What is the economic history of the world

World trade

Nikolaus Wolf

To person

Dr. rer. pol., born 1973; Professor of Economics, Director of the Institute for Economic History at the Faculty of Economics at the Humboldt University in Berlin, Spandauer Strasse 1, 10178 Berlin. [email protected]

Around the year 1000 Europe was a backward part of Asia, in its economy and in its trade far underdeveloped compared to the Islamic empires in the Near and Middle East or China. Generously estimated, the share of Europe in the world population at that time was around 15 percent, the share in the world economy may have been comparable. [1] It was only with the empires of the Merovingians and Carolingians that a greater political power was able to re-establish itself in Europe, which was able to guarantee a certain degree of security and provide a minimal infrastructure. Around the end of the 11th century AD, the foundations for the boom in long-distance trade were laid, which ultimately made Europe one of the world's economic centers in the modern era. These were mainly new institutions and forms of organization that made trade possible over long distances.

Rise of Europe

Risks were a major obstacle to long-distance trade: On the one hand, long-distance transport of goods and means of payment was dangerous because the methods of transport were unreliable, because one was heavily dependent on weather conditions and because one could not be sure to find suitable goods and trading partners in the first place. On the other hand, for a long time there was no supra-regional jurisdiction in which one could proceed against fraud, theft or other offenses, for example if the trading partner did not pay or did not deliver.

The establishment of trade fairs and cities as well as the emergence of city associations contributed significantly to overcoming these obstacles. The concentration of supply and demand in a convenient location and often at certain times solved several of the problems at the same time. After forerunners in Paris and St. Denis, the rise of the "Champagne fairs" began in the 12th century under the patronage of the Counts of Champagne in northeastern France. Since around 1150, a total of six scheduled trade fairs lasting several months have taken place. In this way, Champagne became a place of almost permanent trade.

The trade fair cities were at the crossroads of two trade routes: the old Via Regia from west to east and the connection between Italian cities and Flanders along old Roman roads and the rivers Rhône, Saône and Seine to the English Channel. The good location and the long-term nature of the trade fairs helped to reduce the costs and risks of trading. Large warehouses were built, groups of merchants built their own houses, and a separate fair jurisdiction increased the security and transparency of the shops.

Of even greater importance than the "Champagne fairs", however, were the numerous founding cities that began in Western and Central Europe from the middle of the 12th century. They were promoted by the desire of the nobility for independence and economic development of their territories and were always associated with the granting of market rights, often also with the right to mint coins. Some of the cities joined together to form city federations, such as the Lombards League in northern Italy or the Hanseatic League in northern Germany and the Baltic region, and for a time became centers of economic and political power themselves.

The trade fairs and founding cities in turn promoted production and stimulated long-distance exchange. In addition, increased trade in cities and trade fairs contributed to the spread of new methods of financing and accounting, such as double entry bookkeeping and the spread of bills of exchange. Coins made of gold, silver and copper have been known as means of payment for millennia and have become increasingly important as trade and production increased.

However, the political realities in Europe had led to a strong regionalization of the coinage. This made it necessary to exchange coins at the place of trade when trading between neighboring regions. In order to avoid the dangerous and expensive transport of large amounts of money, bills of exchange were created from this, which in turn became means of payment since the 13th century and represent the forerunners of our paper money. Similar payment instruments were known in China as early as the 8th century and in the Arab world since the 10th century, before reaching Europe via Italy in the 12th century.

This economic boom brought Europe into closer contact with the more developed Islamic world, China, India and Southeast Asia. The most important traffic route was the Silk Road. The name actually stands for a whole network of trade routes that have stretched from the Yellow Sea to the Mediterranean since ancient times. The main route used in the Middle Ages for trade between Europe and Asia led from Constantinople via Antioch on the Mediterranean and Baghdad to Samarkand and from there to the Chinese lowlands. This development was significantly promoted by the emergence of the Mongol Empire under Genghis Khan (around 1155 to 1227). Despite cruel warfare, the Mongol rulers guaranteed a relatively stable administration and the security of trade within the Pax Mongolica in the subject areas.

Even if trade on the Silk Road remained relatively insignificant in quantitative terms compared to intra-European trade, these relationships had far-reaching consequences. The Silk Road showed the Europeans what riches Asia had to offer and made a diverse cultural exchange possible. Some merchants and cities like Genoa or Venice became rich and temporarily powerful. Knowledge about the manufacture of paper and black powder from China to Europe or of high-quality glass from Europe to China spread via the Silk Road. At the same time, however, pathogens were also transported on these trade routes, with the outbreak of the great plague, which wiped out a quarter to a third of the population in Europe within a few years (1347–1351), had direct economic consequences. There was a substantial increase in wages, especially in the larger cities, which led to heavy immigration to the cities. There is also evidence that at the end of the 14th century, the demand for goods such as wine, high-quality clothing and luxury goods from the East increased significantly.

Around 1340 the Mongol Empire began to disintegrate, so that the Silk Road became less safe just when the demand for trade goods in Europe was greater than ever before. Alternative trade routes via Egypt and the Red Sea to India and China were largely under the control of the Mamluk Sultanate, which, however, increasingly hindered trade through taxes and duties. When the conflict between the Christian Europeans and the Islamic world intensified in the course of the 14th and 15th centuries and the Ottoman Empire pushed further into Europe, this promoted additional efforts to find new trade routes to China, India and Southeast Asia.

These attempts were particularly intensively supported by the Portuguese royal house, which financed numerous expeditions along the east coast of Africa in the 15th century and systematically built fortifications and trading posts. This led to success in 1488 and finally in 1498, when only Bartholomeu Diaz managed to bypass the Cape of Good Hope in what is now South Africa, before Vasco da Gama was the first European to take a ship to India and around the Cape of Good Hope loaded with spices could steer back again.

At around the same time, Christopher Columbus, who came from Genoa, tried to finance the project to reach India across the Atlantic, first in Portugal and later at the Spanish royal family. When he discovered the Caribbean islands and later Central America in Spanish service in 1492, the tremendous importance of the event was quickly recognized. In the early 16th century, European powers had risen to rule the oceans and began to colonize the world.