The differential impact of improving terms of trade on land-abundant and land-scarce regions provides a framework for understanding the Great Divergence during the long nineteenth century.
In a forthcoming article in the Journal of Latin American Studies I discuss the origins of Argentina’s expansion in the long nineteenth century. It is largely an optimistic account of how globalisation led to progress in this remote part of the world. However, it does have a sting in its tail.
Argentina’s Pampean region prospered in the long nineteenth century thanks to globalisation. Post-independence trade liberalisation, the cheaper goods being produced by the industrial revolution, and the invention of steam ships and railways drove a dramatic terms-of-trade boom. This led to dramatic growth because the abundant land of the Pampean region could be brought into production for the first time. Ranching expanded dramatically, first to produce cattle hides, then wool. In the late nineteenth century farming took the lead, as Argentina became one of the world’s principal grain exporters. So far, so optimistic: this was the Argentine progress celebrated by economic historians such as Roberto Cortés Conde.
Yet, there was also stagnation and decline.
The colonial political economy had been focused on the centre and north of the country, due to their proximity to the silver mines of Upper Peru. Capitalists concentrated on selling imported European goods for exorbitant prices, while the Interior’s peasantries produced import-competing goods, especially textiles, which were the staple product of peasant women. During the nineteenth century, these regions tended to stagnate and even decline. In this conclusion to my forthcoming article, I offer a working hypothesis to explain why:
‘The crucial difference between the Interior and the Pampean region was the availability of land. Where land was abundant, improving terms of trade allowed frontiers to expand into the scarcely-populated plains, as labour and capital shifted into the export sector. Where land was scarce, improving terms of trade tended, however, to have less beneficial effects, as import-competing activities went into decline and competition for the limited supply of land increased. Typically, this resulted in peasantries being turned into landless rural proletariats, as their communal lands were expropriated and their handicraft industries undermined by cheaper imports. During the long nineteenth century, similar processes can be seen in Argentina’s Andean regions, the highlands of Bolivia and Peru, and beyond to Mexico. A working hypothesis for future research would be that Latin America’s globalisation in this way produced what used to be called the ‘development of underdevelopment’, as integration into the world market led to dramatically improved terms of trade, which brought progress to some places but stagnation and decline to others.’
In making putting forward this hypothesis, I’m revisiting Andre Gunder Frank’s work on global (under)development. As I have suggested before, Frank’s ideas, despite been widely scorned, remain remarkably relevant to current debates among economic historians, as he foreshadowed the ideas that ‘neo-institutionalists’ today present as new and original (without, of course, any reference to Frank).
One of the things that Frank wasn’t very good on, however, was the terms of trade (that is, the relative prices of a country’s exports and imports). They interested him little, if at all, so it has been easy for economic historians to conflate Frank’s ‘dependency theory’ with the Raúl Prebisch’s cepalista belief in a persistent deterioration Latin America’s the terms of trade. In fact, Frank had little to say on the subject.
What I have suggested in my article is that the terms of trade explain the patterns of (under)development identified by Frank – that is, what he called the ‘development of underdevelopment’. Frank argued that capitalism produced both wealth and poverty, progress and decline:
‘Evident inequalities of income and differences in culture have led many observers to see ‘dual’ societies and economies in the underdeveloped countries. Each of the two parts is supposed to have a history of its own, a structure, and a contemporary dynamic largely independent of the other. Supposedly, only one part of the economy and society has been importantly affected by intimate economic relations with the ‘outside’ capitalist world; and that part, it is held, became modern, capitalist, and relatively developed precisely because of this contact. The other part is widely regarded as variously isolated, subsistence-based, feudal, or precapitalist, and therefore more underdeveloped.
I believe on the contrary that the entire ‘dual society’ thesis is false and that the policy recommendations to which it leads will, if acted upon, serve only to intensify and perpetuate the very conditions of underdevelopment they are supposedly designed to remedy.
A mounting body of evidence suggests, and I am confident that future historical research will confirm, that the expansion of the capitalist system over the past centuries effectively and entirely penetrated even the apparently most isolated sectors of the underdeveloped world. Therefore, the economic, political, social, and cultural institutions and relations we now observe there are the products of the historical development of the capitalist system no less than are the seemingly more modern or capitalist features of the national metropoles of these underdeveloped countries. Analogously to the relations between development and underdevelopment on the international level, the contemporary underdeveloped institutions of the so-called backward or feudal domestic areas of an underdeveloped country are no less the product of the single historical process of capitalist development than are the so-called capitalist institutions of the supposedly more progressive areas.’
The terms of trade were crucial to this process of capitalist (under)development during the long nineteenth century. The long terms-of-trade boom that occurred across the non-European periphery tended to benefit land-abundant regions, such as the Australia and the American West, and disadvantage land-scarce regions, especially in Asia. In the former, frontiers could expand to incorporate previously under-utilised land, which could then be brought into production for export. In the latter, by contrast, import-competing cottage industries were undermined, so growing populations had to depend on a limited supply of land for their incomes. Unrest tended to increase in these land-scarce regions, so European countries generally resorted to direct colonial rule, with all its attendant ills, whereas the land-abundant countries, once their indigenous populations were pacified, could be given greater autonomy, as their inhabitants had little reason to resist integration into the world market. The long terms-of-trade boom thus brought growth and democratisation to the countries of white settlement, but stagnation and colonisation to the darker nations.
There were, of course, exceptions to this pattern. Japan, for instance, had an unusually effective state that was able to put the country upon a path toward industrialisation, thereby avoiding some of the vicissitudes of other land-scarce countries. Southern Africa, meanwhile, was made an artificially land-abundant region, as white settlers appropriated the land and established varieties of apartheid. Brazil was unable to attract the settlers it required due to the legacies of slavery, which depressed wages below the level required to draw significant numbers of European settlers. Finally, much of Spanish America was neither land-abundant nor land-scarce. Rather, it contained both densely-populated regions that had been at the centre of the colonial political economy, and also land-abundant regions that had been largely peripheral. With the terms-of-trade boom, these roles was reversed, leading to civil wars that racked the new republics for decades following independence. Argentina, in this, was no exception. As I discuss in the article, the terms-of-trade boom benefitted the Pampean region but disadvantaged the Interior. The political consequence of this was civil war, followed by a federal constitutional settlement that gave the backwards Interior provinces – or, more specifically, their ruling oligarchies – an influence within the new state that was disproportionate to their diminishing share of the country’s population and wealth. Argentina’s oligarchic state would then prevent it from achieving the same levels of development as other similarly land-abundant countries, as I have argued in my PhD dissertation.
Looking at the terms of trade thus provides a framework for understanding global (under)development in the long nineteenth century. In my research to date I have mainly been focusing on Argentina as a case study. Once I have got through my backlog of papers to write on Argentina, I hope to broaden my horizons somewhat by producing a more worldwide analysis.
