Unit 1 / Learning environment 2

Essential reading

Historical expansion of Europe and

its impact on culture and economy ​
from 16th to 20th century

Index

1 European expansion: the huge impact on economic and business routes

2 The economic development of Europe in the 18th century

3 The evolution of the economy and european trade in the 19th century

4 The evolution of the european economy in the 20th century

Key words: european expansion, modern age, contemporary era, european economy, business.
Introduction
Europe’s countries are considered as places with a large history. In fact, their culture and economy
have been the base for many other cultures in other continents. Thus, it’s important to talk about
Europe’s evolution.

In Europe the Modern Age is a time of profound changes; economically, with the transition between
feudalism and capitalism; and politically, with the consolidation of absolute power of monarchs, as
well as major criticism of this power. On the commercial side, Europe ventured in new paths, hand
in hand with science, allowing the creation of different inventions and the exploration and discovery
of new lands. Regarding religion, this period saw the division of the Church with the appearance of
Protestantism. In short, this was a time of significant changes that made possible the subsequent
transformations.

Figure 1. The Thinker, Rodin, Rodin Museum.

Source: 139904 (n.d.)

POLITÉCNICO GRANCOLOMBIANO 2
1. European expansion: the huge impact on economic and business
routes
In the last years of the 15th century and during the 16th century enormous geographical discoveries
were made at the initiative of two kingdoms: Castile and Portugal.

There were different causes to start this process. Economically speaking, there was an urgent
need to look for new routes with the East. After the fall of Constantinople in 1453, the traditional
Mediterranean routes, especially the Silk Road and the spice routes were now blocked by the Turks
and monopolized by Italian cities. At a political and religious level, Castile and Portugal sought to
expand their domain across the sea and bring the Christian religion beyond Europe.

On the other hand, at a technological level, the cartographic development and the creation of new
instruments such as the compass, the astrolabe and the caravel facilitated navigation of the Atlantic.
These developments were made necessary to Europe for the arrival of precious metals to make
money. Moreover, the ruling classes and the bourgeoisie increased the consumption of luxury goods,
and the use of spices to preserve and flavor foods.

1.1. Trade relations between America and Europe in the 16th and 17th centuries

After the discovery of America in 1492, Castile and Portugal signed the Treaty of Tordesillas, an
agreement that delimited the zones of influence of each one into two halves. Soon a monopoly of
major routes would be created for the Iberian kingdoms.

The new American territories represented a major source of income for Castile, especially for the
Crown, as in the 16th century began to exploit important mines of gold and silver in America. As a
result, there was a high demand for consumer products in the new lands. The trade with America,
that monopolized Castile, also experienced a great development. This business growth focused on the
Castilians Atlantic ports, especially in Seville, from where all boats left and came. The rapid discovery
of gold and silver made necessary the issue of rules for the operation and marketing of these metals.
So, in order to control the trade the Casa de Contratación (“House of Trade”) was created in 1503 in
Seville (Pike, 1962).

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Throughout the 17th century the expansion helped to consolidate the western world, through the
presence of England and France into northern Mexico. This was evident for the creation of different
companies, such as East India Company (1600) of the British in 1600, and the ones of the German
and French. This kind of business monopolized the trade and navigation of these countries with
their colonies and controlled the slave trade. It is noteworthy that they were equipped with several
political and administrative prerogatives, like those that had the Casa de Contratación (The Editors of
Encyclopedia Britannica, 2018).

However, the massive influx of precious metals from America caused the rise in prices and decreased
the purchasing power of the popular classes and their standard of living. Instead of creating national
industries or improve agriculture, Spain spent American gold to finance wars and pay for imported
products from Europe, which had higher quality and more competitive prices.

Domestic investment in Spain, for example, did not benefit the economy, because the cultivated area
was extended thanks to the increase of population and the demand of products. The craft also grew
in the first half of the 16th century. However, it was losing competitiveness on foreign production for
the lack of technology and lower quality.

The economy became global, products and raw materials crossed the oceans, and the merchants and
large commercial companies got rich. The bourgeoisie is the protagonist of this mercantilist economy
and post-industrial economy. A thriving mercantilism rose between 1550 and 1750, hand in hand
with two closely related phenomena: “the emergence of colonial powers (Spain, Portugal, England,
France and Holland) and a large trade growth” (Sarich & Knes, 2018).

1.2. Mercantilism in Europe

The rise of mercantilism in Europe grew as a result of high colonial trade. According to Rojas,
mercantilism “is the first important chapter of the history of economic thought” (2007), and this
began in Europe. The mercantilist interest in increasing political and military power of states derived
policies in search of surplus trade with other countries, because they could accumulate gold and
precious metals, which would allow that state to enter wars and win them. Under this modality in
trade, there would always winners and losers.

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The policy of the governments of France and England was protectionist, so their main objective
was, on the one hand, to promote exports (except for arms and some other products), and on
the other, to restrict imports of raw materials. To achieve this and export more, it was intended to
produce more, simultaneously it was necessary to promote the labor force and, therefore, the growth
of the population. However, they tried to keep wages low as well as the costs of exports and the
consumption of workers. Interest rates had also to be kept low.

A very important aspect of mercantilist policies was the monopolization of trade with the colonies.
European cities saw their colonies both as a source of precious metals and raw materials, as a
potential source of demand for exports:

Hence, trade with these colonies ought to be monopolized. In England, for example, the Navigation
Acts were enacted between 1651 and 1660, establishing that its imports should be done in English
ships, in other words, that trade with its colonies should be carried out by English, in English ships, with
an English crew, and that some products such as sugar, tobacco and cotton produced in the American
colonies could only be exported to British ports (Tisdell,1977, p. 5).

These Acts, which originally looked for excluding the powerful Dutch merchants, ended up serving
to monopolize the English colonial trade. Its reinforcement in 1764 increased the discontent, leading
to revolution for American independence from England in 1776. In addition, other european colonial
powers, such as Spain and France powers had similar rules to those navigation acts (The Editors of
Encyclopedia Britannica, 2018).

Did you know that…?

The european painting of the 18th century had in Francisco de Goya one of its more important
figures, a fundamental part of the collections of the Prado Museum, that has a remarkable
number of paintings of the most significant European artists from Spain, Italy, France, Germany,
England Switzerland and Poland. The paintings respond to historical reasons and show cultural
traditions. For example, The Crockery Vendor (1779) shows a complex scene of the everyday
life in the city: a Valencian potter wearing his characteristic attire shows his merchandise on the
ground to a group of women; in the background, a carriage passes quickly with an elegant lady
inside. Under this market scene there is another scene of unsatisfied desires: the young women
in front of the seller crave their beautiful earthenware pots, symbol of feminine fragility, while the
gentlemen sitting on the straw symbolize the vanity of things.

POLITÉCNICO GRANCOLOMBIANO 5
Figure 2. The Crockery Vendor (1779), Francisco de Goya.
Source: Wikimedia Commons Contributors (2019).

2. The economic development of Europe in the 18th century

“The century 18th witnessed major changes that marked the end of the primacy of mercantilist policies.
On the one hand, there is the beginning of the collapse of the colonial powers with the American
Revolution in 1776 and the decline of absolutism which marks the French Revolution of 1789, and on
the other hand, the beginning of the Industrial Revolution in England. Finally, it is also the beginning
of important intellectual changes as the publication of Adam Smith’s “The Wealth of Nations” in 1776
(Tisdell, 1977, p.8).

The transition of an agrarian and rural economy to an urban and commercial economy began in
the 18th century. The capital was introduced to the world of work and the figure of the merchant
appeared, who controlled the process of production and sold processed products. This process was
called pre-capitalism or commercial capitalism. Trade had a boom that, after the discovery of new
territories, came to have global dimensions.

POLITÉCNICO GRANCOLOMBIANO 6
On the other hand, the craftsmanship of associations dominated most of the industrial production.
The guild began to produce custom-made on request, thus incentivizing the entrepreneur who
manufactured for a market through contracts with peasant families or employees in a workshop. The
workshop that produced new objects such as weapons or objects of luxury and was usually owned
by the monarch. This was known as the manufacturing system. In any case, the artisan production
increased dramatically.

2.1. New business prosperity

Early societies rose, in which each of the partners contributed a portion of the capital and ran with
the corresponding proportion of profit and risk. Sometimes capital providers did not manage the trip,
a third party did it for a share of the profits.

As the fortune grew, some merchants expanded their activities and became lenders to find funds.
The main clients were the kings, who were trying to finance armies. Usurious interest rates charged
to lenders increased their wealth, and the powerful bankers of the monarchs got important privileges
such as the right to collect taxes or to exploit metal deposits. As a result, banking and insurance had
an unstoppable development. This favored the circulation of the currency and the appearance of the
exchange, thanks to the corporations. This is how an enormous amount of precious metals that came
from America produced a terrible inflation.

These large businesses required new accounting practices, calculation and forecasting was introduced
at each step. The pursuit of profit or gain brought a rational control of operations. Came the first
accounting books, which recorded in detail income and expenses, profits and losses. Companies,
regardless of their owners, were constituted and had its own patrimony.

2.2. The industrial revolution and its global impact in the economy

Industrial Revolution occurred in England with the transition from domestic production to production
in factories and the extraordinary development of industrial organization. These processes had
consequences affected over time the development of the whole world.

POLITÉCNICO GRANCOLOMBIANO 7
It was the bourgeoisie that fueled economic growth with the Commercial Revolution and achieved
political power with the Industrial Revolution. Its influence reached France, where the dynasty of
the Bourbons was overthrown; in England, it contributed to the electoral reform; and in Germany,
it helped with the formation of the German Federal Government. It also influenced other places
outside of Europe.

England was the leader of the Commercial Revolution; it had made large earnings and conquered
markets that encouraged companies to generate industry. The Industrial Revolution was made
possible by a series of transformations in the economic and demographic structures, such as:

1 An increase in monetary
system in Europe.

An increase in labor supply,

2 due to the expulsion of
peasants from their lands.

3 An increase in monetary
system in Europe.

Figure 3. Demographic Structure Aspects.

Source: own elaboration

POLITÉCNICO GRANCOLOMBIANO 8
Additionally, the nobility ceased to be an exclusive, hereditary and possession of wealth caste. A new
bourgeoisie could create wealth regardless of their social status by birth.

The Industrial Revolution took a largely rural society to an outstandingly urban society, thanks to
the displacement of peasants to the cities, where the industries concentrated. On the other hand,
innovations and technological advances of the era gave way to machines that significantly replaced
human labor, making possible the production of goods quickly and in unlimited quantities.

The implementation of techniques, such as using the mechanical force (steam), was made in
the context of new organizations like the factory, where an increasing production began with
the application of capital, labor and technology. That marked the beginning of the generation of
economies of scale during the Industrial Revolution.

The search of the entrepreneurs to generate economies of scale led to more transformations, such as
the specialization of roles or division of labor, standardization of procedures and chain production. This
resulted in a reduction of cost per unit produced, which increased real wages and reduced the prices
of goods, and, in consequence, increased the consumption of society. Examples of this were the
companies developed in North America by Frederick W. Taylor and Henry Ford, among others.

2.2.1. Trade during the industrial revolution

The multiplication of innovations allowed the appearance on the market of new cheaper industrial
products and the considerable reduction of costs of communications and transport. Thanks to the
telegraph, railroads and steamships, international transport started, not only being cheaper, but also
safer and faster. Markets of wholesale products hitherto inaccessible because of the prohibitive
transport prices, began to be increasingly accessible to traders and stimulated production in regions
of recent colonized by Europe.

Those new opportunities attracted foreign investments and immigrants, accelerating the integration
of markets worldwide. Although it was the agricultural sector in the UK and in Europe the first to
experience the impact of the integration of markets, with the spread of industrialization also increased
competition among industries of european countries(OMC, 2017). The foreign market grew
significantly, thanks to factors such as population growth, which increased the goods demand.

POLITÉCNICO GRANCOLOMBIANO 9
3. The evolution of the economy and european trade in the 19th
century

3.1. Trade policy

The second half of the 19th century was marked by the free trade between european countries,
prevailing the economic development driven by industrialization and technological change, it was
also accompanied by the expansion of trade, based on various bilateral trade agreements. The first
agreement was the Anglo-French treaty (Cobden-Chevalier) of 1860, which busted the signing of
other treaties between european countries.

Reciprocal tariff reductions agreed bilaterally with the application of the clause of unconditional Most
Favored Nation (MFN) contained in treaties that resulted in historically low tariff levels, particularly
for agricultural products. This period of unfettered trade in Europe lasted for almost two decades,
until 1879, the year when gradually began to decline until completely disappearing with the outbreak
of the First World War (OMC, 2017).

3.2. The decline of free trade in Europe (1879-1914)

The european network of trade agreements began to disintegrate when the time to renew the
initial trade agreements came in a different political and economic climate. Throughout the
Great Depression in Europe between 1873 and 1896 the prices of internationally traded goods
were reduced steadily, dropping a third over the period. While United Kingdom persisted firmly
to maintaining its principles of free trade and low tariff policy until World War I, the countries of
continental Europe, where agriculture had a significant weight and industrial sectors, had a lower level
of development and began to raise tariffs.

POLITÉCNICO GRANCOLOMBIANO 10
 3.3. The european economy in postwar periods

The european economy had to recover during the 20th century of the disintegration caused by the
two major wars, the First and Second World Wars, with two completely different perspectives: the
planned socialist economies in Eastern Europe, and the capitalism in Western Europe.

The horrors and destruction of the Second World War exceeded those of the first one. The instability
and crisis in the world economy in the period between the wars had no echo in the Second World
War. Just the opposite, after a speedy economic reconstruction, the world, not only the West, was
propelled to the greatest economic growth ever seen. This was because, unlike the previous war, the
Second World War was faced with a strong desire for economic cooperation from the leaders of
Western, mainly the US and Britain.

The concatenation of the First World War, the Great Depression and Second World War shook the
conscience of the rulers of threatened democracies, who learned that hard trance of “lessons of
history”. They should not repeat the mistakes of the economic policies implemented after the First
World War, which Keynes names “the economic consequences of peace” (Universidad de Cantabria,
2018); they should not claim war debts, in order to avoid suffocation of the economies of languishing
states.

Therefore, since 1941 they worked on the design of the postwar economic system. Arriving to
an agreement on the project three years later and urged other countries to join. To this end an
international economic conference took place in June of 1944 in Bretton Woods. The institutional
framework approved there had exceptional importance, not because thereafter it would be suited to
international economic relations.

4. The evolution of the european economy in the 20th century

The european economy was characterized during the 19th century by an uneven development, led by
the industrial states of Western Europe: France, Germany, Britain, etc., while the level of incomes
and productivity in countries of Eastern and Southern Europe such as Spain, Greece, Bulgaria
and Romania, whose economies were based mainly on the exploitation of primary resources, was
significantly lower (Universidad de Barcelona, 2016, p. 12).

POLITÉCNICO GRANCOLOMBIANO 11
The predominant free trade in the years before Second World War fostered a capitalist development,
which was dramatically cut short by the war. The war caused a huge waste of labor, physical
destruction of railway infrastructure, factories, farms and houses; loss of crops and herds; chaos in
the financial system; and political instability. As a result of this war many european states became
dependent on US to stock up on food, raw materials, manufactured goods or financing, favoring the
rise of this country as a new world power.

4.1. The economic crashes and their impact in Europe

Between 1918 and 1939 the economy of Europe was mortgaged for debts incurred during the First
World War, through high costs of recovery; sanctions imposed on the vanquished; the scarcity of
capital; and changes in the borders that dismembered some industrial regions such as Upper Silesia.
All this affected the communication infrastructure and destroyed trade links, replacing imports with
self-supply.

During the 20s the european economy was recovering, but it was still an unstable economic and
political context, with a high level of industrial unemployment, many underemployed workers in
agriculture and a bottom commercial activity. Central and Eastern Europe, that suffered more
intensely the consequences of war, maintained its economic regression compared to the West.

Germany, that had a debt of 33,000 million dollars in 1921, suffered a progressive deterioration of its
economic and financial structure, which, in conjunction with the depression of 1929, favored the rise
of Hitler to power.

The Wall Street Crash of 1929 in the United States, which already at that time played a leading role in
the global economy, affected Europe negatively by a reduction in exports and a brake on investment
and foreign funding. The most affected were Eastern and Southern Europe, that rely on the primary
sector, the falling of food prices and raw materials was higher than that of industrial products. As a
result of the crisis european states took protectionist measures such as tariffs and import quotas.

The economic crisis, which had its epicenter in the United States, had a strong impact on the
european capitalist countries, such as Great Britain, where the industry had been blocked, so many
jobs were lost due to the shutdown of factories. This caused marchers by workers all over the country
to ask the government to fulfill their right to work. This also led to the rise of extreme movements in
several european countries, such as the Nazi regime of Adolf Hitler in Germany and fascism in Italy,
as a response to the failure of capitalism. Each country went through the crisis in a different way,
which led to various mediations to help revive the economy of each country.

POLITÉCNICO GRANCOLOMBIANO 12
In conclusion, the set of events following the stock market crash puzzled the contemporary debate
over the causes and the cures of the Great Depression. This laid the foundations for the laborious
shaping of a new international economic order, and the impact in the new order of Europe was
enough to generate new integrations and institutions.

POLITÉCNICO GRANCOLOMBIANO 13
References
Educa Madrid. (2016). La edad moderna. Retrieved from http://www.educa.madrid.org/web/cepa.
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Martini, M., & Bellavitis, A. (2014). Household Economies, Social Norms and Practices of Unpaid
Market Work in Europe from the Sixteenth Century to the Present. History of the family, 19(3), 273-
282. doi:10.1080/1081602X.2014.933999

Nerozzi, S. (2011). From the Great Depression to Bretton Woods: Jacob Viner and International
Monetary Stabilization (1930-1945). European Journal Of The History Of Economic Thought, 18(1),
55-84.

OMC. (2017). Informe Anual. Retrieved from https://www.wto.org/spanish/res_s/booksp_s/anrep_s/

anrep17_s.pdf

Pike, R. (1962). The Genoese in Seville and the Opening of the New World. The Journal of Economic
History, 22(3), 348-378. DOI https://doi.org/10.1017/S0022050700081006

Rojas, J. (2007). El Mercantilismo. Teoría, política e historia. Revista Economía, 30(59-60), 75-96.
Retrieved from http://revistas.pucp.edu.pe/index.php/economia/article/view/1822/1760

Sarich, A. O. & Knes, M. (2018). Mercantilism. Retrieved from https://www.referenceforbusiness.

com/encyclopedia/Man-Mix/Mercantilism.html

The Editors of Encyclopedia Britannica. (2018). East India Company. Retrieved from https://www.
britannica.com/topic/East-India-Company

The Editors of Encyclopedia Britannica. (2018). Navigation acts. Retrieved from https://www.
britannica.com/event/Navigation-Acts

Tisdell, C. (1977). Imperialism and Traditional Economic views of Development. Retrieved from https://
www.researchgate.net/publication/303447470_Imperialism_and_Traditional_Economic_Views_of_
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Universidad de Barcelona. (2014). 4.1. Economía europea: características generales. Retrieved from
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Universidad de Cantabria. (2018). Tema 2.2. La Segunda Guerra Mundial y la reconstrucción de la

economía europea. Retrieved from https://ocw.unican.es/mod/page/view.php?id=1318

Vries, M. G. (1996). Bretton Woods Fifty Years Later: A View from the International Monetary Fund. In
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York: Routledge.

POLITÉCNICO GRANCOLOMBIANO 14
Figure references
139904 (n.d.) The Thinker, Rodin Museum in Paris [Photography]. Retrieved from https://pixabay.
com/es/photos/el-pensador-rodin-museo-rodin-489753/

Wikimedia Commons Constributors (2019). El cacharrero, por Francisco de Goya [Photography].

Retrieved from https://upload.wikimedia.org/wikipedia/commons/thumb/1/17/El_cacharrero.
jpg/508px-El_cacharrero.jpg

POLITÉCNICO GRANCOLOMBIANO 15
 TECHNICAL INFORMATION

Module: Cultura y Economía Regional de Europa

Unit 1: History and culture of Europe and its economic
development
Learning environment 2: Historical expansion of Europe
and its impact on culture and economy ​from 16th to 20th
century

Author: Andrea Carolina Ramírez Ruiz

Pedagogical Advisor: Alexandra Bolaños

Graphic Designer: Andrés Felipe Figueroa
Assistant: Laura Delgado

This material belongs to Politécnico Grancolombiano

Its partial or total reproduction is prohibited

POLITÉCNICO GRANCOLOMBIANO 16