terms of trade moved favourably for agricultural producers, with technological progress
lowering the prices of industrial goods and growing demand raising relative agricultural
prices (Figure 4.4). The loss of the colonies had a less profound and widespread impact
upon the Spanish economy than the historical literature has suggested.
3.4. Trade and the Industrial Revolution
Chapter 1 provided a broad overview of Europe’s transition to modern economic
growth. We now focus on one particular aspect of this transition, and ask: what was the
impact of trade and empire on the British Industrial Revolution? The literature on this
issue has largely been shaped by the dominant economic theories of the day. One
particularly influential strand of thought has been inspired by the assumption of Classical
economists, from Smith to Marx, that growth depends on investment, which depends on
savings, which depends on profits (since workers were assumed to be too poor to save,
and landlords too frivolous). In a famous book, Eric Williams (1966) argued that
Atlantic slave trade profits financed the Industrial Revolution. His largely anecdotal
evidence consisted of enumerating cases in which those associated with slavery made
investments in domestic British industry. The classic quantitative responses to Williams
were made by Engerman (1972) and O’Brien (1982), both of whom measured the profits
associated with the slave trade (or, in the case of O’Brien, with Britain’s trans-oceanic
activities more generally), and found these to have been too small to have possibly
mattered. For example, O’Brien found that the total profits accruing to those engaged in
trade and commerce with the ‘periphery’ in 1784-86 amounted to £5.66 million. If 30%
of these profits were saved and reinvested, then that would have financed roughly 15% of
British gross investment during that period. Since 15% was, for O’Brien, a small figure,
the Williams thesis ‘foundered on the numbers’ (p. 16).
There is a more fundamental problem with the Williams thesis, which is that as
we saw in Chapter 1, technological change rather than capital accumulation was the
driving force behind the Industrial Revolution. By focussing on profits as the possible
link between overseas trade, empire and slavery on the one hand, and European growth
on the other, Williams and others have been barking up the wrong channel. If Marxist
economic theory is ill-suited to explain the Industrial Revolution, so too is Keynesian
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