1. The Pre-modern World

The Pre-modern World

  • Ancient times: travelers, traders, priests and pilgrims traveled for knowledge, opportunity and spiritual fulfillment, or to escape persecution.
    • carried goods, money, values, skills, ideas, inventions, and even germs and diseases.
  • 3000 BCE: an active coastal trade linked the Indus valley civilizations with present-day West Asia.
  • Cowries (seashells, then used as a form of currency) from the Maldives found in China and East Africa.
  • The long-distance spread of disease-carrying germs can be traced since the 7th century.
    • Y the 13th century it had become an unmistakable link.

Silk Routes Link the World​​​​​​​​​​​​​​​​​​​​​

  • Before all this, Buddhism emerged from eastern India and spread in several directions through intersecting points on the silk routes.

Food Travels: Spaghetti and Potato

  • Food: a contributor of long-distance cultural exchanges.
  • Traders and travellers introduced new crops to the lands they travelled.
  • Prepared foodstuff in distant parts of the world could share common origins.
  • Spaghetti and noodles. Theories:
    • Noodles travelled west from China to become spaghetti.
    • Or Arab traders took pasta to fifth-century Sicily, an island now in Italy.
  • Similar foods were also known in India and Japan.
  • The truth about their origins may never be known.
  • Many of the common foods were not known until about 5 centuries ago, such as:
    • potatoes,
    • soya,
    • groundnuts,
    • maize,
    • tomatoes,
    • chilies,
    • sweet potatoes, etc.
  • These foods were introduced in Europe and Asia after Christopher Columbus accidentally discovered the vast continent later known as the Americas.
    • ‘America’ refers to North America, South America and the Caribbean.
  • Many of our common foods came from America’s original inhabitants – the American Indians.
  • Sometimes the new were lifegiving.
    • Europe: poor began to eat better and live longer with the introduction of the potato.
    • Ireland: poorest peasants became so dependent on potatoes that when disease destroyed the potato crop in the mid-1840s, hundreds of thousands died of starvation.

1. The Pre-modern World


The Making of a Global World‌

1. The Pre-modern World

Travelers, merchants, priests, and pilgrims used to travel long distances in search of knowledge, opportunity, and spiritual fulfilment. These people used to transport goods, money, values, skills, ideas, inventions, and, sometimes diseases. Not only that, but they brought different foods and cultural habits with them to different places, resulting in cultural diversity.

The movement of goods and people can be traced back to 3000 B.C., when the Indus Valley civilization established coastal trade links with modern-day West Asia. Cowries or seashells were the currency used to conduct trade activities at the time. Trade links exist between the Maldives and China, as well as between the Maldives and East Africa. Disease spread can even be traced back to the seventh century. So we now know that people, their skills, diseases, and many other things were moved from one location to another for various reasons, resulting in the establishment of various trade links. Now we'll talk about the silk routes that connected the world.

Silk Routes Link the World

The silk routes are an excellent example of pre-modern trade and cultural connections between different parts of the world. Historians have discovered numerous silk routes both on land and at sea. These routes connected vast regions of Asia, Europe, and Northern Africa. These routes are thought to have existed before the Christian era and flourished until the fifteenth century. Not only silk, but also Chinese pottery, followed the same route. Similarly, textiles and spices from India and Southeast Asia were distributed to various parts of the world. In exchange, valuable metals such as gold and silver shifted from Europe to Asia.

Cultural exchange occurred in the same way that trade did. Various Christian, Muslim, and Buddhist preachers travelled to various parts of Asia and spread their message. As trade and culture moved from one place to another, so did food.

Food Travels: Spaghetti and Potato

Food is another good example of cultural exchange. New crops were introduced to various places by traders and travellers. The origins of various food items from around the world can sometimes be traced back to a common ancestor. As an example, consider spaghetti and noodles. The noodles, according to popular belief, travelled from China to the west and became spaghetti. Some even claim that the Arabs brought pasta to Sicily (an Italian island).

Not only specific foods, but also common foods such as potatoes, soya, groundnuts, maize, tomatoes, chilies, and sweet potatoes were introduced in Europe and Asia after Christopher Columbus' discovery. These foods were only introduced to Europe and Asia after Christopher Columbus accidentally discovered the vast continent that would later be known as the Americas. As a result, we can say that the majority of our common foods originated with America's original inhabitants, the American Indians.

Because potatoes are inexpensive, they have become a staple food for Europe's poor. Ireland's poorest peasants became so reliant on them that when the crop failed in the mid-1840s, the majority of them died. Diseases were also spread as a result of the crisscrossing of various cultures and people. As a result, we can say that the premodern world witnessed the transfer of various elements of human society, which also resulted in conquests and the flourishing of trades.

Conquest, Disease and Trades

During the sixteenth century, European sailors discovered a sea route to Asia and later crossed the western ocean to reach America. Prior to this, the Indian Ocean was a well-known trading centre for many centuries. The Indian subcontinent was a hub for the exchange of goods, people, knowledge, customs, and so on. Later, the arrival of Europeans resulted in a flow of all of these things towards Europe. For millions of years, America was unknown to the rest of the world. Its discovery in the sixteenth century triggered the start of trade in its minerals and crops.

Valuable metals, particularly silver from mines in modern-day Peru and Mexico, increased Europe's wealth, allowing it to finance its trade with Asia. Rumors and imaginations spread as these expeditions gained popularity in order to explore more trade and wealth centres. As a result, many expeditions set out in the seventeenth century in search of El Dorado, the fabled city of gold.

Soon after, various powers, such as the Portuguese and the Spanish, began colonising America in order to expand their trade and wealth. However, conquering was not always accomplished through the use of arms and ammunition, but also through the spread of disease. Yes, in the context of Spanish conquerors who brought smallpox germs with them to America. The indigenous peoples were not immune to deadly diseases. This resulted in the deaths of a large number of Native Americans and the establishment of Spanish control over the area.

Poverty and hunger were common problems in Europe until the nineteenth century. Not only that, but cities became overcrowded, and deadly diseases spread. Religious conflicts arose, and people were persecuted. Several people emigrated from Europe to America. During the eighteenth century, African slaves were captured and sold into European markets to work on sugar and cotton plantations.

When it comes to China and India in the eighteenth century, both were the richest countries in the world. They were the leading countries in Asian trade, but it is also said that during the fifteenth century, China restricted its overseas trade, causing its importance in the trade world to decline. America gradually gained a significant position in the trade market, causing the centre of global trade to shift westward. Europe quickly rose to become the global trade hub. So, now that we've learned about the pre-modern era when trades began across continents, let's look at what new changes occurred in the nineteenth century.

2. The Nineteenth Century (1815-1914)


  • 16th century: European sailors found a sea route to Asia & crossed the western ocean to America.
  • The Indian Ocean: route for bustling trade, with goods, people, knowledge, customs, etc.
    • The Indian subcontinent: central to these flows and a crucial point in their networks.
    • The entry of the Europeans: expanded some of these flows towards Europe.
  • America: previously isolated from regular contact with the rest of the world for millions of years.
    • from 16th century: its vast lands and crops and minerals began to transform trade and lives.
  • Precious metals, particularly silver, from mines located in present-day Peru and Mexico also enhanced Europe’s wealth and financed its trade with Asia.
  • Legends spread in 17th-century Europe about South America’s fabled wealth.
    • Expeditions set off in search of El Dorado, the fabled city of gold.
  • mid-16th century: The Portuguese and Spanish conquest and colonisation of America was under way.
  • European conquest of Spain:
  • advantage of superior firepower.
  • most powerful weapon of the conquerors: germs like smallpox that they carried on their person.
  • Because of their long isolation, America’s original inhabitants had no immunity against these diseases that came from Europe.
  • Smallpox: a deadly killer.
  • Once introduced, it spread deep into the continent, ahead even of any Europeans reaching there.
  • It killed and decimated whole communities, paving the way for conquest.
  • Diseases could not be turned against the conquerors, since they were mostly immune.
  • Until the 19th century: poverty and hunger common in Europe.
    • Cities were crowded and deadly diseases were widespread.
    • Religious conflicts common, religious dissenters persecuted.
  • Thousands therefore fled Europe for America.
  • By 18th century: plantations, worked by African slaves, were growing cotton & sugar for European markets.
  • 18th century: China and India were among the world’s richest countries.
    • also pre-eminent in Asian trade.
  • From the 15th century, China is said to have restricted overseas contacts and retreated into isolation.
  • China’s reduced role and rising importance of the Americas moved the centre of world trade westwards.
    • Europe emerged as the centre of world trade.
Slaves for sale, New Orleans,
Illustrated London News, 1851.

A prospective buyer carefully inspecting slaves lined up before the auction. You can see two children along with four women and seven men in top hats and suit waiting to be sold. To attract buyers, slaves were often dressed in their best clothes.

  • 19th century: Economic, political, social, cultural and technological factors interacted in complex ways to transform societies and reshape external relations.
  • Economists identify three types of movement or ‘flows’ within international economic exchanges:
    1. The flow of trade, which in the 19th century referred largely to trade in goods (eg, cloth or wheat).
    2. The flow of labour: the migration of people in search of employment.
    3. The movement of capital for short-term or long-term investments over long distances.
  • All three flows were closely interwoven and affected peoples’ lives deeply than ever before.
  • The interconnections could sometimes be broken.
    • for example, labour migration was often more restricted than goods or capital flows.


food and Economy

  • There were changes in pattern of food production and consumption in industrial Europe.
  • Previously, countries liked to be self-sufficient in food.
  • 19th-century Britain: self-sufficiency in food meant lower living standards and social conflict.
    • Population growth from the late 18th century: increased demand for food grains.
  • Urban centres expanded & industry grew: demand for agricultural goods rose, pushing up food grain prices.
  • Corn Laws : Under pressure from landed groups, the government restricted the import of corn.
    • Unhappy with high food prices, industrialists & urban dwellers forced abolition of the Corn Laws.
  • Corn Laws scrapped: food import into Britain cheaper than producing it within the country.
  • British agriculture was unable to compete with imports.
    • Vast areas of land were left uncultivated,
    • thousands of men and women were thrown out of work.
    • They flocked to the cities or migrated overseas.
  • As food prices fell, consumption in Britain rose.
  • From mid-19th century, faster industrial growth in Britain led to higher incomes, and so, more food imports.
    • Eastern Europe, Russia, America and Australia: lands cleared and food production expanded to meet the British demand.
  • Railways were needed to link the agricultural regions to the ports.
    • New harbours had to be built and old ones expanded to ship the new cargoes.
  • People had to settle on the lands to bring them under cultivation.
    • homes and settlements had to be built.
  • All these activities in turn required capital and labour.
    • Capital flowed from financial centres such as London.
  • More labour demand in places where labour was in short supply:
    • America and Australia led to more migration.
    • Nearly 50 million people emigrated from Europe to America and Australia.
  • All over the world: some 150 million estimated migrations in search of a better future.

  • 1890: a global agricultural economy had taken shape.
    • Accompanied by complex changes in:
      • labour movement patterns,
      • capital flows,
      • ecologies,
      • technology.
  • Food was transported by specially built railway and ships which were manned by low-paid workers from southern Europe, Asia, Africa and the Caribbean.
  • West Punjab: British Indian government built a network of irrigation canals to transform semi-desert wastes into fertile agricultural lands that could grow wheat and cotton for export.
  • The Canal Colonies: areas irrigated by the new canals.
    • Established using peasants from other parts of Punjab.
  • The infrastructure applicable for cotton, rubber, etc too. Items of British requirement.
  • 1820-1914: rapid regional specialisation in the production of commodities developed.
    • world trade is estimated to have multiplied 25 to 40 times.
  • Nearly 60% of this trade comprised ‘primary products’ – that is, agricultural products such as wheat and cotton, and minerals such as coal.

Role of Technology

  • Technological advances: often the result of larger social, political and economic factors.
  • Colonisation: stimulated new investments and improvements in transport-
    • faster railways,
    • lighter wagons,
    • larger ships
      • helped move food more cheaply and quickly from faraway farms to final markets.

The trade in meat

  • Till 1870s: animals shipped live from America to Europe, slaughtered when they arrived there.
    • Live animals took up a lot of ship space.
    • Many also died in voyage, fell ill, lost weight, or became unfit to eat.
  • Meat: an expensive luxury beyond the reach of the European poor.
    • High prices kept demand and production down.
  • Development of a new technology: refrigerated ships.
    • enabled the transport of perishable foods over long distances.
  • Animals slaughtered at the starting point (America, Australia, New Zealand), then transported to Europe as frozen meat.
  • This reduced shipping costs and lowered meat prices.
  • Many could now add meat (and butter and eggs) to their diet, other than the potatoes and bread.
  • Better living conditions promoted social peace within the country and support for imperialism abroad.
The Smithfield Club Cattle Show, Illustrated London News, 1851

Cattle were traded at fairs, brought by farmers for sale. One of the oldest livestock markets in London was at Smithfield. In the mid-19th century a huge poultry and meat market was established near the railway line connecting Smithfield to all the meat-supplying centres of the country.

Late nineteenth-century Colonialism

  • Trade flourished and markets expanded in the late 19th century.
  •  Darker side to this process:
    • In parts of the world, closer relationship with world economy meant loss of freedom & livelihoods.
    • Late 19th-century European conquests produced many painful economic, social and ecological changes through which the colonised societies were brought into the world economy.

  • Map of Africa: some countries’ borders run straight, as if drawn using a ruler.
    • This was almost how rival European powers in Africa drew up the borders demarcating their respective territories.
    • In 1885, the big European powers met in Berlin to complete the carving up of Africa between them.
  • Britain and France made vast additions to their overseas territories.
    • Belgium and Germany became new colonial powers.
    • The US became a colonial power in late 1890s by taking over some colonies earlier held by Spain.


Rinderpest- a fast-spreading disease of cattle plague

Rinderpest, or the Cattle Plague

  • 1890s, Africa: rinderpest has a terrifying impact on people’s livelihoods and the local economy.
  • A case of widespread European imperial impact on colonised societies.
    • Even a cattle disease reshaped lives of thousands of people & their relations with rest of the world.
  • Historically, Africa: abundant land and a relatively small population.
    • For centuries, land and livestock sustained African livelihoods.
    • People rarely worked for a wage.
  • Late 19th-century Africa: few consumer goods that wages could buy.
  • Europeans were attracted to Africa due to its vast resources of land and minerals.
  • They came to Africa to establish plantations & mines to produce crops & minerals for export to Europe.
    • Unexpected problem: a shortage of labour willing to work for wages.
  • Employers used many methods to recruit and retain labour:
    • Heavy taxes imposed: could be paid only by working for wages on plantations and mines.
    • Inheritance laws changed: only one member of a family allowed to inherit land.
      • The result: peasants displaced from land, they were pushed into the labour market.
  • Mineworkers: confined in compounds and not allowed to move about freely.
  • Late 1880s, Africa: Rinderpest arrived.
  • It was carried by infected cattle imported from British Asia to feed Italian soldiers invading Eritrea, East Africa.
    • Entered Africa in the east.
    • It moved west ‘like forest fire’, reaching Africa’s Atlantic coast in 1892.
    • It reached the Cape (Africa’s southernmost tip) five years later.
    • Rinderpest killed 90% of the cattle.
  • The loss of cattle destroyed African livelihoods.
  • Planters, mine owners and colonial governments monopolised what scarce cattle resources remained, to strengthen their power and to force Africans into the labour market.
  • Control over the scarce resource of cattle enabled European colonisers to conquer and subdue Africa.

Similar stories can be told about the impact of Western conquest on other parts of the 19th-century world.

Transport to the Transvaal gold mines,
The Graphic, 1887.

Crossing the Wilge river was the quickest method of transport to the gold fields of Transvaal. After the discovery of gold in Witwatersrand, Europeans rushed to the region despite their fear of disease and death, and the difficulties of the journey. By the 1890s, South Africa contributed over 20% of the world gold production.

Indentured Labour Migration from India

  • Indentured labour migration from India: illustration of the two-sided nature of the 19th-century.
  • Hundreds of thousands of Indian and Chinese labourers went to work on plantations, in mines, and in road and railway construction projects around the world.
  • Most Indian indentured workers came from the present-day regions of eastern Uttar Pradesh, Bihar, central India and the dry districts of Tamil Nadu.
  • Mid-19th century: these regions experienced many changes:
    • cottage industries declined,
    • land rents rose,
    • lands were cleared for mines and plantations.
A contract form of an indentured labourer
  • All this affected the lives of the poor: they failed to pay their rents, became deeply indebted and were forced to migrate in search of work.
  • The main destinations of Indian indentured migrants:
    • the Caribbean islands (mainly Trinidad, Guyana and Surinam),
    • Mauritius,
    • Fiji,
    • Closer home, Tamil migrants went to Ceylon and Malaya.
  • Indentured workers also recruited for tea plantations in Assam.
  • Recruitment: done by agents engaged by employers and paid a small commission.
  • Agreement of migrants: working in hope of escaping poverty or oppression in their home villages.
  • Agents also tempted the prospective migrants by providing false information about:
    • final destinations,
    • modes of travel,
    • the nature of the work,
    • living and working conditions.
Indentured laboureres photographed for identification.
For the employers, the numbers and not the names mattered.
  • Often migrants were not even told that they would go on a long sea travel.
    • Sometimes agents even forcibly abducted less willing migrants.
  • Indenture has been described as a ‘new system of slavery’.
  • On arrival at the plantations, living and working conditions were harsh, with few legal rights.
  • Workers discovered their own ways of surviving:
    • Many of them escaped into the wilds, though if caught they faced severe punishment.
    • Others developed new forms of self-expression, blending different cultural forms.
  • These forms of cultural fusion are part of the making of the global world, where things from different places get mixed, lose their original characteristics and become something entirely new.
  • End of the contract:
    • Most indentured workers stayed on,
    • Some returned to their new homes after a while in India.
  • Consequently, there are large communities of people of Indian descent in these countries.

  • 1900s: India’s nationalist leaders opposed the system of indentured labour migration as abusive and cruel.
    • It was abolished in 1921.
  • For a number of decades afterwards, descendants of Indian indentured workers, often thought of as ‘coolies’, remained an uneasy minority in the Caribbean islands.
    • Some of Naipaul’s early novels capture their sense of loss and alienation.

Indian Entrepreneurs Abroad

  • Growing food and other crops for the world market required capital.
    • Large plantations could borrow it from banks and markets.
  • Capital for small peasants: Indian banker.
  • Shikaripuri Shroffs and Nattukottai Chettiars were amongst the many groups of bankers and traders who financed export agriculture in Central and Southeast Asia.
    • They used either their own funds or those borrowed from European banks.
  • They had a sophisticated system to transfer money over large distances.
    • They developed indigenous forms of corporate organisation.
  • Indian traders and moneylenders followed European colonisers into Africa.
  • Hyderabadi Sindhi traders ventured beyond European colonies.
    • From the 1860s they established flourishing emporia at busy ports worldwide.
    • They sold local and imported curios to tourists whose numbers were beginning to swell.

Indian Trade, Colonialism and the Global System

  • Fine cottons produced in India were exported to Europe.
  • Industrialisation: British cotton manufacture began to expand.
    • Industrialists pressurised government to restrict cotton imports and protect local industries.
  • Tariffs were imposed on cloth imports into Britain.
    • The inflow of fine Indian cotton began to decline.
  • Early 19th century: British manufacturers also began to seek overseas markets for their cloth.

  • Indian textiles faced stiff competition in other international markets.
  • Exports from India: steady decline of the share of cotton textiles- from 30% around 1800 to 15% by 1815.
    • 1870s: it had dropped to below 3%.
  • While exports of manufactures declined rapidly, export of raw materials increased equally fast.
  • 1812 and 1871: share of raw cotton exports rose from 5% to 35%.
    • Indigo used for dyeing cloth: another important export for many decades.
  • 1820s: Opium shipments to China grew rapidly to become (for a while) India’s single largest export.
A distant view of Surat and its river.
Through the 17th & early 18th century, Surat remained centre of overseas trade in western Indian Ocean.
  • Britain grew opium in India and exported it to China and.
    • With the money earned from this sale, it financed its tea and other imports from China.
  • Over the 19th century, British manufactures flooded the Indian market.
    • Food grain & raw material exports from India to Britain and the rest of the world increased.
    • The value of British exports to India was much higher than the value of British imports from India.
  • Britain had a ‘trade surplus’ with India.
    • They used it to balance its trade deficits with other countries, i.e., with countries from which Britain was importing more than it was selling to.
  • Multilateral settlement system: a country’s deficit with another settled by its surplus with a third country.
  • By helping Britain balance its deficits, India played a crucial role in the late-19th-century world economy.
  • Britain’s trade surplus in India also helped pay the so-called ‘home charges’ that included:
    • private remittances home by British officials and traders,
    • interest payments on India’s external debt,
    • pensions of British officials in India.
17th century: Trade routes linking India to the world.


2. The Nineteenth Century (1815-1914)

2. The Nineteenth Century (1815-1914)

Various economic, political, social, and cultural factors influenced the evolution of societies and their external relations during the nineteenth century. Three types of flow between international economies were observed in the nineteenth century. They were as follows:

  • Goods trading
  • Labor migration, or the movement of people looking for work.
  • Capital migration, or the movement of capital for short and long-term investments over long distances.

These three flows were interconnected in a way that had a greater impact on people's lives than before. These interconnections were occasionally disrupted; for example, labour migration was generally limited in comparison to capital flows. These flows helped to shape the global economy. But how did this happen? Let's talk about it.

A World Economy Takes Shape

First and foremost, let's talk about food. Food grain demand increased in Britain during the eighteenth century. Because of Britain's large population, this was the case. As cities grew and the industrial sector expanded, the demand for food grains increased, as did the price of food grains. Due to pressure from various landed groups, the British government imposed import restrictions on goods. These laws became known as the Corn Laws. This resulted in an increase in food prices. Because of this, industrialists and city people forced the government to repeal the Corn Laws.

As a result, the Corn Laws were repealed by the British government. This resulted in the importation of cheap corn into the country, creating stiff competition for corn growers. Soon after, it was discovered that the lands had been left uncultivated because growing corn in Britain was no longer a profitable business. Laborers were laid off. As a result, these people were forced to relocate to cities or to different countries in search of work.

Later, food prices fell, and consumption increased in the United Kingdom. Rapid industrial growth increased Britain's income beginning in the mid-nineteenth century. As a result, Britain can now import more food.

Food was being grown all over the world, including in Eastern Europe, Russia, America, and Australia, with the goal of exporting it to the United Kingdom.

Not only were the lands cleared, but railway lines and new harbours were built to connect the agricultural regions. People soon had to settle on lands in order to cultivate them. As a result, the need for building houses and settlements arose. This necessitated a significant amount of funding and labour. This resulted in a flow of capital from London and an increase in labour supply in America and Austraila.

In the nineteenth century, such a situation resulted in the migration of approximately 50 million people from Europe to America and Australia. It is estimated that approximately 150 million people around the world have left their homes in search of a better future. As a result, by 1890, a global agricultural economy had emerged. It was accompanied by various patterns of labour movement, capital flows, ecologies, and technology. As a result, food no longer came from a nearby village or town, but from a great distance away. Agricultural workers began to work on the land, and all agricultural regions were linked by railways, ports, and so on. Ships transporting food grains were generally manned by low-wage workers from southern Europe, Asia, Africa, and the Caribbean.

All of these changes were also observed, but only on a smaller scale, in the west Punjab. The canal system was built by the British government to convert a semi-desert area into fertile land. It was done in order to grow cotton and wheat for export. Cotton and rubber were also grown for use by Britain, in addition to food. The production of these items grew rapidly. Between 1820 and 1914, global trade was estimated to have multiplied by a factor of 25 to 40. Around 60% of trade was made up of primary products, such as wheat and cotton, as well as minerals such as coal. We now understand the role of agricultural products in shaping the global economy. Let us discuss the role of technology in shaping the world economy that we see today.

Role of Technology

Technology is critical to the global economy's expansion. The invention of railways, steamships, and the telegraph played a significant role in transforming the world in the nineteenth century. Technology progressed as a result of various social, political, and economic factors. For example, the colonisation of various European powers increased the demand for improved transportation, such as faster railways, larger ships, and so on, as this would allow for the quick and inexpensive movement of agricultural products to distant places.

One of the best examples of this interconnected process is the meat trade. Previously, the animals were shipped from America to Europe alive. For the most part, this was not a profitable venture for the following reasons:

  • Previously, livestock took up more space.
  • The majority of them died, became ill, or were infected with diseases, rendering them unfit for consumption.
  • As a result, the price of meat has risen.

Meat consumption by the poor was nearly impossible during those times. With the introduction of ships equipped with refrigerators, this problem was quickly solved. It had the following advantages.

  • Because the meat could be shipped in large quantities, transportation costs could be reduced.
  • It was now possible to handle the perishable meat for a longer period of time.
  • The price of meat fell, allowing the poor to consume meat as part of their daily diet.

So, we can say that the nineteenth century saw the exchange of goods, capital, and labour, and that all of these exchanges were facilitated by technological advancements. However, as the world shrank as a result of improved transportation, imperialism grew during this period. Various European powers were establishing colonies in various countries to serve their businesses in their home countries. Let's see how this goes.

Late nineteenth–century Colonialism

Trade flourished and markets expanded during the nineteenth century. This period, however, is remembered not only for the expansion of trade and economic prosperity, but also for the darker side of this process. In many parts of the world, the growth and expansion of trade has resulted in some negative consequences, such as the loss of freedoms and livelihoods. This was due to the fact that during this century, Europeans gained control of various territories around the world and established colonies.

After gaining control of Africa, the European powers delineated their respective territories in 1885. They met in Berlin to complete the process of dividing Africa between them.In the late nineteenth century, Britain and France were the ones who had established control over vast overseas territories. As the new colonial powers, Belgium and Germany rose to prominence. Later, in 1890, the United States became a colonial power by gaining control of the territories held by Spain. The European powers' colonisation had a negative impact on the lives of the people who lived in these colonies. So, how did their lives change? Let's look into this.

Rinderpest or the Cattle Plague

As previously stated, colonial rule had an impact on the lives of the various people who lived in these colonies. But the question is, how does this happen, and what is this Rinderpest we're talking about? Rinderpest was a cattle disease that spread in Africa in the 1890s, having a significant impact on the lives and livelihoods of Africans. To understand this, we must first understand Africa prior to colonisation. Historically, Africa had vast swaths of land and a small population. For centuries, the African people were reliant on agriculture and livestock. None of them had ever worked for wages because their needs were met by the land and livestock. As a result, when Europeans arrived in Africa, they were unable to find labourers because no one was willing to work for wages.

So, in order to attract labourers, they began using coercive methods such as raising taxes that could only be paid if Africans worked for wages. Later, land ownership rights were restricted to only one member, forcing other members into the labour market. Mineworkers were not allowed to move freely and were kept confined in the compounds. While all of this was going on, the cattle plague, also known as the Rinderpest, arrived in Africa in the 1880s. It arrived with the infected cattle imported from British Asia to feed the Italian troops invading Eritrea in East Africa. In 1892, the Rinderpest disease quickly spread from east to west and then to the Atlantic coast. Five years later, it arrived at the Cape. Rinderpest is thought to have killed 90 percent of the cattle.

Because the loss of cattle destroyed Africans' livelihoods, there was an increase in the supply of wage labourers for planters, mine owners, and colonial governments, who could now monopolise the scarce cattle resource to strengthen their power. Similar incidents occurred in other parts of the world conquered by Western countries.

Indentured Labor Migration from India

The storey of indentured or bonded labour is also a good example of the two-sided nature of the nineteenth-century world. On the one hand, it depicts rapidly growing economies, while on the other, it depicts widespread misery. Some became wealthier, while others became poorer; there was technological advancement in some areas and new forms of coercion in others. During the nineteenth century, a large number of Indian and Chinese labourers travelled around the world to work on plantations, mines, rail and road construction projects, and so on. The Indian indentured labourers were hired under contracts that required them to return to India after five years on the employers' plantation.

The majority of these workers came from areas such as east Uttar Pradesh, Central India, Bihar, and Tamil Nadu's dry districts. People in these areas were forced to work as indentured slaves for a variety of reasons, including:

  • Cottage industries are on the decline.
  • Land rents are increasing.
  • The majority of the land was cleared for mines and plantations.

All of the aforementioned factors had such a negative impact on people's lives that they became deeply indebted and were forced to leave their homes in search of work. The Caribbean islands of Trinidad, Guyana, and Surinam, as well as Mauritius and Fiji, were popular destinations for Indian indentured migrants. Tamil migrants typically chose nearby destinations such as Ceylon and Malaya. They were also occasionally recruited for tea plantations in Assam.

Generally, the recruitment was handled by a variety of agents who were paid a commission for their efforts. These agents attempted to entice the workers by showing them fictitious dreams of good working conditions and high pay. As a result, the workers saw these jobs as a way out of poverty and misery. However, they were generally unaware of the harsh working conditions and low wages in these workplaces. In some cases, these agents abducted workers and forced them to work.

Because life in these places was harsh and difficult, the workers developed their own methods of survival. Some of them managed to flee these places. Those who were caught received harsh punishment. Others chose to become a part of the new culture that had emerged in these places. For example, in Trinidad, the annual Muharram procession began to attract people of all races and religions. Similarly, Rastafarianism, a protest religion, is said to reflect cultural ties with Indian migrants to the Caribbean. Not only that, but Trinidad and Guyana's popular chutney music is another creative contemporary expression of the post-indenture experience.

Because of this mingling of cultures, indentured workers stayed in these new places even after their contracts expired. Some of the other workers did return to India, but only for a short time before departing for their new homes. That is why we continue to find people of Indian origin living in these areas. Despite the fact that they had begun to associate with the new culture, they were still aware that their lives were fraught with difficulties. As a result, in order to protect the rights of such workers, Indian nationalist leaders began to criticise the indentured labour migration system as abusive and cruel.

So far, we know that colonisation resulted in the introduction of the concept of indentured labour, which forced workers to relocate to distant places in search of work. People moved not only because of indentured contracts, but also because they wanted to invest in the flourishing trade markets in order to make a fortune. So, who exactly were they? They were known as the Indian Entrepreneurs.

Indian Entrepreneurs Abroad

As previously stated, various countries were growing food and crops for export, but this required capital. Banks and markets could lend to large plantations, but what about the poor peasants?

These peasants previously borrowed money from Indian bankers. Shikaripuri Shroffs and Nattukottai Chettiars were important bankers or money lenders who provided funds for Central and Southeast Asian export agriculture. They provided funds that were either their own or borrowed from European banks. They developed indigenous forms of corporate organisation and had a sophisticated system for transferring money over long distances. Indian traders accompanied European colonisers into Africa. Hyderabadi Sindhi traders outpaced European colonies. With the development of safe and comfortable passenger vessels, Indian traders were able to set up shop in busy ports around the world, selling local and imported goods to tourists and others.

So we now know about colonialism, the flourishing of world trade under it, the hardships endured by the people, and how Indian traders and moneylenders began to benefit from it. Following that, we will discuss the Indian trade in relation to colonialism and global trade.

Indian Trade, Colonialism and the Global System

Historically, fine Indian cotton was in high demand in Europe, but as technology and industries advanced, British cotton production began to expand. Because British industrialists were facing stiff competition from Indian cotton, the government was forced to impose restrictions on cotton imports into the country. This resulted in a decrease in Indian cotton exports.

Beginning in the early nineteenth century, British traders began exporting their goods to various countries. As there were no taxes for British producers, this made it difficult for Indian textiles or cotton producers to compete. This resulted in a decrease in the Indian textile's trade share. For example, in 1800, Indian cotton had a 30 percent share of the trade market, but by 1815, it had dropped to 15 percent. By the 1870s, this proportion had fallen below 3%.

When India's export of finished goods was declining, it also saw an increase in raw material exports. As a result, the share of raw cotton exports increased from 5% to 35% between 1812 and 1871. Another such product that was exported for many decades was indigo, which was used to dye cloth. In 1820, opium exports to China increased dramatically. In order to earn money, Britain grows opium in India and exports it to China. This money was then used to buy tea and other Chinese goods.

The British were importing products from India at a low cost and exporting finished products at a high cost in the nineteenth century, which was a new observation. Thus, Britain had a trade surplus, which means that its income exceeded its expenses. As a result, Britain began to use this surplus to offset its trade deficit with other countries. Britain's trade surplus also aided in the repayment of other expenses such as remittances, debts, and pensions. So, we now understand how global trade evolved and took on a new form. It took on a new shape as a result of its association with forced labour and colonialization. However, this quickly led to a war between various economies, as everyone now wants to earn more and have a larger share of global trade. Such conflicts led to World War I. So, how does it affect the entire world? Let's check this.

3. The Inter war Economy

The Inter-war Economy: Production and Consumption

Wartime Transformations

  • World War I (1914-18): mainly fought in Europe. Impact felt around the world.
  • World experienced widespread economic and political instability.
  • World War I: fought between two power blocs:
    • Allies– Britain, France and Russia (later joined by the US);
    • Central Powers– Germany, Austria-Hungary and Ottoman Turkey.
  • War starts: August 1914.
    • Many governments thought it would be over by Christmas.
    • It lasted more than four years.
  • The fighting harnessed the powers of modern industry to inflict greatest destruction on their enemies.
    • This was thus the first modern industrial war.

Workers in a munition factory during the First World War.
Production of armaments increased rapidly to meet war demands.

  • Workers in a munition factory during the First World War.
    Production of armaments increased rapidly to meet war demands.

    It saw the use of:
    • machine guns,
    • tanks,
    • aircraft,
    • chemical weapons, etc. on a massive scale.
  • Millions of soldiers recruited from around the world and moved to the frontlines on large ships and trains.
  • Death: 9 million. Destruction: 20 million injured.
    • These numbers unthinkable without use of industrial arms.
  • Most of the killed and maimed were men of working age.
    • These reduced the able-bodied workforce in Europe.
  • With fewer numbers within the family, household incomes declined after the war.
  • During the war, industries were restructured to produce war-related goods.
    • Societies reorganised for war: men went to battle, women undertook jobs that previously men did.
  • The war led to the snapping of economic links between some of the world’s largest economic powers.
  • Britain borrowed large sums of money from US banks as well as the US public.
    • The war transformed the US from being an international debtor to an international creditor.
  • At the war’s end, the US and its citizens owned more overseas assets than foreign governments and citizens owned in the US.

Post-war Recovery


  • Post-war economic recovery: difficult.
  • Britain in the pre-war period: the world’s leading economy.
  • While Britain was preoccupied with war: industries developed in India and Japan.
  • Britain after the war, found it difficult to:
    • recapture its dominance in the Indian market,
    •  compete with Japan internationally.
  • To finance war expenditures Britain had borrowed from the US.
    • End of the war: Britain burdened with huge external debts.
  • The war had led to an economic boom: a large increase in demand, production and employment.
    • War boom ended: production contracted and unemployment increased.
  • Government reduced war expenditures.
    • Led to huge job losses: In 1921, 1 in every 5 British workers was out of work.

Agricultural economies: Wheat producers

  • Before the war, eastern Europe: major supplier of wheat in the world market.
  • Supply disrupted during the war: wheat production in Canada, America and Australia expanded.
  • War over: production in eastern Europe revived and led to spike in wheat output.
    • Grain prices fell,
    • rural incomes declined,
    • farmers fell deeper into debt.

Rise of Mass Production and Consumption

  • After a brief economic trouble post-war, the US economy resumed its strong growth in the early 1920s.
  • 1920s, Important feature of the US economy: mass production.
  • The move towards mass production: late 19th century.
    • 1920s: it became a characteristic feature of industrial production.

Car manufacturer Henry Ford: well-known pioneer of mass production

  • Result: Ford’s cars came off the assembly line at 3-minute intervals, a much faster speed.
    • The T-Model Ford was the world’s first mass-produced car.
  • Workers at Ford factory: unable to cope with stress of working on assembly lines where they couldn’t control the work pace.
    • They quit in large numbers.
    • Ford doubled the daily wage to $5 in January 1914.
    • He banned trade unions from operating in his plants.
  • Recovery of the high wage:
    • Repeatedly sped up the production line;
    • Forced workers to work ever harder.
  • He soon described his decision to double the wage as the ‘best cost-cutting decision’ he had ever made.
  • Fordist industrial practices soon spread in the US.
    • They were widely copied in Europe in the 1920s.
    • Mass production lowered costs & prices of engineered goods.
  • Higher wages: more workers could afford to purchase durable consumer goods such as cars.
  • Car production in the US: rose from 2 million in 1919 to more than 5 million in 1929.

There was a spurt in purchase of refrigerators, washing machines, radios, gramophones, through a system of ‘hire purchase’.

T-Model automobiles lined up outside the factory.

  • Most parts of the world experienced huge declines in production, employment, incomes and trade.
  • The exact timing and impact of the depression varied across countries.
    1. Agricultural regions and communities were the worst affected.
      1. fall in agricultural prices greater & more prolonged than the prices of industrial goods.
  • The cause of depression: a combination of several factors;
  • Agricultural overproduction
    1. Made worse by falling agricultural prices: prices slumped, agricultural incomes declined.
    2. Farmers tried to expand production & bring a larger volume to the market to maintain the overall income.
    3. This worsened the excess supply in the market, pushing down prices even further.
    4. Farm produce rotted for a lack of buyers.
Migrant agricultural worker’s family, homeless and hungry, during the Great Depression, 1936.
  • Mid-1920s: many countries financed their investments through loans from the US. ​​​​​​​
    1. often extremely easy to raise loans in the US when all was good,
    2. US overseas lenders panicked at the first sign of trouble.
    3. First half of 1928: US overseas loans valued over $1 billion.
      1. A year later it was one quarter of that amount. Countries that depended crucially on US loans now faced an acute crisis.
      2. Withdrawal of US loans affected much of the rest of the world, in different ways.
      3. Europe: led to the failure of some major banks & the collapse of currencies like British pound sterling.
      4. Latin America and elsewhere: intensified the slump in agricultural & raw material prices.

    1. The US attempt to protect its economy in the depression by doubling import duties dealt another severe blow to world trade.
    2. The US: the industrial country most severely affected by the depression.
      1. Fall in prices and the prospect of a depression: US banks also slashed domestic lending & called back loans.
      2. Farms could not sell their harvests, households were ruined, and businesses collapsed.
      3. Faced with falling incomes, many households in the US could not repay what they had borrowed, and were forced to give up their homes, cars and other consumer durables.
      4. The consumerist prosperity of the 1920s disappeared.
      5. Unemployment rose: people went long distances looking for any work they could find.
    3. The US banking system itself collapsed.
      1. Unable to recover investments, collect loans and repay depositors, thousands of banks went bankrupt and were forced to close.
      2. By 1933: over 4,000 banks closed.
      3. 1929-1932: about 110,000 companies had collapsed.
      4. By 1935: a modest economic recovery underway in most industrial countries.
  • The Great Depression’s wider effects on society, politics and international relations, and on peoples’ minds, proved more enduring.

India and the Great Depression

  • In the 19th century: colonial India became an exporter of agricultural goods and importer of manufactures.
  • The depression immediately affected Indian trade.
    • India’s exports and imports nearly halved during 1928-1934.
    • International prices crashed: prices in India fell.
      • 1928-1934: wheat prices in India fell by 50%.
  • Peasants and farmers suffered more than urban dwellers.
    • Agricultural prices fell sharply, but the colonial government refused to reduce revenue demands.
    • Peasants producing for the world market were the worst hit.

The Jute producers of Bengal

  • They grew raw jute, processed in factories for export in the form of gunny bags.
    • Gunny exports collapsed, the price of raw jute crashed more than 60%.
    • Peasants who borrowed hoping of higher incomes faced ever lower prices, & fell deeper into debt.
  • Across India, peasants’ indebtedness increased.
    • They used their savings, mortgaged lands & sold any jewellery they had to their meet expenses.
  • Depression years: India became an exporter of precious metals, notably gold.
  • The famous economist, John Maynard Keynes, felt Indian gold exports promoted global economic recovery.
    • They helped speed up Britain’s recovery, but did little for the Indian peasant.
    • Rural India was adjusting with unrest when Mahatma Gandhi launched the civil disobedience movement at the height of the depression in 1931.
  • The depression proved less grim for urban India.
    • Because of falling prices, those with fixed incomes found themselves better off.
    • Everything cost less.
    • Industrial investment grew as the government extended tariff protection to industries, under the pressure of nationalist opinion.

3. The Inter war Economy

3. The Inter war Economy

Europe was at the centre of the First World War (1914-18). However, it had a global impact. Global economic and political instability resulted from the war. To understand this, we must first understand the facts of the war, and then we will discuss its consequences.

Wartime Transformations

The First World War was fought between two powers, the Allies and the Central Powers. Britain, France, and Russia were allies. They were later joined by the United States. The central powers, Germany, Austria-Hungary, and Ottoman Turkey, were on the other side. The war, which was supposed to last only a few months, lasted up to four years. This war was extremely destructive due to the widespread use of machine guns, tanks, aircraft, chemical weapons, and other weapons. All of this was the result of modern large-scale industry. Millions of soldiers were recruited from all over the world and transported to the actual place to fight the war. Around 9 million people were killed and 20 million were injured as a result of the war. Such a large number of casualties had never been seen in any previous war.

Those killed or injured were mostly men of working age. These deaths reduced Europe's workforce. Household incomes fell after the war because there were only a few members left in the families. The war caused a reorganisation of industries into those that produce war-related products, as well as a reorganisation of societies. Men went to battle, and women stepped out to work. Because the war had increased expenditure, the United Kingdom borrowed money from both US banks and the general public in the United States. This resulted in a shift in the US's position from debtor to creditor, as well as increased prosperity for US citizens.

The war had caused an economic crisis in many countries, resulting in massive losses of both men and money. So, the question is, how did these economies recover from it?

Post war Recovery

It was not an easy task to recover the economy after World War. Britain, which had been a prosperous economy prior to the war, was now in a state of crisis. This was due to the fact that Britain was involved in a war at the time. Japan's and India's industries grew. As a result, after the war, Britain struggled to reclaim control of the Indian market and was unable to compete with Japan in the international market. Furthermore, Britain had taken out massive loans from the United States at high interest rates, resulting in massive external debts on the economy.

During the war, the economy boomed due to an increase in demand, production, and employment. However, as the war ended, so did the boom period. As a result, there was a large unemployed population. To cover up its losses, the government reduced its public spending after the war. The situation was even worse after the war, as evidenced by the fact that one out of every five British workers was unemployed in 1921. 

Not only that, but various agricultural economies have also entered a state of crisis. When it comes to wheat production, Eastern Europe was the world's leading supplier. However, the supply was disrupted during the war. Countries such as Canada, America, and Australia increased their wheat production during this time period. As a result, when the war ended, there was a massive supply of wheat from all over the world, causing the price of wheat to fall dramatically and farmers to go into debt.

As some of the countries bore the brunt of the war and struggled to recover from the economic crisis. Some countries recovered quickly as a result of it. We're talking about the United States here. So, what was the reason that caused the United States to emerge from this situation so quickly, and how did the country move toward mass production, which resulted in economic growth? Let's talk about it.

Rise of Mass Production and Consumption

As a result, recovery in the United States was faster. As we know, the war aided in the growth of the US economy, so after a brief period of difficulty, the US economy resumed strong growth in the early 1920s. The concept of mass production in the 1920s was one of the driving forces behind the growth of the US economy. Henry Ford, a well-known automobile manufacturer, was the first to use it. He got the idea from a Chicago slaughterhouse assembly line, where butchers picked apart slaughtered animals as they came down a conveyor belt. As a result, he applied the assembly line concept to his new car plant in Detroit. In his opinion, the assembly line method will allow for a more efficient and cost-effective way of producing vehicles.

The assembly line concept would allow workers to work in a set amount of time, speeding up the production process and allowing workers to gain expertise in a specific task. Ford's cars came off the line three minutes apart, as expected as production increased. However, the issue arose when workers refused to work because it was impossible for them to keep up with the pace of the work. Ford doubled their daily wage to encourage them. Though it was a risky decision that could have resulted in losses, it proved to be a profitable venture for him. He made his employees work extremely hard. This resulted in high production, which reduced production costs and allowed Ford to earn huge profits.

In the 1920s, Ford's industrial practises served as an inspiration to other manufacturing companies in the United States and Europe. Finally, mass production resulted in lower production costs. Not only that, but higher wages improved workers' living conditions. They could even purchase automobiles now. As a result, car sales increased, and car production in the United States increased from 2 million in 1919 to more than 5 million in 1929. Similarly, the hire purchase system increased demand for refrigerators, washing machines, radios, and gramophone players. When you buy a product in weekly or monthly instalments, you are using a hire purchase system.

The increase in demand for housing and consumer goods fueled the economy and led to the United States' prosperity. Demand for housing and consumer goods increased employment and income opportunities. As a result, the United States captured the largest share of overseas lending in 1923. Although US exports fueled European recovery and global trade and income growth for the next few years, they could not last forever. By 1929, the world was in the grip of an economic depression, which had a far-reaching impact on people's lives. So, what exactly was the Great Depression? Let's talk about it.

The Great Depression

The Great Depression was an economic crisis that resulted from the stock market crash in October 1929. As a result, the Great Depression lasted until the mid-1930s. Various parts of the world experienced declines in production, employment, income, and trade during this time period. The exact timing and severity of the depression differed by country. However, agricultural regions and communities were the hardest hit. This was due to a long-term decline in food grain prices.

Several factors contributed to the depression. As we have seen, agricultural overproduction was a major factor in the fall in the price of food grains, so farmers began producing more to compensate for their losses in order to overcome the problem. However, this proved ineffective for them because it resulted in further price reductions for agricultural products. The second reason was the United States' lack of interest in lending loans. In the mid-1920s, the US was easily lending loans to overseas borrowers, but as the crisis began, US investors became more cautious in lending loans. This is explained by the fact that in the first half of 1928, US overseas loans totaled more than a billion dollars, but a year later, they were only a quarter of that amount. As a result, the withdrawal of US loans created a huge problem for those countries that relied on the US for loans. Many major banks failed in Europe, and currencies such as the pound and sterling collapsed. When the United States attempted to protect its economy by raising import duties, it put the world trade system in danger.

The United States, like other industrial countries, was severely impacted by the Great Depression. As the prices of all commodities fell and the likelihood of a depression increased, banks stopped lending even on domestic loans. They ceased to follow the policy of easy loans. All of this resulted in the following:

  • Farms were unable to sell their crops.
  • Households were destroyed.
  • Businesses had failed.

As it became more difficult for local residents to repay their debts, they began selling their homes, cars, and other valuables in order to pay off the loans. The days of prosperity were long gone, and all that remained was the depression and its aftereffects. People were forced to travel long distances in search of work. Because banks were unable to recover their loans, the US banking system eventually collapsed. Over 4000 banks had closed by 1933, and approximately 110,000 businesses had closed between 1929 and 1932. The Great Depression had not only affected European countries, but it had also had a negative impact on India. Let's take a look at it.

India and the Great Depression

When we consider the impact of the Great Depression on India, we can see how different countries' economies became integrated by the early twentieth century. As a result, if one part of the world was affected by depression, the other part was also confronted with the same type of challenge. India, as a British colony, was an exporter of agricultural goods and an importer of manufacturers during the nineteenth century. The market crashed as a result of the depression, which had a severe impact on India. From 1928 to 1934, India's exports and imports decreased dramatically. As the prices of products in the international market fall, so do the prices in India. Wheat prices fell by half between 1928 and 1934 as a result of the terrible situation.

Peasants, not city dwellers, bore the brunt of the consequences. It was so because the prices of agricultural products had dropped drastically, leaving the peasants with no income. The British government, on the other hand, had not reduced its revenue. As a result, paying taxes without any income was a difficult task. Consider the situation of jute farmers. These farmers used to cultivate jute, which was then processed in factories and exported as gunny bags. However, as exports of gunny bags fell, the price of jute fell by more than 60%. Some of the peasants had borrowed to increase jute output in order to earn more money. However, as prices fell, they were unable to earn any income and were soon trapped in a vicious cycle of debt.

The condition of peasants in India was poor. To meet their expenses, they had to rely on their savings or mortgage their land and sell their jewellery or precious metals. During the Great Depression, India emerged as a major exporter of precious metals, particularly gold. Famous economist John Maynard Keynes believed that Indian gold exports could aid the world's recovery from the Great Depression. Britain receives some assistance in this regard, but the plight of Indian peasants remains unchanged. Rural Indians were particularly hard hit by the depression. To assist them, Mahatma Gandhi launched the civil disobedience movement at this time.

As previously stated, the urban Indians fared better during the depression because they were Zamindars, salaried employees who received fixed income in the form of salaries or rents. They improved their position as the prices of each commodity fell. Industrial investments increased as the government provided tariff protection to industries in response to nationalist pressure. So, we now know how businesses grew in the global market and how the situation changed as a result of the Great Depression, but this did not last long. When the economies recovered, they attempted to rebuild themselves. So, what caused this to occur? Let's take a look.

4. Rebuilding a World Economy: The Post-war Era

The Post-war Era (1939-1945)

  • World War II was fought between:
    • the Axis: mainly Nazi Germany, Japan and Italy
    • the Allies: Britain, France, the Soviet Union and the US
  • It was a war waged on many fronts, over land, on sea, in the air.
  • Death and destruction was again enormous.
    • At least 60 million people, or about 3% of the world’s 1939 population, are believed to have been killed, directly or indirectly.
    • Millions more were injured.
  • Most of these deaths took place outside the battlefields.
    • Many more civilians than soldiers died from war-related causes.
    • Vast parts of Europe and Asia were devastated,
    • Several cities were destroyed by aerial bombardment or relentless artillery attacks.
German forces attack Russia, July 1941. Hitler’s attempt to invade Russia was a turning point in the war.
  • The war caused an immense amount of economic devastation and social disruption.
  • Two crucial influences shaped post-war reconstruction:
    • The US’s emergence as the dominant economic, political and military power in the Western world.
    • The dominance of the Soviet Union.
      • It had made huge sacrifices to defeat Nazi Germany,
      • It transformed itself from a backward agricultural country into a world power during the years when the capitalist world was trapped in the Great Depression.
Stalingrad in Soviet Russia devastated by the war.

Post-war Settlement and the Bretton Woods Institutions

  • Economists and politicians drew two key lessons from inter-war economic experiences:
    • An industrial society based on mass production cannot be sustained without mass consumption.
      • To ensure mass consumption, high and stable incomes needed.
      • Incomes could not be stable if employment was unstable.
      • So, stable incomes required steady, full employment.
      • But markets alone could not guarantee full employment, governments would have to step in to minimise fluctuations of price, output and employment.
      • Economic stability could be ensured only through the intervention of the government.
    • A country’s economic links with the outside world.
      • The goal of full employment could only be achieved if governments had power to control flows of goods, capital and labour.
  • Main aim of the post-war international economic system: To preserve economic stability and full employment in the industrial world.
    • Its framework was agreed upon at the United Nations Monetary and Financial Conference held in July 1944 at Bretton Woods in New Hampshire, USA.
  • The Bretton Woods conference established the International Monetary Fund (IMF) to deal with external surpluses and deficits of its member nations.
  • The International Bank for Reconstruction and Development (popularly known as the World Bank) was set up to finance post-war reconstruction.
  • The IMF and the World Bank are referred to as the Bretton Woods institutions or sometimes the Bretton Woods twins. The post-war international economic system is often described as the Bretton Woods system.
Mount Washington Hotel situated in Bretton Woods, US.
The place where the conference was held.
  • 1947: The IMF and the World Bank commence financial operations.
  • Decision-making in these institutions is controlled by the Western industrial powers.
  • The US has an effective right of veto over key IMF and World Bank decisions.
  • The international monetary system is the system linking national currencies and monetary system.
  • The Bretton Woods system was based on fixed exchange rates.
    • In this system, national currencies were pegged.
      • for example: the Indian rupee were pegged to the dollar at a fixed exchange rate. The dollar itself was anchored to gold at a fixed price of $35 per ounce of gold.

The Early Post-war Years

  • The Bretton Woods system began an era of paced growth of trade & incomes for the Western industrial nations and Japan.
  • World trade grew annually at over 8% between 1950 and 1970 and incomes at nearly 5%.
    • The growth was also mostly stable, without large fluctuations.
  • For much of this period the unemployment rate averaged less than 5% in most industrial countries.
  • These decades also saw the worldwide spread of technology and enterprise.
  • Developing countries were in a hurry to catch up with the advanced industrial countries.
    • They invested vast amounts of capital, importing industrial plant and equipment featuring modern technology.

Decolonisation and Independence

  • End of World War II: large parts of the world still under European colonial rule.
  • Next two decades: most colonies in Asia and Africa emerged as free, independent nations.
    • They were overburdened by poverty and a lack of resources
    • their economies and societies handicapped by long periods of colonial rule.
  • The IMF and the World Bank were designed to meet the financial needs of the industrial countries.
    • Not equipped to cope with the challenge of poverty & lack of development in the former colonies.
  • Europe and Japan rapidly rebuilt their economies: less dependent on the IMF and the World Bank.
  • From late 1950s: Bretton Woods institutions began to shift their attention towards developing countries.
  • As colonies, many of the less developed regions of the world had been part of Western empires.
  • As newly independent countries facing urgent pressures to lift their populations out of poverty, they came under the guidance of international agencies dominated by the former colonial powers.
  • Even after years of decolonisation, former colonial powers still controlled vital resources such as minerals and land in many of their former colonies.
  • Large corporations of other powerful countries also often managed to secure rights to exploit developing countries’ natural resources very cheaply.
  • Most developing countries did not benefit from fast growth Western economies in the 1950s and 1960s.
  • So, they organised themselves as a group: the Group of 77 (or G-77) to demand a new international economic order (NIEO).
    • NIEO: a system that would give them real control over their-
      • natural resources,
      • more development assistance,
      • fairer prices for raw materials,
      • better access for their manufactured goods in developed countries’ markets.

End of Bretton Woods era

  • From 1960s: rising costs of US’s overseas involvements weakened its finances and competitive strength.
    • The US dollar no longer commanded confidence as the world’s principal currency.
    • It could not maintain its value in relation to gold.
    • This eventually led to the collapse of the system of fixed exchange rates.
    • Floating exchange rates system introduced.
  • Mid-1970s: the international financial system changed in important ways:
    • Earlier: developing countries could turn to international institutions for loans & development assistance.
    • Now: they were forced to borrow from Western commercial banks & private lending institutions.
  • Result: periodic debt crises in developing world, and lower incomes & increased poverty, especially in Africa and Latin America.
  • Industrial world was hit by unemployment, rising from mid-1970s and remained high until the early 1990s.
    • From late 1970s: MNCs began to shift production operations to low-wage Asian countries.
  • China had been cut off from the post-war world economy since its revolution in 1949.
    • New economic policies in China and the collapse of the Soviet Union and Soviet-style communism in Eastern Europe brought many countries back into the world economy.
    • Wages were relatively low in countries like China.
      • They became viable options for investment by foreign MNCs competing to capture markets.
  • The relocation of industry to low-wage countries stimulated world trade and capital flows.
  • In the last two decades, the world’s economic geography has been transformed as countries such as India, China and Brazil have undergone rapid economic transformation.


4. Rebuilding a World Economy: The Post-war Era

4. Rebuilding a World Economy: The Post-war Era

As we all know, World War I was a disaster for the entire world. While the world was still trying to recover from the aftermath of WWI, the Second World War broke out after a two-decade pause. The Axis (primarily Nazi Germany, Japan, and Italy) and the Allies fought the Second World War (1939-1945). (Britain, France, the Soviet Union and the US). This lasted six years and took place on many fronts and in many places, on land, at sea, and in the air.

The world had once again been turned towards death and destruction. At this point, it is estimated that at least 60 million people, or roughly 3% of the world's 1939 population, were killed directly or indirectly as a result of the war. A large number of people were hurt. The difference this time was that the deaths were of civilians rather than fighters on the battlefields. Aerial bombardment or relentless artillery attacks annihilated huge areas of Europe and Asia. Many countries suffered the greatest economic setback as a result of the war.

Following the war, two countries rose to power. The United States emerged as the dominant economic, political, and military power in the Western world, with the Soviet Union coming in second. The Soviet Union had made enormous sacrifices to defeat Nazi Germany, transforming itself from an agricultural economy to a world power during the years when the capitalist world was engulfed in the Great Depression. So, when the world economies were once again engulfed in a depression, what steps did they take to get out of it? Let's talk about it.

Post-war Settlement and the Bretton woods institutions

After the war, economists and politicians came to two conclusions. The first was that mass consumption is just as important as mass production for the survival of the industrial society. However, the issue here was that appropriate and stable incomes were required for mass consumption. This necessitated the availability of stable employment. But, once again, markets alone could not guarantee full employment. As a result, governments would have to intervene to reduce price, output, and employment irregularities. Only the government could bring economic stability back.

The second concern was the country's economic ties with other countries. If the country wants to achieve full employment, the government must control the flow of goods, capital, and labour. In summary, the main goal of the postwar international economic system was to maintain economic stability and full employment in the industrial world. So, in July 1944, at Bretton Woods in New Hampshire, USA, a framework was designed for this at the United Nations Monetary and Financial Conference.

The Bretton Woods conference produced the following outcomes:

  • The International Monetary Fund (IMF) is established to deal with its member countries' external surpluses and deficits.
  • The second was the establishment of the International Bank for Reconstruction and Development, or World Bank, to finance postwar reconstruction.

Both the IMF and the World Bank began their financial operations in 1947. Western industrial powers manage the decision-making process. The United States had the right to veto important IMF and World Bank decisions.

National currencies and monetary systems are linked by the international monetary system. Fixed exchange rates underpin the Bretton Woods system. National currencies are pegged to the dollar at a fixed rate in this system. The dollar is fixed at $35 per ounce of gold. So we now know that the IMF and World Bank were established in order to maintain economic stability and full employment. Now we'll see how economies performed after the war.

The Early Post-war Years

The Bretton Woods system ushered in an era of increased trade and income for the Western Industrial Countries and Japan. It was a period of unprecedented growth. So, between 1950 and 1970, global trade grew at a rate of more than 8% per year, while income grew at a rate of nearly 5%. During this time period, growth was mostly stable. In most industrial countries, for example, the unemployment rate averaged less than 5% during this time period.

During these decades, the world witnessed the development of numerous new technologies as well as the expansion of businesses. As developing countries sought to match the pace of advanced countries, they made large capital investments and began importing plants and equipment with cutting-edge technology. Though this period is remembered for the global expansion of business and technology, it is also remembered for the decolonization and independence of various nations. Let's take a look at it.

Decolonization and Independence

Despite the fact that the Second World War had ended, many countries remained under European colonial rule. As a result, most African and Asian colonies will be liberated from colonialism over the next two decades. However, these countries were dealing with issues such as poverty and a lack of resources. They had turned into underdeveloped economies as a result of the plunder they had borne as a result of colonial rule.

The IMF and World Bank were established to meet the financial needs of the industrialised countries. They were still ill-equipped to deal with issues such as poverty and lack of development in developing countries. During this time, Europe and Japan became self-sufficient, and they no longer required assistance from the IMF or World Bank. As a result, beginning in the late 1950s, the Bretton Woods institution shifted its focus to developing countries.

Despite the fact that various colonies had gained independence, they remained under the indirect control of various European powers. It was because they sought advice and assistance from the rich, dominant economies, in exchange for cheap access to their valuable natural resources. The United States is the best example of this, as it has been able to exploit the natural resources of developing countries at very low costs.

During the 1950s and 1960s, most developing economies were not growing at the same rate as Western economies. As a result, they formed the G-77 nations and demanded a new international economic order (NIEO). The main goal of NIEO was to have real control over their natural resources, fair prices for raw materials, and better access to markets in developed countries for their manufactured goods. So, we now know that the Western world was developing at a rapid pace, while underdeveloped countries were making various efforts to bring growth and development to their respective countries. Now we'll talk about globalisation and the end of the Bretton Woods system.

End of Bretton Woods and the Beginning of ‘Globalisation’

The postwar world had seen years of stable and rapid growth, but things were not as good as they appeared. Beginning in the 1960s, the United States began to face weakened finances and competition issues. It was due to an increase in the cost of its overseas involvements. The US dollar has been unable to maintain its value in relation to gold. This eventually resulted in the collapse of the fixed exchange rate system and the establishment of a floating exchange rate system.

Not only that, but the international financial system underwent a transformation in the mid-1970s. Previously, developing countries could borrow from international institutions; however, they are now forced to borrow from Western commercial banks and private lenders. All of this contributed to the emergence of debt crises in developing countries. Africa and Latin America, for example, were now confronted with issues such as low income and increased poverty.

From the 1970s to the 1990s, the industrial world was also troubled by unemployment. It was because multinational corporations began shifting their manufacturing operations to low-wage Asian countries. Though China had cut itself off from the global economy following its independence in 1949, new economic policies in China, as well as the collapse of the Soviet Union and Soviet-style communism in Eastern Europe, brought the countries back into the global economy. Because of the low wage rate in China, it became a popular destination for various foreign MNCs. In order to reduce costs, the companies began shifting their production lines in China. The relocation of industries to low-wage countries has resulted in increased global trade and capital flows. Countries such as India, China, and Brazil have experienced rapid economic transformations over the last two decades.