Markets, Institutions, and Underpants
The title of this post is my proposed re-naming of Sven Beckert's Empire of Cotton: A Global History. Grabs the attention, right?
The short recommendation is that you should read this book if you are interested in economic history and growth.
The long recommendation is that Beckert's is an entry in the "global history" genre, this time using cotton production, processing, and trade as the framing device. But it is not just another version of Salt: A World History, with a new commodity plugged in. Beckert actually has a larger point to make about how a "market" in a commodity is something that is created by people, sometimes explicitly and sometimes not. In that sense, this book is better at explaining how institutions shape economies than most books that are specifically about institutions.
A key component of the story is the recognition that the global market for cotton was created prior to the Industrial Revolution, as part of what Beckert somewhat awkwardly calls "war capitalism". De Gama and Columbus created direct links between Europe, South Asia, Africa, and North America. Europeans then used a superior ability to coordinate firepower and capital to ship goods between these nodes. Cotton from India was sent to Africa for slaves or South-east Asia for spices. The slaves were sent from Africa to North America, the spices to Europe. One could refer to there being "markets" for these things, but only in the sense that Europeans were trading claims on these various people or goods amongst themselves.
Beckert separates the institutions of modern capitalism, which governed the intra-European trade, from the institutions of war capitalism, which governed European trade with non-Europeans. The former developed along the idealized lines of protected property rights, secure contracts, and so forth. The latter was about coercion and expropriation. The Europeans played "cooperate" with each other, so to speak, while playing "deviate" with the rest of the world. In Liverpool the English cotton brokers developed standards of quality, separated physical location in a warehouse from nominal ownership, and created futures contracts. In the American South planters enslaved millions in order to fulfill those contracts.
The consequences of the global market in cotton were far-reaching. The cotton factory, all spindles and chimneys, becomes the epitome of the Industrial Revolution. Beckert's implied story about innovation in this industry is Allen-like. The major costs of cotton trade were in spinning and weaving, not in growing. So innovation occurs in Britain where those costs are particularly high. But cotton also has far more scope for innovation in processing than the other major crops. It may be natural that cotton production was innovated on. There just isn't much innovation to do on sugar once it is refined. What are you going to do, make clothes out of it? This isn't the book to use in an argument about factor prices versus the enlightenment in generating the IR.
The more interesting question that looms over Beckert's book is whether slavery, or the coercion of labor in any form, was necessary for the growth of the cotton trade and Industrial Revolution. Here you have to be careful about wording. Necessary? No. It was certainly possible that the global cotton trade could have evolved in a different way, perhaps with India and Egypt remaining major exporters and the American South a patchwork of small-holding cotton farmers. But did slavery and the coercion of labor accelerate the development of the global cotton trade and likely the Industrial Revolution? The answer seems to be yes. Ceteris paribus, slavery and coercion made the IR happen sooner rather than later. I think that's what Beckert would argue. I am leaning towards agreement with him, but I need some more information before I would come down hard one way or the other.
Probably the most compelling thing I learned reading the book is about the layers of institutions that exist within economies. Beckert makes clear that there is no such thing as "English institutions" (or any other) that are constant across all transactions. Institutions are a characteristic of two entities (states, people, firms) and any given pair of entities will have its own set of institutions. So Liverpool and New Orleans cotton brokers had one set of institutions, Liverpool and Manchester brokers had another, while Liverpool and Bombay brokers a third. In some cases those institutions are "good", fostering cooperation and trust, while others are "bad", involving coercion. As is typical, institutions are really central to studying growth, but measuring or quantifying institutions without being extremely specific about the exact parties involved is probably hopeless.
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