History Paper 2 Topic

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1 MERCANTILISM, IMPERIALISM AND NATIONALISM Discuss the development of Imperialism in the 19 th century? How was it different from mercantilism? What have been the broad theoretical explanations of Imperialism? 1. Imperialism is any form of political control or influence by one political community over another. 2. The theory of Imperialism gained prominence during the 1880s as a response to the economic crisis resulting from the free trade policy followed by all the newly industrialized European countries and by the United States of America. 3. Under this policy the political state was not allowed to interfere with international trade and commerce, and no restrictions such as import or export duties could be levied by any government. The free trade was viewed as the commercial counterpart to Charles Darwin s theory of survival of the fittest. 4. After 1900 this free trade or Laissez faire policy was modified substantially as competition between the industrial powers for control of colonial resources became more intensive. They were all trying to control the Asian and African colonies and to extend the territories under their control in existing colonies. This was essential to secure the supply of raw material and agricultural produce for their industrializing cities and towns. Markets in the colonies were also needed for sale of cheaper manufactured goods. 5. In the circumstances, the Imperial structure was developed to serve two objectives: (a) collecting 10x10learning.com Page 1

2 revenue from controlled colonies (b) defending the colonial territories against other hostile rivals and natives. 6. Britain s version of Imperialism of 1800 was based on its naval supremacy. It was a Victorian liberal premise that believed that the world market was an ever expanding place, based on world peace ensured by Britain s naval supremacy. However, the coal based industrial superiority of Britain was replaced by electric power and petroleum based industries that emerged from 1850s to 1880s. 7. In Europe, Germany and Italy were the first to adopt the new technology particularly for military purposes, and posed a new challenge to the monopoly of Britain. Britain fell behind in the competition as retained its coal and steam based industries that had become less efficient. 8. Germany and Italy also began challenging the existing imperial powers namely Britain, France and Portugal. The common linguistic and cultural identity also resulted in the European demand for glorifying the new nationalism through imperialistic conquests. This became the German cry for place under the Sun and the French cry for civilizing mission 9. Why and how did imperialism survive in to the 19 th century? Why did it not fade away like mercantilism? Why did it expand and revive at the peak of the liberal era? 10x10learning.com Page 2

3 10. To these questions the response is that politically the 19 th century was one of laissez faire in trade. The raw material from the colonies became less important as a source of wealth creation than the output from the new factories serviced by machines and wage labour. 11. Under industrial capitalism of the new imperial powers, free labour of the plantations that was less productive was replaced by wage labour in the factories that was viewed as more productive. The two World Wars were the culmination of the clash of strength between the imperial powers. Imperialism collapsed only after the massive destruction of the Second World War. 12. By 1900 the British version of Victorian Imperialism was modified to include that the view that the world market was not infinite or ever expanding, but was exhaustible. The natural resources of the world such as coal also began to be assessed as getting exhausted and irreplaceable. 13. Also the economic crisis of 1880s and 1890s resulting from free trade policy had brought about stagnation in the capitalist world of the industrialized powers. The internal markets had been exhausted as the new technologies had increased production capacities while no new markets existed. As such the need to secure new markets by acquiring new colonies in Asia, Africa, South America became the cornerstone of Imperialism. 14. There had come about a massive accumulation of capital with a few banks and trusts as no new investment channels were available with in the country. 10x10learning.com Page 3

4 Investing this surplus capital in colonies appeared to be a safe investment. This funded the first industries in the colonies. ECONOMIC LINKS BETWEEN MERCANTILISM AND IMPERIALISM 15. The mercantile system of the 17 th and 18 th centuries had been a way of building up the power of one s own country by controlling the resources of a colony. Exports were artificially stimulated between colonial powers while imports were hampered. Trade was promoted by commercial treaties and the colonies were reserved for supply of raw materials. Most wars during these centuries were fought as trade wars. For the first time Mercantilism intermixed the political and economic objectives of a country. The system was pioneered by the Dutch, but taken over and expanded by the British, while France was too busy with its counter revolutions. Italy and Germany had not yet emerged as modern states. 16. Capital Accumulation: Discovery of new lands and sea routes opened a new era for European commerce. Vasco Da Gama s trip to India had yielded windfall profit of 60 times the investment. 17. This was followed by the plunder of Bengal by the East India Company, resulting in influx of gold from India and Silver from South America and Mexico. Increase in income from trade led to a redistribution of income between trade and agriculture. 10x10learning.com Page 4

5 18. Expansion of internal and external market from trade led to protectionism. Britain adopted a national policy that was biased in favour of trade. Principles of accounting laid the foundation for growth of Capitalism. The trading middle class accumulated a high rate of capital formation, and expansion of colonies became a means of capitalist growth at home. Britain s income from trade increased from 5% in 1688 to 14% in 1790, to 36% in 1880, which was the highest figure reached. Japan s income from trade was 4.5% in 1880 which rose to 16% in CAPITALISM AND THE AGRARIAN REVOLUTION: As the trading class valued land for its economic worth, the rapid capital accumulation from trade was first invested in land. This led to the enclosure movement through which the common pastures of the villages were converted in to private property by the order of the king. 20. This consolidated land holdings but did not change the agricultural technology. This further created a capitalist farmer class and a landless labourer class. The accumulated savings with the trading middle class became capital only through its investment in land, industry and trade. 21. The landless labour class moved from the villages to towns in search of livelihood. This gave the urban industrialists greater control over cheap labour. After the transfer of control of India from the East India Company to the Crown in 1858, the capital formation in Britain declined from 11% in 1860s to 6% in 1890s. 10x10learning.com Page 5

6 22. Growth of capital formation in Germany during the same period rose from 7.9% in 1860s to 15.9% in 1890s. This was mainly through the new technology for its industries in steel and chemicals. 23. Britain lagged behind not only because there was no plunder money coming from India, but also because its coal and iron based technology was less efficient than Germany s electricity and steel based ones. Yet, Britain s dominance continued due to its control of shipping and banking. It began investing abroad in Canada, Australia, New Zealand and South Africa. 24. MOBILIZATION OF CAPITAL THROUGH NEW BANKING INSTITUTIONS: The system of credit began to get more sophisticated than the existing Commenda system under which the monarch financed the Trading Companies. 25. Bill of Exchange as a new instrument combined deferred payment with immediate payment. It did away with the need for cash transactions in commerce. This spared some bullion for providing security to multifaceted commercial activities. 26. As a negotiated bill the Bill of Exchange could be used as money itself by endorsing it. This provided immense mobility to capital as it was deferred payment for the person who signed it and for the payee it could be immediate payment at a discount. 27. It could also be endorsed to another and passed from hand to hand like a currency. Earlier gold and silver were the only means of trade payments. Now it was enough for a merchant to give Bills of Exchange in any port town of Europe. 10x10learning.com Page 6

7 28. BANKS: This was also the beginning of Central Banks of which the first one was set up in Venice. The first currency issuing government controlled bank was the Bank of Sweden in In 1694 the Bank of England was set up to perform the three functions of being a government bank, an issuer of British currency, and a controller of smaller banks requiring them to keep reserves. The Central Banks also began to issue government bonds with the growth of Public Debt. 30. During mercantilism laissez faire (free trade) policy was adopted and government did not interfere with trade in the interest of the national economic development. Only the merchants benefited under this policy. The new industries that were development as a result of accumulation of capital, were also not protected and all the benefits of trade were reserved for British merchants only. Mercantilism 31. Mercantilism had demonstrated the rise of a financially independent monarchy, separated from the control of the Church. The policies of the monarch were formulated in the economic interest for the merchant class. It included sea piracy, monopoly in trade over luxury goods from the East, and slave plantation based trade. This was the first time that world trade had become a source of additional revenue for the state and this reduced its dependence on revenue from land. 32. During Mercantilism, nationalism had replace religion as the dominant inspiration. A clear distinction was 10x10learning.com Page 7

8 made between economic and non-economic objectives / activities of the state. Mercantilism had been pioneered by the Dutch Republic, taken over by Protestant England, at a time when Spain and Portugal were embroiled in religious persecutions and counter revolutions. 33. Mercantilism accumulated the surplus capital needed for financing the coal based industrial revolution in England. The industrial supremacy then gave rise to British Imperialism in the 19 th century. As such, Mercantilism, followed by industrial revolution, followed by six decades of free trade, followed by Imperialism. 34. The free trade was a direct fall out of the success of the French Revolution in the 1770s when the liberation wave had liberalized world trade also. Industrial revolutions 35. The first industrial revolution from 1750 to 1850 was based on coal and iron and was led by Britain. The second industrial revolution was based on electric power steel, chemicals and petroleum and was led by USA, followed up speedily by France, Germany and Italy. 36. For nurturing industries protective tariff walls were needed. This need arose in Britain only after the rise of new industrialized powers in the USA, Germany, Italy and France. USA having vast lands for itself did not show any imperialistic ambitions. 10x10learning.com Page 8

9 37. From 1880s to 1914 Britain s economy stagnated because it continued its earlier bias in favour of trade at the expense of industry and technology. 38. Yet, its domination continued due to its control on world shipping, banking, and largest number of colonies to draw raw material from. Britain s predominance had pre-supposed that global economy centred on her, and was secured by Britain s control of the sea routes. Competition from the USA, Germany and Japan began the breakdown of the Britain centric global imperialism. 39. Britain at first ignored the challenge from Germany as it thought USA only as its competitor. In 1870s Disreali s new Torism was the preferred national policy. It was a mixture of imperialism abroad and inexpensive social reforms at home. 40. By 1880s the mid-victorian trade boom was over and an economic crisis was looming due to stiff competition from USA and Germany. Therefore, surplus capital needed to be invested abroad in Canada, Australia, New Zealand and South Africa. 41. The new technology had greatly increased the industrial production capacities. Therefore, markets for these goods were needed in the colonies. 42. Here the control of India became critical for Britain as India was financing nearly two-fifths of Britain s deficit at the time. The Indian textiles were destroyed for the benefit of Britain s textile mills by taxing the internal trade in Indian textiles while permitting free trade in textiles imported from Britain. 10x10learning.com Page 9

10 43. Imperialism differed from mercantilism as it had the support of the masses at home. 44. Universal education and the free press were instrumental in mobilizing the middle class public opinion, for glorifying Britain s nationalism through imperialism. The two World Wars were a direct consequence of imperialism. 45. In 1880s Bismarck s Germany had no colonies except one in Africa. It therefore concentrated in building internal capacity for controlling Europe. In 1914, when it began the First World War Germany began by colonizing the Slavs, the Poles, and the Central Europe. Its plan was world domination. The First World War upset British predominance in world shipping and banking, while by the end of the Second World War Britain ceased to be the world s leading investor and creditor. 46. THEORIES FOR THE RISE OF IMPERIALISM: Imperialism has been analyzed by scholars in through two broad theories: (a) the British liberal theory of imperialism, and (b) the Marxist interpretation of imperialism. The British liberal theory traces the growth of imperialism in the military policies. This makes imperialism merely a reversion to mercantilism. Another view is of under-consumption in the home markets resulting in investment of accumulated capital in the colonies for higher profits. 47. The Marxist interpretation attributes excessive capital accumulation with a few banks and cartels as the main 10x10learning.com Page 10

11 cause of imperialism. The Marxist interpretation is given by Karl Marx, Kautsky, Lenin, and Mao. 48. Marx had envisaged the transition from capitalism to communism when the organized armed might of the exploited industrial workers force, would overthrow the capitalist owners of the industries, to establish self rule 49. Kautsky s school connected the rise of imperialism and finance capital and declared them retrogressive to one another. This was because imperialism necessitated arms race which hindered capital accumulation and encouraged unproductive expenditure. As such it was self defeating 50. Lenin argued against Kautsky s retrogressive role of imperialism and declared it as the highest stage of capitalism. Imperialism was the final monopolistic and exploitative stage of capitalism. This could be overthrown only through a revolution by organized workers. 51. Finally, Mao broke away from this traditional Marxist and Leninist view of letting capitalism mature in to its final stage, before being overthrown by workers. In the context of China, Mao envisaged that exploited peasantry would play the anti imperialistic role rather than the exploited industrial workers. He realized that the Chinese political and merchant classes had a vested interest in the continuance of imperialism. 52. In sum, no single cause or theory can explain the multi faceted phenomena of Imperialism. Essentially, it is a bid to safeguard the rational economic interests and gains against competitors. The modalities of securing 10x10learning.com Page 11

12 this national interest have changed, but the exploitative policies of the industrialized nations continue in new forms. 53. The nuclear power technology has replaced the electric power and petroleum power. New tariff walls and search for military bases continue with the armament race. In addition a new race to control and exploit the resources of the seas and oceans has emerged particularly in the Indian Ocean, where the littoral states are too underdeveloped to defend their sea based resources. As such the main reason for continued imperialism in its modern version is the gap in technology availability and use between the advanced and the under developed countries. 10x10learning.com Page 12