The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor

by David S. Landes

  * As corrected by Professor Bairoch

  * The importance of the region as a unit of production has long been noted. See, for example, the monographs of N. J. G. Pounds in the 1950s; Pounds and Parker, Coal and Steel; Wrigley, Industrial Growth (on what was once called Neustria, in Charlemagne’s time); and a long series of French studies of human geography going back to the beginning of the century. To argue from this, however, to a rejection of the nation-state as a useful, nay indispensable, unit of study is to throw the baby out with the bathwater. The one does not exclude the other. So long as economic activity is shaped by national concerns and policy, and so long as it is the nation that is the principal source and frame of our numbers—’twas ever thus, and I see no change in prospect—national studies and comparisons will be the heart of the matter. Cf. on this point John Davis’s discussion of Pollard, Peaceful Conquest, in Davis, “Industrialization in Britain and Europe, p. 55.

  * In Anglo-American historiographical usage, the word “feudal” (from the word feudum or fief) is reserved to relations among lords or between lord and vassals—rules and practice above the line. Rules and practice between lord and peasants (across the line) are typically denoted as “seigneurial” or “manorial.” Continental practice is to use “feudal” for those aspects of the society and economy that hark back to medieval usage—in effect, the Old Regime.

  * One finds similar social schemas in India: brahmins, warriors, merchants, peasants; and in Tokugawa Japan: samurai, peasants, merchants. These are attempts to give functional order and stability to society, thus protecting elites from change. The French, while not enforcing vocational barriers, still used these divisions to determine political representation in the Estates-General on the eve of 1789. The English had their own political version, even more summary, in the division of the Parliament into Lords and Commons.

  * The word means a money payment. Sometimes it was used to designate tax payment, sometimes rent.

  * There were exceptional jurisdictions: Alsace, much of it acquired in 1648 (Strasbourg in 1681); the Franche-Comté of Burgundy, won from Spain in 1678; Lorraine, annexed in 1766; and recent conquests in Flanders—all in part subject to their own laws and customs. European nation-states were still in the making.

  * An exception was made for fraternities of journeymen, many of whom did a tour of the country by way of professional preparation and found hospitality at every stop. These compagnonnages, as they were called, did networking and supplied intelligence about jobs and employers, but did not play much of a role in labor conflict. Their secret greetings and their peripatetic, often literate membership inspired romantic images. Yet they gave no trouble and got no trouble.

  * Remember the Portuguese instructions to their second Indies fleet (see chapter VI): stand off and blow them out of the water. A preference for steel over guns signals technological inferiority.

  † Cf. Bradley, Guns for the Tsar. The similarity to Japanese attitudes is striking. One normally thinks of Japanese industry as exceptionally effective, but as late as World War II, Japanese armaments manufacture was extremely spotty, and the army-issue rifles, sidearms, and ammunition left much to be desired. Soldiers sought compensation in the bayonet, which was often left permanently fixed, and cultivated the mystique of personal bravery in close combat: “The fixing of bayonet is more than a fixing of steel to the rifle since it puts iron into the soul of the soldier doing the fixing.” Similarly, officers relied more on sword than revolver, abandoning whenever possible standard issue for samurai blades. A favorite test of prowess: decapitation or cleavage, often of prisoners, at one stroke. Cf. M. and S. Harries, Soldiers of the Sun, ch. 35, “‘My Sword Is My Soul.’”

  * Some industrial firms founded their own banks, partly to facilitate their commercial transactions, partly to pull in capital from local depositors. Insofar as such firms immobilized (invested) funds payable to depositors on demand, they were highly vulnerable to contractions and crises. In any event, the direction of the initiative, from industry to banking, testifies to the wealth of British industrial resources.

  * These may or may not be appropriate to relative factor costs. The choice of technique is a complicated matter. Take equipment: new machines may be available only in the latest version, because that is what manufacturers are making. But second-hand equipment may offer significant economies—for those who know how to use it. Not simple, though; older machines may be harder to maintain; and where to get replacement parts—cannibalize?

  * Some of these families began as commoners (the Demidoff as serfs), built their fortune in industry, obtained nobility for their services, stayed in industry, and enhanced their status by a policy of well-chosen marriages. Thus the Wendel iron dynasty became de Wendel, and while not marrying into the high nobility, found a large reservoir of talent and pride among very old families of modest means. As one grande dame of medieval line, Wendel by marriage, liked to remind listeners (smiling the while, of course), her people knew her husband as legros quincailler—the big hardware dealer.

  * French company law distinguished among (1) ordinary partnerships (sociétés en nom collectif), where all partners had unlimited personal liability for the firm’s debts; (2) limited partnerships (societes en commandite), where the general partners had unlimited liability and the limited partners liability only to the extent of their share in the capital; (3) share limited partnerships (commandites par actions), where the limited partners owned transferable shares; and (4) true corporations (societes anonymes), where everyone enjoyed limited liability and all ownership parts took the form of transferable shares. Until general limited liability was introduced in 1867, all such companies required a charter from the legislature. This requirement rendered company formation costly and difficult (political connections helped), but the general assumption was that limited liability was a violation of commercial morality and usage (creditors were deemed entitled to better protection), to be granted only in exceptional circumstances.

  * Yet even now much of the literature, echoing a theme that goes back almost a century, continues to stress the critical contribution of die Credit Mobilier. It did serve as example, but not in France, where it was if anything a counterexample.

  * European tariff history tells a story of popular, almost instinctive, protection punctuated by episodes of administrative, elitist moves in the direction of freer trade. So with the Eden Treaty of 1786, the Cobden-Chevalier Anglo-French Treaty of 1860, the post-World War II common market, and GATT. The contest lies between lowbrow vested interests on the one hand, highbrow economic reasoning on the other.

  * In theory, competition on the domestic market should have pushed prices (and profits) down, even in the presence of tariff walls. But the more efficient producers were only too happy to set prices by (hide behind) their backward competitors and enjoy monopolistic gains. Cf. Guy Thuillier, Aspects, p. 255: “The survival [of small, old-fashioned charcoal iron works], the inertia of the economic milieu and the protection of vested interests, assure a supplementary rent to the new forges; not only do tariff duties protect them from the competition of foreign iron, but the rent of protection is doubled by a technological rent due to the survival of small, archaic forges producing at a very high price.” Also pp. 249-50, on the delayed dominance of rolled as against hammered gun barrels: the rolled cost much less to make, but the makers wanted to charge die same price as for the others. The goal was not market share but rate of profit. But since the buyer was the state, why not?

  * The town of Le Creusot is located in the region known as the Nivernais, 370 kilometers south-southeast of Paris.

  * The factory was located just north of Nevers on the Loire River, about 230 kilometers south of Paris.

  * This was partly because that was the direction of technological advance—the substitution of capital for labor; but also because Gerschenkron thought the way to rapid growth and catch-up was via heavy industry. This was what he saw in Germany and Russia, and he turned it into a par
adigm. Ironically (for Gerschenkron was anything but a Marxist), Marxist economic thinking had followed similar lines.

  * Jars also visited metallurgical installations in Styria, Bohemia, the Liege district (now Belgium), and Sweden. Although he died shortly after his final trip, to ironworks in eastern and central France (1768-69), he was able to communicate his findings personally to a number of ironmasters and technicians, among them Ignace de Wendel. Part of his reports was published by his brother, also named Gabriel, as Voyages métallurgiques (1774-81)—Woronoff, L’industrie sidérurgique, p. 16. Also Harris, Essays in Industry, pp. 87-88.

  * This is what Michael Polanyi called tacit knowledge. Kenneth Arrow speaks of learning-by-doing. See Polanyi, The Tacit Dimension; Arrow, “The Economic Implications of Learning by Doing”; J. Howells, “Tacit Knowledge.”

  * The classic example is the request made of Richard Roberts, partner in the machine-making firm of Sharp, Roberts, by a group of Lancashire spinners to build a self-acting mule, that is, a machine that would bring the spindle carriage back to begin a new stretch-and-wind cycle. The idea was to tame the mule spinners, the labor aristocracy of the industry—proud, umbrageous, and difficult in wage negotiations. When a trade contraction combined with this threat of innovation to curb the workers’ pretensions, the spinners decided they did not need the new machine after all—cheaper that way. It took ten years for Roberts to make money from his invention. See MacLeod, “Strategies for Innovation,” p. 291.

  * Alizarin was derived from anthracene, another component of coal tar. The synthesis was achieved by Perkin in England, Caro, Graebe, and Liebermann in Germany in 1869. The market effect was stunning: in 1870 natural alizarin as derived from madder cost 90 marks a kilo; the synthetic, 8 marks. Madder, long a feature of the landscape of Provence, was now history—Milward and Saul, Economic Development, p. 229.

  *This should not be confused with classical doctrines of comparative advantage, which are essentially static and provide no reason for economic development. On the contrary, they were used from the start to justify the prevailing international division of labor.

  * This was particularly true of New England. In the Middle Adantic colonies—New York and Pennsylvania in particular—one found larger commercial farms, producing for distant markets. See Fischer, Albion’s Seed, pp. 174, 377-78, 567, who points out that the differences in landholding reflected not so much geographical circumstances as the circumstances of origin in the Old World and the consequent intentions of the settlers.

  * In an effort to protect the Indians, the British authorities tried to limit westward expansion to the Appalachians. In vain: all the redcoats on the continent could not have guarded that frontier, any more than the United States today seems able to close the Mexican border.

  † The best similar example of a handyman culture that comes to mind is that of the Swiss Jura, where cottage workers laid the basis for the world’s most successful watch industry—Landes, Revolution in Time, ch. xvi: “Notwithstanding the Barrenness of the Soil.”

  * Hours were long, but shorter for example than in Japanese mills at the same stage. They varied somewhat with the season, but ran to some eleven to thirteen hours per day—Montgomery, Practical Detail of the Cotton Manufacture, pp. 173-77.

  *Evans sent a copy of his plans to England in 1787, where Richard Trevithick, the engineer often assigned the invention, is said to have seen them in 1794-95—Enc. Brit., 11th ed., s.v. Evans, Oliver. An early example, then, of a continuing battle for priority between mother country and daughter colony. Of course, the very fact of this contest testifies to the precocity of U.S. technological advance.

  * Fischer, Albion’s Seed, p. 65, notes that the combination of timber framing and wood sheathing was “commonplace” in southeastern England. It made even more sense in the forested parts of the United States.

  * In matter of organization, one thinks of the naval arsenal in medieval Venice; in matter of production techniques, of Henry Maudslay’s manufacture of Joseph Bramah’s lock in 1790-91 and Marc Isambard Brunel’s famous pulley blocks (machine tools by Maudslay) in the Portsmouth naval shipyard around 1803. But locks and pulley blocks are nowhere near so intolerant of variance as guns or clocks. Note also French precedents in arms manufacture: thus Gribeauval in the manufacture of gun carriages toward the end of the Old Regime and the plans of Honoré Blanc for mass production of muskets in the 1780s and ’90s. The latter were sensible and rational but were never carried out. That is the difference between imagining and doing, logic and culture. See Landes, Revolution in Time, pp. 309, 459, n. 2; Cohen, “Inventivité,” p. 54 and n. 5. See also, on the “failure” of Blanc, the work of Ken Alder, “Innovation and Amnesia” and Engineering the Revolution. Alder, whose analysis gains but also loses by his focus on arms manufacture, sees engineering interests as motivating the pursuit of uniformity in France—a mix of power and aesthetic considerations, a desire “above all…to decouple the nation’s security from the activities of unruly and money-minded artisans and merchants” (“Innovation,” p. 310). This sequence from theoretical and schematic to practical was very French. It contrasted sharply with American practice, where money and market drove the pursuit of interchangeability and where progress took place in a whole range of industries.

  * One should not exaggerate. The use of land for parks and hunting was not unrelated to its productivity. In wine country, the Bordelais for example, even the richest owners planted vineyards, especially of the premiers crus, right up to the house.

  † An exception was the German vision of a “people’s car” (Volkswagen) in the 1930s. It did not come to fruition, however, until after the war.

  ** The meanness of the French Post Office was notorious. Until the 1990s, airmail letters overseas paid a surcharge above a weight of 5 grams, stamps included. That meant using specially thin and pricey paper—a boon to the stationery industry. Even so, the post office would not always have a single stamp for the postage required and would combine two or three to make the amount, and then these would tip the scale. One had to experience these exercises in petty tyranny to understand the retardative effects of bureaucratic constipation. Fortunately for the French, the European Community has imposed new standards.

  * The record of Spanish (or Portuguese) color-consciousness in the colonial and postcolonial societies that emerged from the invasion also contradicts this reputation.

  * Not all colonials. Cf. Fischer, Albion’s Seed, pp. 252 ff, on self-deprecating nostalgia in Virginia. Many of these “tories” simply left, voting with their feet against independence and for loyalty to the mother country. But that was a surrender to political death—a rejection of the spirit that otherwise filled the land and united highly diverse units into a single republic.

  * One can of course be wrong and build a house of cards. This is what happened in the Egypt of Muhammad Ali and in the Paraguay of the dictators Lopez—see below.

  * This was the theme of H. J. Habakkuk’s classic American and British Technology: the high cost of unskilled labor pushed the Americans to pursue technological innovation; but then, how explain rapid growth? The answer: immigration.

  * The earlier period saw negligible naturalization: in 1895, only 0.16 percent; in 1914, 1.4 percent—Cornblit, “European Immigrants,” chapter 16, Table 11.

  † Immigration was much influenced by conditions in the States and in Europe, not only by business conjuncture but by war and revolution. Thus the failure of revolutions in 1830 and 1848 promoted emigration; the American Civil War discouraged it.

  ** Some readers may find such a comparison jarring (politically incorrect). It is, however, no more than fact; and no different in concept from the efforts of economists to weight labor inputs to productivity growth by years of schooling and other additions to human capital.

  * Imports of barbed wire were of the order of 20,000 tons a year in the early 1890s—Rock, Argentina 1516-1987, chapter 9.

  * Much of this was linked to the demand and ta
stes of the new immigration, in combination with urban growth: city dwellers need processed food. Between 1895 and 1913, the number of food-processing establishments grew by over 20 percent a year, their workforce by 221 percent, their capital by 8 percent. At the end of the period, this branch accounted for some 40 percent of all industrial shops, a third of the industrial labor force, 43 percent of all industrial investment—Lewis, Crisis of Argentine Capitalism, chapter 3.

  *PPE = purchasing power equivalents.

  * Savings rates of 5 percent and under, compared to three times as much in Canada and Australia—Taylor, “Three Phases,” chapter 2, Table 4.