Splendid Exchange, A

by Bernstein, William L

  Before the opening of the Erie Canal, New York and Pennsylvania ranked first and second in American wheat production. After about 1870, Illinois and Iowa took over that honor. The opening of Lake Superior by the Mary’s Fall Canal gave easy access to the northern Great Plains and dramatically altered the nation’s agricultural landscape; by 1895, the Dakotas and Minnesota ruled the breadbasket.34

  North American wheat and corn growers benefited mightily from being able to pour grain directly onto railcars that fed steamships bound for Europe, but they were not alone. Farmers from Argentina, Australia, New Zealand, and deep in the Ukraine also benefited from the dawning age of cheap transport.

  On September 5, 1833, the American clipper Tuscany appeared at the mouth of India’s Hooghly River, took on a river pilot, and headed upstream to Calcutta. The news of its arrival was swiftly relayed upriver, throwing that city, whose name is synonymous with sweltering heat, into a state of excitement. The Tuscany carried a new and priceless cargo: more than a hundred tons of crystal-clear New England ice.

  By that year, ice had been shipped over great distances for nearly three decades. This trade was the brainchild of an eccentric Bostonian, Frederic Tudor. On a visit to the Hades of Havana one summer in his youth, he imagined that he might make his fortune acquainting the city with cold drinks. He was right. Beginning in the Caribbean, he expanded his operations throughout Europe and the United States, particularly in New Orleans, where Tudor ice made the mint julep famous.

  Getting a frozen cargo from Massachusetts to India on a sailing ship is not as difficult as it sounds—the larger the mass of ice, the more slowly it melts. A layer of sawdust insulation and a bit of ventilation were enough to keep two-thirds of 150 tons of ice frozen for the four-month journey.

  The hard part of shipping ice to the tropics was harvesting the clear, cold cargo in sufficient quantity, quality, and shape. This problem was solved by Nathaniel Wyeth, a hotel keeper who sold ice to Tudor as a sideline. Wyeth’s invention, patented in 1829, gave birth to one of New England’s largest nineteenth-century industries. His horse-drawn contraption, which mounted cutting teeth on a rectangular frame, yielded twenty-inch blocks that loaded easily and stacked tightly.

  Beginning with his first Caribbean shipments, Tudor began packing seasonal fruit into his refrigerated holds—typically, Baldwin apples southbound to Havana, and oranges northbound. Farther north, the very first barges on the Erie Canal carried ice-chilled Great Lakes fish to New York. Strangely, Tudor did little to exploit this advance. Until the day he died in 1864, he dealt almost exclusively in ice, and it fell to others to develop what would become a much larger business, the shipment of perishables.35

  Well into the twentieth century, most of America’s refrigeration was harvested from the ponds and rivers of New England and the Upper Mid-west and packed into ships, barges, and specially designed railroad cars that chilled an increasing amount of produce bound for the East Coast, the Caribbean, and Europe.

  One of Tudor’s minor sources was Walden Pond. Henry David Thoreau, demonstrating an imperfect grasp of Indian Ocean trade routes, sea temperature, and the physics of heat transfer, mused about a wayward block of Tudor ice tumbling into the harbor at Calcutta:

  The pure Walden water is mingled with the sacred water of the Ganges. With favoring winds it is wafted past the site of the fabulous islands of Atlantis and the Hesperides, makes the periplus of Hanno, and, floating by Ternate and Tidore and the mouth of the Persian Gulf, melts in the tropic gales of the Indian Seas, and is landed in ports of which Alexander only heard the names.36

  Refrigerated vehicles began to appear in the 1830s. Photographs taken at Promontory, Utah in 1869, just after the opening of the transcontinental railroad, reveal a long string of the distinctive Union Pacific fruit cars used to carry out-of-season grapes, pears, and peaches to astonished easterners. Other chilled cargoes ranged from cut flowers to sides of beef, and these bounteous luxuries fed consumers’ demand for more. By the mid-nineteenth century, a higher tonnage of ice, bound for India, Europe, and around the Horn to the West Coast, was shipped out of Boston harbor than any other product. Occasionally, shipments traveled as far as China and Australia.37

  Around the same time, a meat packer in New England, Gustavus Swift, decided to move his business to Chicago’s rail hub. Finding the railroad companies both unwilling and unable to provide ice-chilled cars, he began to experiment with various railcar designs. He settled on one invented by Andrew Chase that featured easily loaded twin overhead ice tanks at either end, a configuration later improved on by another meat packer, Philip Armour, who added an effective cooling mixture of crushed ice and salt.38 By 1880, the railroads and private shippers owned more than 1,300 ice-cooled refrigerated cars; by 1900, that number swelled to 87,000. The number finally peaked in 1930 at 181,000 cars.39

  In 1875, the American beef distributor Timothy Eastman shipped the first chilled meat from New York to England. He packed about one-fourth of the volume of the hold with ice and cooled the adjacent cargo with ventilation fans. Queen Victoria deemed the beef “very good,” continuing the centuries-old tradition of royal endorsement of novel consumer goods and bringing chilled American meat to English tables.

  Not many populated areas of the world are blessed with a reliable ice-harvesting season. Even in the Boston area where Tudor operated, a mild winter often resulted in a “crop failure,” inducing panic in the more refined parts of the South and moving the cutting crews to Maine. In the nineteenth century, the public also became concerned about the purity of ice harvested by horse-drawn Wyeth cutters from increasingly polluted ponds and rivers. Both Americans and Europeans began to investigate artificial chilling.

  Before the mid-twentieth century, home refrigeration meant iceboxes. By the early twentieth century, most American families owned such “refrigerators”—insulated cedar or oak boxes designed to keep a small amount of meat or a dairy product cold with ice replenished every several days.

  Mechanical refrigeration had no Alexander Graham Bell or Thomas Edison. The basic principles of artificial cooling had been known since prehistoric times by the chill of wind on wet skin. (In terms of modern physics, evaporation consumes heat, and thus produces cooling.) In ancient Egypt, wealthy people had their slaves moisten the outside of earthen jars, which chilled on exposure to night breezes; the Indians recorded the first production of artificial ice by a similar treatment of covered water-filled pits.

  In 1755, William Cullen, a Scottish physician, made a simple but far-reaching breakthrough when he generated a vacuum in a water-filled vessel. This made the water boil at room temperature (or at least what passes for it in Scotland). Since boiling is essentially very rapid evaporation, it produces dramatic cooling—the same phenomenon that occurs when you emerge from a swim into a stiff breeze. Soon enough, Cullen was able to make ice at room temperature. Variations on Cullen’s basic technique multiplied; the most alarming of them involved using concentrated sulfuric acid, which aggressively absorbs water, to hasten its evaporation.

  Physicists improved Cullen’s method with the use of ether, which boils at a much lower temperature than water and is thus a more effective cooling agent. Finally, the discovery of thermodynamics brought the realization that certain gases, particularly ammonia and carbon dioxide, could also exist as solids or liquids at a low enough temperature or high enough pressure, and thus provide yet more efficient cooling.

  Figure 12-3 illustrates the operation of a simple, early mechanical refrigeration device. The compressor sucks ammonia from the system on the left of the diagram, producing low pressure there, and compresses it into the right half. As the ammonia boils off on the low-pressure side, it cools a jacket of brine (which has a low freezing temperature) that is circulated out to the task at hand—ice-making machinery in the case of an ice plant, or the refrigerated compartment of a ship. On the high-pressure side, the ammonia condenses, producing “waste” heat that is vented off.

  These first
heavy, inefficient steam-driven mechanical refrigerators, produced by dozens of inventors under numerous patents, were used in fixed ice-making plants far from natural ice sources—in the Caribbean, south of the Mason-Dixon Line, in West Coast cities, and particularly in Argentinean and Australian meatpacking plants. Tudor’s Calcutta trade, which grew steadily more profitable for nearly half a century following his initial delivery in 1833, came to an abrupt end a few years after the opening of the city’s first artificial ice plant in 1878.40

  Figure 12-3. Schematic of Early Mechanical Refrigeration Unit

  Artificial and natural production complemented each other nicely; ice made in plants in New Orleans or California filled the cooling tanks of northbound and eastbound refrigerator cars; blocks harvested from midwestern rivers and New England ponds cooled south- and westbound freights.

  Timothy Eastman’s partner, Henry Bell, suspected that the new artificial refrigeration machines might prove more economical than ice for marine shipping. In 1877 he approached the famous physicist Sir William Thompson (later Lord Kelvin) about the feasibility of transporting artificially chilled and frozen beef. (The American firm Kelvinator would subsequently appropriate his name.) Not having the time or inclination for commercial schemes, Thompson introduced Bell to his associate J. J. Coleman, and the two founded the Bell-Coleman Mechanical Refrigeration Company.41 Together, they built a fleet of mechanically refrigerated ships, one of which, the Circassia, carried the first American beef kept chilled by the new machines.42

  In 1881, Australia was home to sixty-five million sheep, eight million cattle, and just over two million people; artificial refrigeration allowed much of the mutton to find its way into English butcher shops. By 1910, the United States was sending about four hundred thousand tons of beef to Britain each year, and Argentina was shipping an even larger amount of both beef and mutton. (American beef was chilled, whereas Argentinian and Australian meat was deep-frozen to about sixteen degrees Fahrenheit because of the greater distance it had to travel.) On the eve of World War I, nearly 40 percent of meat consumed by Britons came from abroad.43 The London correspondent of Scientific American observed:

  I frequently stood at the great warehouse on the Thames and have seen the barges that have taken out the carcasses of mutton . . . which are stacked up just like cord wood, handled like cord wood, and put under the great arches of the Cannon Street Bridge, in rooms holding 80,000. There you find mutton from New Zealand and South America, artificially frozen at the start, kept frozen on the voyage, stored in the storehouses under the great arches of the bridge, and delivered frozen to the retailers. All the meat is being sent by Armour, Hammond, Eastman, and other shippers.44

  The refrigerated meat industry got yet another marketing boost from Edward L. Bernays, public relations pioneer and nephew of Sigmund Freud. By the 1920s, busy Americans and Britons had cut their breakfasts down to rapidly prepared juice, toast, and coffee or tea. Bernays conducted the first “three out of four doctors recommend” campaign for New York’s Beechnut Packing Company. It plugged a hearty breakfast (and plugged arteries), and established bacon and eggs as the traditional morning meal of English-speakers on both sides of the Atlantic.45

  Throughout history, increases in trade volume have always benefited some and harmed others. Falling transport costs allowed farmers and ranchers in the United States, Canada, Argentina, New Zealand, Australia, and the Ukraine to bury Europe under mountains of grain and meat. On the other hand, American shipbuilders, who had relied on cheap domestic timber and their expertise with sailing vessels, lost out to British steam and steel technology. Between 1850 and 1910, two-fifths of Atlantic tonnage sailed under the Union Jack, compared with only one-tenth under the Stars and Stripes.46

  India also lost. Its cotton and jute growers prospered, but its sail-based maritime sector was devastated by the combination of steam and the Suez Canal. By the beginning of World War I, India’s vessels could not even service its own coastal trade, and its shipbuilding industry disappeared almost entirely.47

  While optimistic observers, like the correspondent for Scientific American, marveled at the miracles of global commerce, a backlash was building. The European reaction to the avalanche of agricultural products from the New World would set back the free-trade movement for over half a century, contribute in no small part to two devastating world conflicts, and supply the backdrop for today’s battles over globalization.

  13

  COLLAPSE

  We learned that a prohibitive protective tariff is a gun that recoils upon ourselves.—Cordell Hull1

  It was the worst of times to be an American. Around the world, political leaders and editorialists condemned our foreign policy, which was seen, correctly, as unilateralist, arrogant, and dangerous. Outraged Europeans organized boycotts of our products. Wrote one Italian businessman to another, “The driver of an American car, in our province, particularly in the environment of the city, is continually made the butt of obscene gestures and epithets unworthy of a civilized people.”2 The French, as always, fretted about the growing power of the United States. One Parisian editorialist viewed opposition to the monster across the Atlantic as the duty of all Europeans—“the only means of struggling against American hegemony.”3

  What had incited such vigorous anti-Americanism? The invasion of Iraq? The conflict in Vietnam? The global ubiquity of McDonald’s, Microsoft, and Disney? The period in question was 1930–1933, and the issue was the Smoot-Hawley Tariff.

  One of the most notorious pieces of legislation ever passed by Congress, it is also one of the most poorly understood. Smoot-Hawley did dramatically raise U.S. tariffs, but they were already quite high. More important, and contrary to popular perception, it did not cause, or even greatly deepen, the Great Depression, nor was it a significant departure from previous American trade policy. Rather, Smoot-Hawley represented the high tide of worldwide protectionism that flowed on the new global agricultural trade.

  The story begins with a brief tour of twentieth-century trade theory. The great premodern thinkers in the field—Henry Martyn, Adam Smith, and David Ricardo—described the overall benefits of free trade. They understood but largely ignored the fact that a significant minority of innocent people were usually harmed. Their twentieth-century descendants—Bertil Ohlin, Eli Heckscher, Paul Samuelson, and Wolfgang Stolper—provided a framework that identifies who wins, who loses, and how they react.

  By 1860, northern Europe, basking in the warm glow of the repeal of the Corn Law, the signing of the Cobden-Chevalier Treaty, and the “tariff disarmament” that followed, seemed firmly on the road to free trade. This pleasant and profitable voyage would not last long.

  Cheaper transport means price convergence. Between the late 1850s and 1912, the cost of sending a bushel of grain from Chicago to Liverpool fell from thirty-five cents to around ten cents. Since faster and more reliable shipping also meant lower handling and insurance costs, the actual savings to consumers were even greater.

  Predictably, during the six decades preceding World War I, wheat prices in the Old World and New World moved closer together, as shown in Figure 13-1.4 A similar plot of price convergence in the late nineteenth century could be drawn for raw and manufactured commodities alike: beef, copper, iron, machinery, and textiles. In 1870, meat sold for 93 percent more in Liverpool than in Chicago; by 1913 this gap had narrowed to just 16 percent.

  Figure 13-1. Wheat Prices in Liverpool vs. Chicago, 1850–1913

  The dramatic increase in shipping efficiency not only produced convergence in agricultural prices but also eliminated the farmer’s friend in hard times: high prices. In a world where it cost too much to import grain from the neighboring valley, let alone from across the ocean, a short crop was partially compensated for by a rise in price. In a global agricultural market with cheap shipping, even that comfort disappeared.5 The loss of this familiar cushion provides as poignant an example as any of the risks of a globalizing economy.

  The situation
was reversed with manufactured products, which were initially cheaper in the labor- and capital-rich Old World. In 1870, pig iron was 85 percent more expensive in the United States than in England; by 1913, this gap had narrowed to 19 percent. Between these two dates the differential for smelted copper fell from 32 percent to zero, and the price structure for textiles actually reversed: textiles were 13.7 percent more expensive in Boston than in Manchester in 1870, and 2.6 percent more expensive in Manchester in 1913.6

  Not only did the prices of the traditional grains begin to move together around the planet, they also danced in sync with the great staple of the East, rice. The nexus of the integrated rice-wheat market was India; a rise in the price of wheat in Bombay also increased that of rice, since Indians ate both. Further, the spread of long-distance submarine and land telegraph lines in the 1860s and 1870s meant that a movement in grain in Calcutta was instantly mirrored in the markets of London, Sydney, and Hong Kong.7

  In the early twentieth century, two Swedish economists, Eli Heckscher and Bertil Ohlin, puzzled over these data and came to the conclusion that something even more profound was happening. The “classical economics” of Adam Smith, David Ricardo, and John Stuart Mill stipulated three inputs for all products: labor, land, and capital—paid for, respectively, with wages, rents, and interest.8 Heckscher and Ohlin’s essential insight was that decreased shipping costs created not only the global convergence of commodity prices, but also convergence of the prices of the three basic input factors: wages, rents, and interest rates.9

  Recent research has confirmed their hypothesis. In the early nineteenth century, labor and capital were more abundant in the Old World than in the New World; therefore, wages and interest rates were low in the former and high in the latter. By contrast, land was far more abundant in the New World, so rents were lower there. The economic historians Kevin O’Rourke and Jeffrey Williamson note that in 1870 in the New World, average real wages (defined as actual purchasing power) were 136 percent higher than those in the Old World; by 1913 this gap had decreased to 87 percent. Even more amazingly, between those two dates real American rents rose by 248.9 percent, while British rents fell 43.3 percent.10