Economics: World Trading Systems

Chinese economy
Figure 1.--This Chinese street seller in the early-20th century is a virtually timeless image. For much of the modern era, China was the richest and most advanced civilization on earth. As a result, Europeans were desired commercial contact with China. This was firsrt accomplished through the Silk Road. With the Arab outburst and the creation of the Caliphate, trade was impeded and with the rise of the Ottoman Empire eventully cut off entirely. This led to the European maritime outreach. It was the Europeans seeking contact with China, not the Chimese seeking the Europeans who had little to offer in trade. Only with the Industrial Revolution in Europe did the terms of trade change. One of the central question in economics is why did the Industrial Revolution occur in Britain abd not China.

The British Royal Navy played a major role in establishing the modern world trading system. It broke up the closed international system established by Spain and Portugal and replaced it with a much more open system. Sea trade is of course the central vehicle for international trade. Even today, something like 95 percent of international commerce takes place by sea. There have essentially been three world trading systems. The first was the Silk Road. This was the medium connecting China and Europe. The Silk Road commerce was conducted over a Millenium and affected bboth by Byzantium, the rise of Islam. the advent of the Monguls. This trading system was suplanted by the rise of the Portuguese and Spanish empires and trading system beginning in the 15th century. It was this system that the fledgling Royal Navy began to attack, first as freedooters and then in the spectacular engagement of the Spanish Armada in the English Channel and the North Sea. The defeat of the Armada meant the beginning of the end of the world trading system dominated by Spain and Portugal and the beginning of the new trading system which would be made possible by the rise of the Royal Navy.

The Silk Road

The first major international system was the Silk Road. This was the medium connecting China and Europe. The Silk Road commerce was conducted over a Millenium and affected bboth by Byzantium, the rise of Islam. the advent of the Monguls. For nearly two millenia, the Silk Road was a key element in the world econonomy. The history of the famed Silk Road is one of many instances in which clothing and fabrics have played a major role in human history. The story of the silk road is one of military adventures and conquest, adventuresome explorers, religious pilgrims, and great philosophers. While it is silk which is often, naturally enough, most strongly associated with the silk road, the flow of ideas and religion as an almost unintended aspect of the flow of trade may have been one of the most significant impacts. Of course most of the people who traversed the silk road were not great thinkers, but common tradesmen who transported their merchandise at great risk for the substantial profits that could be made. They moved cammal caravans over some of the most hostile terraine on the planet. The ilk road tranversed deserts, mountains and the seemingly endless Central Asian steppe. Some of the great figures of history are associated with the Silk Road, including Alexander the Great, Marco Polo, Genghis Khan, and Tamerlane. Merchandice may have moved over the Silk Road as early as the 5th century BC. The Silk Road is believed to have become an established trade route by the 1st century BC and continued to be important until the 16th century when more reliable sea routes were established as a result of the European voyages of discovery.

Portugues and Spanish Empires

The Silk Road and Arab domination of the routes to Asia was suplanted by the rise of the Portuguese and Spanish empires and trading system beginning in the 15th century. Control over the European outlets to the Silk Road brought great wealth to the Italian trading states, especially Venice. Portugal and Spain on the western perifery of Europe thus sought alternate routes. This began with the voyages south along the coast of Africa and culminated with the European voyages of discovery. The Portuguese voyages resulted in the establishment of the Spice Route and sea trade between Europe and the Indies and China. Spanish and Portugese conquests in the Americas soon led to establishment of great colonial empires. Vast quantities of gold and silver flowed into Spain and both Spain and Portugal grew rich on their domination of the sea routes to China and the Indies. The Portuguese and Spanish empires were closed systems. The colonies could only trade with the mother country. There were severe restrictions on economic activities which were allowed to avoid competition with the mother country. Trade was restricted essentially to three ports: Lisbon, Cadiz and Seville. The Portuguese-Spanish system was not designed to promote trade, but rather to maintain their colonial empires. It was also in part a kind of new crusade. At first a way to circumvent the forces of Islam. Then a tool for Christainizing the heathen peoples of the Americas, And finally with the advent of the Reformation, a weapon against the Protestants. The Portuguese-Spanish system was relatively short-lived, reaching its apex in the mid-16th century.

Modern World Trading System

It was this system that the fledgling Royal Navy began to attack, first as freebooters and then in the spectacular engagement of the Spanish Armada in the English Channel and the North Sea. England at the time was a small nation. It had a small population and an economy based on raw materials, primarily the export of raw wool. It was an unlikely challenger to the superpower of the day--Spain. In fact England had more of a tradition of alliance with Spain against England's traditional; foe--France. The beginning of the opposition to the Portuguese-Spanish trading system began out of the West Country where there was a tradition of smuggling. All of the important sea dogs (Drake, Hawkins, and Raleigh) came out of the west country and many were related to each other. These men took great risks, but with Spanish trasure ships as targets, there were enormous rewards. Another motivation was militant Protenstantism. For many of the Englisg Seadigs, the Catholic Portuguese and Spanish Empires were the evil empires of the age. The early English Navy was limited to ferrying troops back and force to France. The Sea Dogs for the first time conducted long voyages with allure of Spanish trasure. As a result of these deprivations and a desire to destroy Protestantism in Englnd, Phillip II oversaw the construction of the Great Armada and dispatched it to England. The modern world trading system grew out of the failure of the Armada. The defeat of Spanish Armada meant the beginning of the end of the world trading system dominated by Spain and Portugal and the beginning of the new trading system which would be made possible by the rise of the Royal Navy. Sir Walter Raleigh wrote perceptively at the time, "Hee that commaunds the sea, commaunds he trade, and hee that is Lord of the trade of the World is Lord of the wealth of the Worlde." At first Britain attempted to create a closed trading system like the Portuguese-Spanish system they helped dismantled. The Royal Navy first opened the Portuguese and Spanish trading systems and then the Dutch trading systems. The Loss of the American colonies resulted in a major shift in British policies and Britain turned toward a system of free trade. The Royal Navy during the Napoleonic Wars was confronted with Napoleon's Continental System and thge War was in part Britain's efforts to force open the French system.







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Created: 9:56 PM 1/2/2005
Last updated: 2:28 AM 4/19/2011