business

The History of Dark Matter

Michael Mandel

I honestly don't know whether this is good news or bad news. Here's an excerpt from a recent book on Britain before World War I.

The average rate of return on British investments abroad was 50 to 75 percent higher than at home. The difference was even more striking in the all-important railroad sector, which accounted for nearly half of all British foreign investment: British-owned foreign railroads earned about twice as much as those in the United Kingdom. For the home countries of these great investors, the earnings on foreign endeavors could be tremendous. Britain, foremost among international investors, had by the turn of the century come to rely heavily on its overseas profits. Indeed, in the decade before 1914, Britain ran a trade deficit equal to 6 percent of gross domestic product (GDP), a formidable sum that was countered and more by net earnings on overseas investments of 7 percent of GDP”

From Jeffry A. Frieden, Global Capitalism: Its Fall and Rise in the Twentieth Century (Norton 2006) p. 50.

I think this confirms what I have repeatedly written: The biggest danger to the U.S. right now is a major war which disrupts trade. As long as the global trading system remains intact, everyone should do well together. But when war comes, it starts to matter where the factories are.

Added: Here's a link to a commentary that I wrote a couple of years ago on the dangers of war to the global trading system:

The past does illuminate what can happen when a new economic superpower enters the scene. From 1820 to 1913, as America rose to economic preeminence, GDP per person rose at an average rate of about 1.5% per year -- enough to quadruple real incomes for the average American. But that didn't come at Europe's expense. Over this stretch GDP per capita in Britain, France, and Germany rose at roughly a 1.1%-to-1.3% annual average pace. That was slower than in the U.S., but it was enough to triple real incomes in those countries.
But as history shows, in periods of political, economic, or military turmoil, the free flow of goods, capital, and ideas can get choked off. And some countries feel the pain more than others. Europe found that out during World War I and the Great Depression. While America was developing mass production and a domestic automobile industry, "Europe was distracted by wars and interwar economic chaos," writes economist Robert J. Gordon of Northwestern University. The result: The U.S. grew while Europe stagnated. From 1913 to 1950, U.S. GDP per person rose 1.6% per year -- as fast as in the previous 100 years -- while Europe struggled with a meager 0.8% annual gain.
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