Power and Plenty: Trade, War and the World Economy in the Second Millennium (review)

This densely descriptive history of how international trade has transformed the world we live, in over the past 1,000 years, is the joint product of a trade theorist (Findlay) with a quantitative economic historian (O'Rourke). It combines the theoretical insights of general equilibrium analysis with the empirical evidence provided by the current generation of quantitative economic historians. The first two chapters provide descriptive background showing the ever-present tensions between the pursuit of power and the purchase of plenty. Chapter 1 lays out the political divisions that inhibited the transfer of labor, capital, trade goods, and especially technology across the Eurasian landmass before the imperial efforts of Genghis Khan that created the Pax Mongolica of the thirteenth century. Consequently, the possibilities for economic progress implicit in the resources of the largest continent and for their dispersion along latitudes congenial to their adoption were stymied. Chapter 2 specifies how wars and their economic requirements continued to thwart both trade and economic progress at the turn of the first millennium. The authors dismiss or disparage in turn the latent possibilities of Islam, Sung China, Indian Ocean traders, Vikings, or the dispersed feudal estates of medieval Europe.

The diverse regions circumscribing Eurasia were first linked together by serious long-distance traders using the overland route created by Genghis Khan in the thirteenth century. Findlay and O'Rourke insist here as they do throughout their magisterial survey on the importance of political authority in maintaining the property rights of merchants and the security of the trade routes for enterprises to flourish. When the Black Death broke up both the overland route and the Pax Mongolica, their theory leads them to expect the devolution of the previous transcontinental trade into regional trade zones, which were further fractured by dynastic and religious conflicts. In western Europe, however, the disastrous loss of population left the cultivated land and accumulated physical capital intact so that real wages and per capita income rose without expropriation by its fissiparous political elites. Labor-saving technology was the felicitous response, which led to the reconnection of the Eurasian trade zones eventually via all-sea routes pioneered by the Portuguese. The Portuguese and then their west European imitators first brought sub-Saharan Africa into the international trade network and then the Americas via the north and south Atlantic sea lanes. European business enterprise then dominated the increase in transcontinental trade as other regions remained confined to narrower markets by their ruling elites.

While taking on board the dominant paradigm that the Industrial Revolution was essentially supply-side driven by labor-saving technology, which found its focus particularly in the highest wage economies of western Europe, Findlay and O'Rourke pause in their historical narrative to examine the role of international trade in the industrialization process. They assert the importance of increasingly elastic demand curves for the adoption of new products and cost-reducing technologies and note that these were clearly the result of new trade opportunities created for western Europe. Moreover, international trade increased the elasticity of supply curves as well, especially cotton for the factory system. Exponential growth could occur then with endogenous productivity increases sustained by the enormous scale of new land and commodities available in the Americas and the elastic supply of labor available in Africa via the slave trade. They conclude, "it seems clear that any sensible model (i.e., one that combines both growth and general equilibrium) would yield the result that if Britain had been closed to trade, the Industrial Revolution could not have been sustained." (my italics) (p. 344). They also conclude "that British military success over the French and other European rivals was an important ingredient in explaining her subsequent rise to economic prominence," (p. 345) and then provide a...