India's furious economic pace is no accident 1210

On Wed, 19 Sep 2006, vorange

I just saw yesterday a graph of world economy going back 200 years. In 1800, both China and India had 90% of the world economy. Then the USA developed and had 90% of the world economy in about 1950, and now starting about 1980+ it is going back to China and India. Europe started to flourish starting somewhere in the 1500-1600 after the renaisance. And, one book for which I read only a book review that asked the question what makes a country's economy grow said that it is not easy to trace all the factors and all the causes. However, if you read banking history (and I have read one such book), fractional reserve banking, which was known back 400-500 years, at least, played a very big role in generating capital. Also, the formation of the stock market (going back hundreds of years, and with its big push from Amsterdam and the tulip mania bubble, and the train mania in England (I think late 1700s-1800s, IIRC), did a lot to spin off secondary growths. Otherwise, yes, there was some trade in Europe going back at least a couple hundred years, but also each area-country developed its own economies, currencies, and govt bonds and securities, going back hundreds of years, too. Spain and Portugal took a lot of gold from South America not long after 1500 AD, too, and that made life great for both countries for a short while until it ruined them, but most of our economics textbooks are so abstract that they make you think economics was discovered in the last couple of decades. Trade between countries was known at least going back thousands of years (mesopotamia, Athens-Troy, spice trade, etc).

History shows ancient Greece as rising during the 800 BC to 500 BC period, and democracy flowering. This was after a 500 year period of "dark ages" that followed the Trojan war, dated about 1200 BC for which there was some evidence was the peak in area economic development (yes, a lot of trade around Troy). Amongst a very large amount of history can be found a few sentences that silver, from silver mines in Athens-Greece, powered by slave labor, gave the ancient Greeks all the money they needed to build their society. Two things interupted this: i) the silver mines became mined out, and ii) the Romans came and sacked Athens. Which leads us to what else "comes out of thin air": wars. If you look at graphics showing China's trade and growth vs. the exchange rate for their currency, the renminbi, and the correlation is stunning. When they devalued-pegged their currency in the 1990s to make their exports very cheap and make imports very expensive, it only took 1-2 years for their exports to skyrocket. And, of course, if their currency is cheap, then it draws investment from the outside and their country gets a vast standard of living upgrade very quickly and without a lot of work and with a lot of job creation inside China.

My recent readings in history showed that European trade in the last couple of hundred years went up and down and up, etc., as trade was stimulated or inhibited by governments; people wanted things, but it was also an imperitive that one country stimulate its export (to get money, to become rich) but inhibit imports (to keep money from going out, and become poor). Tariffs, etc., came and went all through these hundreds of years to control trade. And, kings frequently sold bonds to raise money to buy arms and pay for soldiers for wars.

I guess I could say, philosophically, that a lot of things came out of thin air. The geological and paleontological evidence indicates that there were many kinds of animals and birds on the planet before there were human beings; so, in a parallel evolutionary sense, we almost, kinda, came out of "thin air," too. Pretty good trick, no?