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The Great Divergence by Kenneth Pomeranz - In-Depth Notes

  • Great Divergence: A term used to describe the economic divergence between Western Europe and parts of Asia, particularly China, from around the 1400s onward.

  • China's Economic Remonetization:

    • Post-Yuan dynasty (1279–1368), China faced issues with paper currency and copper coinage.
    • Transition to silver as the primary medium of exchange due to its availability and reliability for large transactions and state payments.
    • Silver demand in China surpassed that of gold and other commodities, making it highly valuable compared to global standards.
    • China imported large amounts of silver from Japan, India, and Southeast Asia before Western vessels arrived.

  • Western Influence and Silver Trade:

    • In the 16th to 18th centuries, Western ships brought silver from the Americas, creating arbitrage opportunities where sending silver to China generated significant profits for traders.
    • Western debates about the flow of silver often mischaracterized the situation, portraying it as a desperate need to sell other goods to China, ignoring market dynamics dictated by merchants.

  • Misconceptions about Silver as Money:

    • The notion of silver as merely a modern “money” obscures its role as a commodity essential for transactions.
    • Silver production in the West was often superior to Asian equivalents; thus, it was produced more cheaply enabling extensive trade.
    • The fungibility of silver allowed it to transition between roles as money and luxury, defining its economic function.

  • Trade Dynamics:

    • Most of China's imports (including silver) were used actively in local economies rather than as storehouses of value.
    • Silver was involved in a delicate balance with other commodities, like gold and silk, flowing in and out between Europe and Asia.
    • The influx of New World silver only temporarily addressed trade imbalances, leading to shifts in economic power without revolutionizing Western Europe's underlying economic structure.

  • Influence on European Trade:

    • The influx of silver stimulated demand for Asian luxury goods, contributing to fashion and consumer trends in Europe.
    • The interplay between European resource extraction from New World and subsequent trade relations underscored a dependency on external forces rather than purely domestic innovations.

  • Economic Impact:

    • Although New World metals financed military endeavors, they also expanded European trade capabilities by allowing greater access to resources.
    • Three major flows of precious metal:
    1. New World silver to Asian markets, facilitating resource acquisition in regions with limited local production.
    2. Silver used to purchase Asian goods compensating for slave procurement for American plantations.
    3. Silver establishing or integrating more dynamic Asian market economies, which influenced global trade patterns.

  • Conclusion on Silver Dynamics:

    • The relationship between silver movements and local economies indicates a more nuanced understanding of economic development beyond simple narratives of wealth accumulation.
    • The demands from vibrant economies like China shaped the pathways of New World metals far more significantly than initially perceived, creating a complex web of global economic interactions that persists today.