False Economy - Alan Beattie [104]
Wise's logs show that ships generally took between 100 and 130 days to sail from England to Bombay, with wide and unpredictable variations in journey time. Ships from Britain sailing south through the Atlantic and around the Cape and to India followed the prevailing trade wind that blew from the northeast, which involved going well out of their way to the west, and then frequently spending days or weeks becalmed in the doldrums around the equator before picking up the southerly and westerly trade winds that would take them south and around the Cape.
"During most voyages to distant parts of the globe, contrary winds are less a source of detention than vexatious calms," Wise wrote. He recounts the story of the warship Coote in the Company's service, which was resupplied with provisions by a steamer. The Coote was heading to capture Aden, the Yemeni port that the East India Company would seize as a base to suppress pirates preying on ships bound for India. The Coote had progressed only ten miles in the previous twenty-four hours, and had 200 miles still to go. As Wise pointed out, if the Coote had been propeller-driven, like the tender that had recently serviced her, she would have been in Aden within two days.
Wise got his wish. Transoceanic shipping became steam-powered, and this, together with the opening of the Suez Canal in 1869, utterly changed the pattern of long-distance shipping. Freight rates for commodities that were recorded over many decades, such as coal shipped to London from the northeast of England, allow us to make comparisons across time. They show a sharp decline from 1850 onward, around the time that metal hulls and steam propulsion were widely introduced.
One of the effects of better transport is to create a more perfect market across a bigger area rather than one splintered by inefficient logistics. So the effect of cheaper shipping is very clear in the fact that the prices of bulk commodities like wheat on either side of the Atlantic converged. In 1852-1856, a bushel of wheat cost $0.85 in gold dollars in the wheat-selling city of Chicago, while the listed price in the wheat-importing city of London averaged $1.85. By 1895-1899, when the railroads and steamships had enormously improved the supply chain,
Chicago wheat cost $0.70 to London's $0.83. By 1910-1913, just before the First World War intervened to end the first great era of globalization, wheat was actually very marginally cheaper in London than Chicago, $0.98 to $0.97. A single market had been created.
The technological breakthroughs that enable such trade to improve often have as much to do with information as with transport itself. An economist's idea of paradise (pitiful but true) is one governed by the law of one price, where the prices of similar goods in different markets converge such that inefficiencies are driven out of the system. To get to this nirvana, information about prices in different markets is crucial.
In the right circumstances, information is money. There is an old story about the Rothschild European banking family making a huge amount of money out of the battle of Waterloo because their carrier-pigeon system brought them news of Wellington's victory before anyone else in London had it, enabling them to snap up financial assets cheaply from their nervous owners. The story is largely a myth (the news actually came from newspaper reports in Brussels, and the Rothschilds lost money by miscalculating the brevity of the war). But the family certainly had a large and complex network of agents throughout