For example, trade, whether foreign or domestic, reshuffles. It doesn’t discover, except in the wide (and wise) sense that assigning goods to their highest valued user does. After all, trade is merely the moving of stuff from one place to another. Trade is good to do, and even at moderate markups it is profitable, too. Therefore it happens. But shuffling stuff about for a modest productivity gain (even if a large gain in the margin of profit) is not the same thing as revolutionizing the means of production. Shuffling resources around is not the way to get the (cautiously estimated) factor of sixteen.

Anyway, as the historian John Chartres argues, Britain had “well before 1750 . . . an unusual flexibility in the employment of its factor endowments.”¹ It had none of the internal tariffs that harried French businesspeople into the nineteenth century, and few of the obstacles to the employment of women in industry that stifled enterprise in China or the Arab world, and none of the class barriers to mobility among industries that shackled India (and especially did so after European theories of stages of development took hold under the British Raj). So in Britain there were few enough £100 notes lying on the ground ready to be picked up. Expanding the woolen industry and contracting the growing of wheat might achieve for the nation, if the reshufflers were lucky or skilled, a national gain of 10 percent. But not 1500 percent. To put the findings another way, we have learned since 1970 many nots: that industrialization in Britain was not been mainly a matter of foreign trade, not a matter of internal reallocation of the labor force, not of transport innovation, not investment in factories — all of which are matters of reshuffling the employment of factor endowments.

Consider, then, foreign trade. An old tradition beginning with Arnold Toynbee in 1884 and carried into the 1960s by the American historian Walt Whitman Rostow and by the British historians Phyllis Deane and W. A. Cole, and still popular among most general historians and some economic historians, puts emphasis on Britain’s foreign and colonial trade as an “engine of growth.”² What the research since 1970 has discovered, though, is that the existence of the rest of the world mattered for the British economy, but not in the way suggested by the metaphor of an engine of growth.³ True, there is a correlation, which was what inspired the metaphor in the first place. The correlation was expressed most baldly in 2006 by Allen, who declared briskly that “econometric analysis shows that the greater volume of trade [per capita in the Netherlands and Britain] explains why their wages were maintained (or increased) even as their populations grew.”⁴ “Econometric analysis” sounds impressive. But let me tell you that it commonly depends, as here, on an thoughtless misuse of something called a t test. And anyway it means merely post hoc ergo propter hoc — trade was high, and wages were, too. Post hoc is a suggestive form of reasoning, but by itself is often misleading. Ante hoc ergo non propter hoc, “before this therefore not because of this,” works every time. But post hoc, which is the only insight the proud econometrician can offer, does not. The economist Allyn Young wrote in 1928 that “it is dangerous to assign to any single factor the leading role in that continuing economic revolution which has taken the modern world so far away from the world of a few hundred years ago. But is there any other factor which has a better claim to that role than the persisting search for markets? No other hypothesis so well unites economic history and economic theory. The Industrial Revolution of the eighteenth century has come to be generally regarded, not as a cataclysm brought about by certain inspired improvements in industrial technique, but as a series of changes related in an orderly way to prior changes in industrial organization and to the enlargement of markets.” The conclusion was premature.

The great historian of the slave trade Joseph Inikori believes that “technological change was trade driven,” but his arguments are correlations on the basis of an elderly model of import — substitution industrialization (the same, by the way, that inspired Latin America in the 1960s and 1970s to economically disastrous policies of protectionism).⁵ He claims that technological change happened chiefly in the “socially and agriculturally backward northern counties,” which would surprise James Watt of Birmingham, not to speak of the instrument makers of London. And if trade causes technological change, why not in the great trading empires of the past? Something was peculiar about northwestern Europe. It was not trade. Inikori believes that his study of 2002 “provides sufficient proof that the Industrial Revolution in England was a product of overseas trade — the first case of export-led industrialization in history.”⁶ But why the first? Exports grew, sometimes explosively, in many other times and places — the Silk Road, for example, when political unity was established in Central Asia. Why not trade-powered industrialization, from Sumer on? Inikori and many others have emphasized the thrusting Atlantic trade of the eighteenth century. But they have not explained why other trades did not have similar effects, or why in the eighteenth century foreign trade would suddenly provoke innovation that it did not provoke in Europe in the sixteenth. Foreign trade is not the unique episode that could explain the Industrial Revolution.

Consider France. French foreign trade in the eighteenth century grew faster than British. If foreign trade were the engine, then one would expect the Industrial Revolution to have been mainly French. It was not. John Nye argues that the real constraint on French progress was not its foreign trade but its domestic trade. Britain in such a view was from early times a nation of free trade internally. Nye argues persuasively that Britain in fact was internationally less a free-trade country than France — but more free-trade internally. France, and Spain (and of course those geographical expressions “Italy” and “Germany”) had high internal tariffs until the nineteenth century. France was and is famously centralized, but for many centuries England had been effectively centralized in fiscal and contract law. France, in other words, was centralized in the wrong way, with intendants from Paris and officials in the provinces interfering with the dignity and liberty of innovators at every turn. The French state imposed quality standards on textiles, and gave subsidies to enterprises it approved of, licensed some companies and refused licenses to others.

Even so, France had a pretty big domestic market. Guillaume Daudin concluded that in the eighteenth century that “for all types of high value-to-weight goods, some French supply centers reached 25 million people or more. For all types of textile groups, some French supply centers reached 20 million people or more. Even taking into account differences in real, nominal and disposable income per capita, these supply centers had access to domestic markets that were at least as large as the whole of Britain. Differences in the size of foreign markets were too small to reverse that result.”⁷ That is, the size of the internal British market does not seem to explain Britain’s lead. In short, eighteenth-century foreign and domestic trade and their alleged economies of scale in Britain do not seem to be special.

Many historians have noted that the very reason that Columbus sailed the ocean blue was to get access to what was already a great playground of foreign trade by Arabs, Chinese, Japanese, Indians, Indonesians, Africans, namely, the Indian Ocean. The Zhizo people, on what is now the border of South Africa with Zimbabwe, along the Limpopo River 300 miles from the eastern coast of Africa, acquired in the tenth century C.E. Indonesian products, exchanging their gold for glass beads brought directly 5000 miles across the Indian Ocean on the equatorial trade winds. The successor culture there of “K2,” with its capital in the thirteenth century at Mapungubwe, traded their gold for Chinese porcelain.⁸ By 1500, Goldstone notes in summarizing recent work (some of it the pioneering work by that same Atlantic-trade-favoring Robert Allen), “Asia generally had greater agricultural productivity and more refined craftsmanship than Europe [because even the clever Italians looked feeble beside the Indians and Chinese] and offered a wide variety of products, such as silk and cotton fabrics [because European linens and woolens were not for everyday in the Gangetic plain in summer; by contrast every well-to-do European lusted after the gauzy and colored fabrics of the East, and the Italian and then other European borrowers of Chinese technology could not make enough until well into the Industrial Revolution], porcelain, coffee, tea, and spices that Europeans desired.”⁹ The navigational miss in 1492 by the Admiral of the Ocean Seas in his search for the East Indies nonetheless in time got the miserably poor Europeans something useful for getting into the Indian Ocean trade: Incan gold, and Mexican and Peruvian silver. As the Marxist historian Andre Gunter Frank put it, Europe “used its American money to buy itself a ticket on the Asian train.”¹⁰ And in the meantime the Portuguese had rounded the Cape of Good Hope.

Yet attributing the Industrial Revolution to the European trade with the Indian Ocean is a dubious project. The question arises, for example, why the lag in causation was 250 years, from 1500 to 1750. And if trade is such a very enriching and then industrializing activity, why did not the Indian-Ocean traders and manufacturers themselves have their own industrial revolution, centuries before the backward Europeans — or at the worst with the same mysterious 250-year lag as required by the hypothesis that European trade with the East as an engine of growth? After all, the Orientals were closer to the action that the Europeans so craved to get into. It cannot be an advantage (the economist would observe) to be further from the storied East and its Industrial-Revolution-making trade, can it? Amsterdam and Glasgow and Boston were about as far away as one could get. Europe’s small share of the vast inside-Asia trade was strictly limited by how much gold and silver the Europeans could offer, because until well after the Industrial Revolution was under way the Asians had little use for the notably crude European manufactures.¹¹ Goldstone explains the ending in 1433 of very long, government-sponsored voyages of discovery by the Chinese not in terms of a “turn inward” (which is false: Chinese ships and merchants continued long commercial voyages) but “for the same reason the United States stopped sending men to the Moon — there was nothing there to justify the costs of voyages [in the Chinese case with hundreds of ships and tens of thousands of men]. The further China sailed, the poorer and more barren the lands that they found. Goods of value came mainly from India and the Middle East, and they had already been pouring into China by established land and sea routes for hundreds of years.”¹² Why then did not the Asian vastness of trade act as an engine of growth, quite independent of the Europeans? And if marginality to the trade but a tenuous connection is somehow an advantage, why not industrialization at Mapungubwe or at Edo?

What is true is that the British economy cannot be understood in isolation, certainly not in the eighteenth century, and in many ways not before. It has become increasingly clear from the work of Jeffrey Williamson and Larry Neal among others, for example, that Britain functioned in an international market for investment funds.¹³ More exactly the fact has been rediscovered — it was a commonplace of economic discussion by observers like the proto-economist David Ricardo in the 1810s, though it became obscured in economics by the barriers to trade erected during the Great European Civil War of the twentieth century, especially during the 1930s and 1940s. That is, the trade in bonds was of Europe, not of each country in Europe. By 1780 the capital market of Europe, centering in Amsterdam and London and Paris, was sophisticated and integrated. Savings flowed with ease from French pockets to Scottish projects.

True, the biggest sums were governmental debt to pay for Europe’s incessant wars. The amounts raised for the projects of peace, such as canals in England in the 1780s, were often last in line, not least because governments enforced usury limits that cut funds off abruptly in an inflation, and the inflation’s resulting rise in money interest rates. The old finding of Pollard and others survives: industrial growth was financed locally, out of retained earnings, out of commercial credit for inventories, and out of investors marshaled by the local solicitor.¹⁴ The interest rate still mattered (even though the international capital market was not used to fund industrialization), as is plain for example in the sharp rises and falls of enclosure in the countryside with each fall and rise in the rate of interest, or the booms and busts in canal building, like housing construction nowadays. And the rate was relevant to local projects such as an enclosure or even a fully self-financed factory because people were sharply aware that the opportunity cost of investing in straightening and surfacing local roads or in a steam mill for forging nails was always a less troublesome investment in “the funds.” And the interest rate on consolidated British government stock, in turn, was determined by what was happening in wider capital markets than the local solicitor’s office, and as much by Amsterdamers as by Londoners.

The same had also long been true of the market in grain and many other goods. The financier and economist Ricardo assumed so in his models of trade around 1817, as though it were given, simple, obvious, trivial, not worthy of comment. The disruptions of war and blockade from time to time masked the convergence. Regulations, such as the Corn Laws, or imperial schemes to subsidize West Indian landowners with powerful friends in government, could sometimes stop it from working. But Europe by the eighteenth century had a unified market in, say, wheat. Fernand Braudel and Frank Spooner showed long ago in their astonishing charts of prices that the percentage by which the European minimum was exceeded by the maximum price fell from 570 percent in 1440 to a mere 88 percent in 1760.¹⁵ Centuries earlier the price of gold and silver had become international, though the continued hunger of the East for precious metals kept the divergence in value from disappearing completely.¹⁶ Kevin O’Rourke and Jeffrey Williamson have shown that in the fancier items of east-west trade the divergence was not pronounced enough to explain the rise in their trade.¹⁷ And by 1800 and certainly by 1850 the prices of wheat, iron, cloth, wood, coal, skins, and many other of the less fancy materials useful to life were beginning to cost roughly the same in St Petersburg as in London, and to a lesser extent in New York and even in Bombay, by an economically relevant standard of “roughly.” The only relevant standard for “one market” is similarity of prices. The standard of what is “similar” must be relevant and economic, not an arbitrary standard of a t test of “significance” in correlation.¹⁸ (Braudel and Spooner grasped this, as do O’Rourke and Williamson.¹⁹ Unhappily a good deal of the recent historical work on price convergence has substituted arbitrary standards of “cointegration” for economic thought.²⁰ ) European and then world prices continued to converge in the nineteenth century, a benefit of the rapid growth of productivity in shipping and railways and in other costs of transaction, such as port costs and insurance and information.

The convergence is important because it says that an economic history imagining the British economy in isolation is the wrong way to look at it. If the economy of the whole of Europe from Poland to Venice is determining the price of food, for example, it is not a wise principle in writing the history to treat the British food market as though it could set its own prices by its own supplies and demands (except, of course, behind completely protective tariffs — which until the 1840s, admittedly, it imposed on quite a few goods; but a general equilibrium would tie British prices to the world’s prices indirectly even with a good deal of protection). The assumption of a closed economy, such as those around which the little controversy over agriculture’s role in industrialization raged in the 1960s, will stop making sense.²¹ The supply and demand for grain in Europe, or indeed with less force the supply and demand in the wider world, was setting the prices faced by British farmers in 1780. The supply and demand merely in the British portion of Europe could set merely the amounts of wheat and wood brought into Britain, net. The intrusion of the world’s market became so strong that the domestic, closed-economy story no longer makes any sense, though it has been told and retold by historians and economists fascinated by the availability in the eighteenth century of British trade figures. The domestic story is like blaming the current administration in Washington for the price of oil — which is determined by the world’s supply and demand, not by the White House.

In the seventeenth and eighteenth centuries one can tell a domestic story of agricultural improvement in England — the application, say, of Belgian and Dutch farming methods (though recent work has shown that they were not applied enough to constitute then an “Agricultural Revolution”).²² But you can’t reasonably tell a domestic story of the price of the wheat or cattle or much else except hay, because the markets of Europe set the prices of wheat and cattle. (Hay down to the present is a local product, because it is of course heavy relative to its per volume price, and therefore was cheaper in, say, 1914 in the United States than in England, with consequences for local transportation²³ ). Likewise one can tell an English story in the eighteenth century of how much was saved. But you can’t reasonably tell an English story of what interest rate it was saved at, nor how much was available for English investment, in view of foreign savers and investors expressing their opinions in the capital markets of Amsterdam and Paris.

Joseph Inikori has argued that high transport costs before the Railway Age made regions such as Britain’s industrial North, or the less progressive South (which as he points out began in 1600 as much more “developed” than the North), into export enclaves. “Research by historical geographers,” he claims, “shows . . . industrialization that was highly regional.”²⁴ So much is true. By the early nineteenth century the southerners in England were casting envious eyes north at bustling Liverpool and Manchester and Halifax. But the historical geographers claim that inside the “regional economies . . . there was keen competition but between them there was very little . . . because of the structure of internal transportation costs. . . . Hence, over time regional concentration of the leading industries was determined by success or failure in the promotion of overseas sales.” Inikori is again correct to stress that the foreign context for European economies was important — though the goods traded in the eighteenth century were minor elements of the economy, if not of little girls, such as sugar and spice. By the time that cotton goods and especially such heavy items as iron became important in foreign trade the Railway Age had arrived, and talk of enclaves stopped making sense. Considering the mobility of capital and labor it probably had stopped making sense by 1750 or 1800 anyway. Inikori believes that “inter-regional migration was a minor source” of new labor for the mills, which again is correct if he means that southern agricultural workers did not turn up for work in Wigan (but literally wrong: Irish-born were one out of every 4.5 people in Liverpool in 1851, and one out of every 6 in Manchester.)²⁵ But the weakness in Inikori’s argument that is relevant here lies in the little phrase “very little” [competition between enclaves]. Inikori and the historical geographers offer no relevant comparative standard of “very little.” They commit in a qualitative way the same error as do the more mathematically muscular t-testers. They have no standard to judge “little,” and so miss the gigantic secular improvement in European (and regional) economic integration, 1500-1840.

Pollard, again, argued persuasively that for many questions what is needed is a European approach, or at least a north western European regional approach.²⁶ For economic purposes the “region,” Pollard argued, should be larger than the nation, not smaller. He wrote in 1973 that “the study of industrialization in any given European country will remain incomplete unless it incorporates a European dimension: any model of a closed economy would lack some of its basic and essential characteristics.”²⁷ The political analogue is that it would be strange to write a history of political developments in Britain or Italy or Ireland 1789 to 1815 without mentioning the French Revolution. Politics became international — not merely because French armies conquered most of Europe but because French political ideas became part of political thinking, whether in sympathy or in reaction. Likewise in economic matters. The world economy from the eighteenth century (and to a large degree before) provided Britain with its framework of relative values, wheat against iron, interest rates against wages.

The point is crucial for understanding why the classical economists were so far off in their predictions. Landlords, they said, would engorge the national product, because land was the limiting factor of production. But the limits on land seen by the classical economists proved unimportant, because north west Europe gained in the nineteenth century an immense hinterland, from Chicago and Melbourne to Cape Town and Odessa.²⁸ The remarkable improvement of ocean shipping (iron and then steel hulls; steam and then superheated steamship engines, two thirds of them built on the Clyde; wide quays and then steam and then diesel gantries for offloading cargo) tied Britain to the world like Gulliver to the ground, by a hundred tiny threads. Grain production in Ukraine and in the American Midwest could by the 1850s begin to feed the cities of an industrial Britain. But the price of wheat in Britain was constrained even earlier. One cannot calculate elasticities of demand and supply on the assumption that the price was set at home.

---

1. [back] Chartres 2003, p. 209.
2. [back] ***cite Deane and Cole by chapter.
3. [back] O'Brien and Engerman 1991 demur.
4. [back] Allen 2006, p. 7.
5. [back] Inikori 2002, p. 478; he discusses his trade model on pp. 10-14, which use Hirschman 1958, Chenery 1960, and especially Balassa 1981.
6. [back] Inikori 2002, p. 479.
7. [back] Daudin 2008, abstract.
8. [back] Gilomee and Mbenga 2007, pp. 3, 25, 32.
9. [back] Goldstone 2009, p. 4.
10. [back] Frank 1998, p. xxv, quoted in Goldstone 2002a.
11. [back] Goldstone 2009, p. 58.
12. [back] Goldstone 2002a.
13. [back] Williamson 1985, 1987; Neal 1990.
14. [back] Pollard 1964; Richardson 1989.
15. [back] Braudel and Spooner 1967, p. 470.
16. [back] De Vries 2003; the deepest student of such matters is Dennis Flynn, as in Flynn 1996 and Flynn and Giráldez 1995a, 1995b, 2002, 2004, and Flynn, Giráldez, and Glahn, eds., 2003.
17. [back] O'Rourke and Williamson 2002, esp. Fig. 1.
18. [back] McCloskey and Zecher 1976, 1984; Ziliak and McCloskey 2008.
19. [back] And see too Hynes, Jacks, and O'Rourke 2009, which has only one use of statistical significance (pp. 9, 17), well below the average for such studies, and does not mention "cointegration" in the text, which is practically unheard of.
20. [back] For example, among dozens of such studies making the same mistake, Özmucur and Pamuk 2007.
21. [back] Ippolito 1975 *** from China book
22. [back] Compare Mark Overton 1996, who stresses that 1750 to 1850 was still the classic period of the agricultural revolution-though he does reject the previous orthodoxy that saw the seventeenth century as crucial-and Michael Turner and others 2001, arguing on the contrary that the break was in what Michael Thompson called the "second" agricultural revolution in the first half of the nineteenth century.
23. [back] Van Vleck 1997, 1999.
24. [back] Inikori 2002, p. 475.
25. [back] Inikori 2002, p. 476; Pooley 1989, p. 66.
26. [back] Pollard 1973, 1981; within Britain compare Hudson, ed. 1989 and Crafts 1989a.
27. [back] Mokyr 1985b, p. 175.
28. [back] ***cite Knick

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