This chapter begins with what may seem to be a digression, but is actually central to the explanation of how South Africa – and more especially the northern republics of the Transvaal and Orange Free State – escaped from the parlous situation in which the country languished until the 1860s, and was at last enabled to embark on a transition to a dynamic, modern economy.

Models of export-led growth

The really hard part of economic growth is getting the process started, and this is particularly difficult to achieve on the basis of internal demand alone. Undeveloped economies are usually trapped in vicious circles of poverty. Because income is low there is little demand, and consequently very little output other than subsistence production of food. Low levels of output in turn close the circle by perpetuating low incomes. To make matters worse, low incomes mean that there is little possibility of saving and so of making capital investments, with the result that productivity cannot be improved, and there is thus no escape from the low level of income.

The expansion of exports to overseas markets provides one of the best means for a country to break out of this trap and enjoy export-led growth. It is a commonplace of the historiography that gold was the export staple that played this role for South Africa, and provided the basis for rapid economic development.