Intro: International Society in theGlobalization Age
From World Empires toWorld Economy

Globalization before GLOBALIZATION?
• If there was such a thing as “globalization” inpre-modern history it would be WORLDEMPIRES• A world empire is a structure in which there isa single dominant political/military authority
for a given expanse of territory• The political authority of a world empire wasbased upon cultural/religious/ethnic
supremacy

Two Forces Making Modernity
1. The breakdown of all empires & formation ofnation states••

Process of state formation unfolds first in Britain,
European continent, USA
From 17th century – process based onrecognition of state sovereignty = territorialboundaries separating “inside” from “outside”
and the recognition of this within a nation state“system”

2. The emergence of the capitalist economy in
Britain and Western Europe

Rise of Capitalism• Prior to dawn of capitalist era inconceivable to talkabout such a thing as an “economy” separate fromreligion, culture, ideology politics, etc.
• Capitalism – the economy seems to dis-embed fromthese practices to seemingly take on “a life of its own”
• Capitalism “frees” human beings from interpersonal
relations of domination and subordination• Capitalism – compulsion is abstract-economic +impersonal• Ascendency of new social class – power of which isbased on accumulated abstract mercantile wealth –bourgeoisie or capitalist class• Economic power separate from political power yet
becomes basis of latter in modern states

Origins of Capitalist World Economy• Voyages of discovery Columbus to America’s in
1492 + Vasco da Gama to India in 1498 set inmotion processes that would see mass global
movements of populations• Dawn of the capitalist era marked by colonialism
and pillage as wealth of the world siphoned toWestern Europe and Britain• Paralleling this was a dynamic of internal
economic change where pre-capitalist social
classes are dispossessed of their property• Staid agrarian relations dissolved as erstwhilepeasants flowed into new growing urban centers

Capitalist Expansion from Western
European Heartland• Based on growing economic force of mercantile wealth– capitalism expands beyond Western Europeanheartland• Capitalism’s initial outward expansion resorts less topillage or dispossession/expropriation and more totrade in mass produced commodities such as cotton
textiles• Britain experiences first industrial revolution to
become “workshop of the world”• Ascendency of Britain as the world’s paramountcapitalist power is expressed in its state policy of laissez
faire or “free trade”

Global Trade Requires International
Monetary System• Modern banking - 1844 with establishment ofBank of England as first central bank
• Banknotes convertible to gold – this is the“gold standard”• International monetary system was projectionof England’s domestic system – therefore no
significant separation between international,
domestic and local monetary systems

Generalization of Gold Standard• By 1871 gold standard adopted by most ofBritain’s colonies and trading allies• 1879 it is adopted by most of the thenindustrializing world• Early 1900’s gold standard adopted by Japan,major Latin American states, Thailand andIndia

Benefits of Gold Standard• Exchange rates invariant• Its adoption provided “good housekeeping
seal of approval” for domestic policies ofparticipating states

“Impossibility Theorem”
CapitalMobility

Stable ExchangeRateMonetaryPolicyIndependenceGoldStandardGold StandardXX

Pre-WWI World Trade• Peak period of growth in world trade 1880 –1913• World trade per capita grew 11 times fasterthan world output and established complex
network embracing 155 trading areas on allcontinents

Trade and Early Global Division of Labor

Materials

CORE

PERIPHERY

Production ofmanufactured
goods

Source of raw
materials andfoodstuffs. Marketfor manufactures
Manufactures

Emergence of Capitalist Nation-State
Competitors and the End of Laissez Faire• Beginning of the 20th century witnesses the riseof powerful capitalist competitors to Britain as“workshop of the world”• The main competitors are Germany and theUnited States (US) – soon followed by Japan• While textiles and small entrepreneurial businesscharacterized the 19th century, the early 20th saw
growth of heavy steel and chemical industries
and rise of giant monopolistic firms• This period is referred to as the 2nd Industrial
revolution

Monopoly Power and Imperialist Policy• To reap rewards of global expansion of tradeand investment through new transportationand communication networks, great powers
sought to control as much economic territory
as possible• This territory was held as a preserve for“national” monopoly businessEarly 20th Century
International Finance• Before World War 1 international financial
activities extensive• Claims on foreign assets tended to be held byprivate investors secured by income producing
assets like railroads or mining companies• Therefore as foreign wealth increased investors
would be repaid out of profits• Government debt was common but held byprivate investors• And government borrowed based on their ability
to levy higher taxes

World War 1 and the Transformationof Global Finance• WW1 cost all participants $209 billion. This
involved consumption of resources that Europe
was not able to finance by itself• This changed principles of international financeas it gave rise to world where claims ofgovernments on other governments exceeded
private international investments• Armament debts of $28 billion and German
reparations bill set at $60 billion were part of thatworld

Emergence of United States as
Global Creditor• Prior to entering WW1 US government alreadyowed monies by European governments forweapons• Later loan packages from US to Europe were inpart made from profits US had made fromarms sales before war• US turned inter-ally indebtedness into USgovernment power in world affairsReparations GameWAR
ALLIESOWEDFUNDS TOUSGERMANY FORCEDTO AGREE TO
REPARATIONSPAYMENT FOR WAR
DAMAGES