaper for Portugal to produce excess wine o The first theoretical case for "free trade" was made in the early 1800s by British economist David Ricardo and his principle of "comparative advantage" - the idea that the interests of overall economic benefit would be best served by each nation specializing in what it does best, and trading with others for other needs (04S1). Obviously this theory was ignored during the globalization of the mid-to-late 19th century, but it was taken to heart during the post-WWII globalization. Ricardo's theory is described and analyzed in greater detail in Section. Altruism has never been more than a superficial justification for globalization anyway. Even during periods of globalization, undercurrents of protection have never been far below the surface. These protectionist sentiments easily broke through to return when the pressures of competition and economic problems weakened the powers of the world's leader. (See discussion, below, of the change of British attitudes on globalization immediately following WW I. |
David Ricardo
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1. Production costs constant, excluding cost of capital and technology; and only labor costs considered
2. Factors of production immobile; capital and labor do not move 3. Workforce is homogenous; every wine-maker can become a cloth-maker and vice versa 4. Wage rates the same in the two countries 5. No allowance for the elasticity of demand – would the English want as much wine as the Portuguese could produce? 6. Economic actors have perfect information 7. No customs duties are levied 8. Currency exchange rates are fixed 9. There is full employment in both countries |
Hypothical conditions required for Comparitive Advantage Theory to work
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1860 Britain and France signed a bilateral trade treaty= “MFN principle”
- MFN: tariff reduction granted against a particular class of goods imported from one country extended to goods of those classes imported from all other countries in good diplomatic standing. - Advantage: it lowered trade barriers in general o Tariff reductions granted against a particular class of goods imported from one country extended to goods of those classes imported from all other countries in good diplomatic standing o Last half of 19th century, European nations negotiated tariff reductions using MFN principle o Benefits of reductions spread widely, reducing tariff levels generally World trade volumes: 1820-1850 – grew 2.3% annually 1850-1870 – grew 5% annually |
Most Favored NAtion (MFN) Principle
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-British was most efficient in everything so they didn’t need “mercantile protection” to dominate trade.
o Great Britain did not need mercantile protection or colonies to dominate trade o Colonies nevertheless strategically important to integrating non-colonized regions, resources, and workforces into global networks of trade and commerce o British India: key to British empire and 19th century globalization |
Colonies of Free Trade
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-What is the key to British Empire and the 19th century?
- British India |
British Empire
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The company made unremarkable small gains until the eighteenth century. The eighteenth century, like the twenty-first, saw an expansion of multinational corporations with the means of enforcing their will. During the early period, factories or trading posts were established through grants from the native rulers in several parts of the subcontinent. To protect these areas, the company employed European and sepoy (sipahi, native troops) guards. Slowly, the company gained territory through the employment of military force. In 1757, Sir Robert Clive (1725–1774) won a remarkable victory at Plassey, which solidified British control over the vast territory of Bengal.
Throughout this phase, many of the British who went to India to serve the company were highly corrupt, seeing self-aggrandizement as their main goal. The London company set out to gain greater control over its Asian possessions. Warren Hastings (1732–1818) was commissioned to straighten out the corrupt administration. He is now recognized as the greatest of the governors-general, but he ran afoul of London for political decisions he made. Hastings was sent home to undergo one of the longest and most famous trials of the eighteenth century. After a long legal fight, Hastings was acquitted of the charges. Another famous figure in company history is Arthur Wellesley (1769–1852), later the duke of Wellington of Waterloo fame, who served under his brother, Governor-General Richard Wellesley (1761–1842). Sir Arthur defeated the famous Tipu sultan, acquiring large tracts of territory to the south in 1799. |
East India House (1808)
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-Opium very profitable and is the largest trade of any commodity in the world during 19th century. Opium was grown mostly in EIC lands in Bihar and Bengal.
During the 19th century Opium yielded 1/4 of total British-India -British India helped balance the world system of settlements in 1910. -Financial invasion lended liability. o Opium the largest trade of any commodity in the world during 19th century Grown mostly on EIC lands in Bihar and Bengal,India |
Opium Factory in India
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As trade developed, nations tied together millions of pounds and sterling.
India ran deficit of 60 milllion pounds. Able to balnce through surpluses. Those nations ran surpluses with Canada and U.S. India large trade covered by deficits through Britain of cotton. Received influx of capital- wheat, tea. Equity investment but didn't see actually. |
World System of Setllements, 1910
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o One of the 1st multi-national companies. The Romans were first to develop to own piece of company, but risky endeavor. In 1861 Britain made Limited Liability fully available. One of the 1st multinational companies.
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Singer Sewing Machine Company
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o After Napoleonic Wars, foreign investment assumed new character and importance
o 1820s – growing cross-border investments without monopoly rights o 1850s-1860s – first manufacturing multinationals (Siemens, Singer) o By last half of 19th century, new kinds of equity – limited liability – unlocked vast middle-class savings in developed countries for foreign investment. Lending, foreign direct investment (mangerial control investment), and portfolio investment (investment in stocks and bonds)are types of foreign investments. -Understand the examples and concepts of each type of these foreign investments. |
Growth of Foreign Investment
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o Led and managed by Great Britain
o Main currencies fixed in terms of gold o Total value of a nation’s money supply determined by size of its gold reserves o Adopted by United States and other major nations in 1870s o Facilitated trade and investment between economies by reducing currency risk o Kept down inflation o Stimulated outflow of capital from industrial, capital-rich regions to capital-poor, commodity and resource-rich regions |
Gold Standard System: How it operated
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-Generated mass protestors, bank notes were based on gold reserves.
-Fixed money supply to gold to make it become a universal currency. Having a stable value of currency helps exchange rate risks. Gain confidence in investors wouldn’t devalue investments. Provide better climate for trade and investing. -More gold discoveries= expanded $$ money supply. Trade deficit= pay up in gold= gold supply shrinks= prices shrink -Farmers= debitors -Debitors like inflations -Labors= no compensation programs for support -Bankers and business operating internationally favor gold standards -Economies that specialize in export commodities felt the effect of gold standard more than other. Example- Coffee in Brazil: did well as long as their harvesting was good. Face difficulties if there were competitions or even experience a bad harvest that effects how much they can produce and sell. -Only viable if there was a “strong power,” Britain was a major creditor. |
Gold Standard
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o Damaged nations like China and India which based their monetary systems on silver
o Primary product exporting countries vulnerable to large economic shocks as export prices rose and fell o Tended to create and propagate vicious cycles of boom and bust within national economies o Burden of adjustment for imbalances assumed by poor countries and workers The world economy in the 1930s: the collapse of the gold standard and the formation of the bloc economies a) The Great Depression and the collapse of the gold standard The basic characteristics of the US economy Changes in the direction of investments October 1929 The failure of US economic policy Britain's withdrawal from the gold standard The managed currency system Protectionist trade policies The Imperial Economic Conference at Ottawa (1932) Economic friction and the decline in world trade |
Gold Standard System: Economic consequences
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