2 european expansion

Giovanni Favero, Economic Storia economica del turismo, 2010/2011

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European maritime expansion


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The Renaissance global turn* Fernand Braudel, European expansion and capitalism

• Before the geographical discoveries of the end of the 15th century

it existed international trade, but it was organised among closed exchange circuits– corresponding to civilisation areas– connected by means of sequential trade joints

where commodities (luxuries) were exchanged, but men did not pass by.

• Chinese /Indian : Malacca, Timor• Indian /Arabian : Ormuz• Arabian/Italian : Alexandria, Constantinoples, Levant ports• Italian /Hansa and Flemish: Venice, Champagne and Alpine fairs• Hansa/Scandinavia and Russia : Baltic Sea ports, Novgorod


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Geographical discoveries


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Atlantic economy• The geographical discoveries and the development of

new maritime routes did reorganise and intensify intercontinental trade, involving new actors:– Europeans started moving through, around and beyond old

trade joints.• Direct contact with other civilizations, together with

men, circulated not only commodities, but also – new species (from the Americas: potato, tomato, mais,

turkey, cocoa, tobacco; from Europe: sheep, cows, horses, wheat; from Africa: coffee, cotton, sugar),

– and diseases (from Eurasia: malaria, smallpox; from Americas: syphilis, tubercolosis).

• From an economic perspective, Asian trade grew very slowly until the 18th century:

• it was the Atlantic trade which actually involved an economic integration between the Old and the New World.


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Exploiting the Americas• Between the 16th and the 18th century 10 mln

African slaves were forcibly shipped to European plantations in the Americas

• In the meanwhile, 2 mln. Europeans (mainly English and Spanish) migrated toward the New World.

• And native peoples were exterminated.• Triangular commerce:

– Textiles and weapons from Europe to Africa– Slaves* from Africa to Americas– Colonial goods from Americas to Europe

• sugar, cotton, coffee, tobacco, cocoa


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Gold, but much more silver• Spanish galleons transported also gold and silver.

• This flow of bullion allowed Europe to overturn the relationship with Asian commercial partners,

• and it is mainly silver coins circulation which allows us to speak of an Atlantic economic integration.


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Spanish imports of American gold and silver (kgs).

1500-1520 14.118 - 1520-1540 19.354 86.343 1540-1560 67.577 480.694 1560-1580 20.960 2.061.451 1580-1600 31.553 4.810.655 1600-1620 20.620 4.405.887 1620-1640 5.130 3.542.099 1640-1660 2.049 1.499.431

Quantitative Theory of Money

Price = Speed of circulation * Money quantity / commodities


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Silver lever for Asian trade• Once silver was extracted on a large scale

from Mexican and Peruvian mines,geographical differentials in the value of

silver (its purchasing power) emerged:– in the Americas, it was low (because of plenty),– in Europe it was higher but lowering,– in Asia it was still higher and reached a

maximum in China, where it was scarce.• This phenomenon was the real engine of

Asian-European trade:– pepper and other Asian imports were cheaper not

because of lesser costs, but because Europeans’ silver purchased much more in Asia.


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European price revolution• Thanks to bullion imports, prices in Europe

were rapidly rising in the 16th century.• The plenty of silver allowed its exchange

rate with gold to lower – (much more silver was needed to buy the same quantity of gold)

• This involved changes in the European financial organisation,– due to the Spanish Habsburgs monopoly on colonial

trade (unification with Portugal in 1570)– and to their wars against France (in Italy, 1510-1555)– and Protestants (in the Low Countries, 1570-1590).

> American silver arrived to Sevilla, but the Spanish crown needed gold to pay soldiers in the Flanders.


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From Genoese to Jewish bankers• Genoese bankers dominated the money-

exchange market in the first 16th century.– They were contractors for the payment of soldiers

(anticipating gold money)– and were reimbursed with interests with arriving silver

loads from the Americas.– They received silver in Sevilla and exchanged it with

gold in the Flanders at the exchange fairs in Piacenza by means of letters of exchange.

• This mechanism ended because of – the continuous fall of silver value (due to Spanish

crown’s war expenses)– and of the several bankruptcies of Spanish crown.

• In the 17th century, Jewish bankers (expelled from Portugal in 1570 and settled in Amsterdam) took over the financing of Spanish huge debt.


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The limits of price revolution• Prices were rising both in Europe and in the

Americas, but not in Asia:– inflation convergence in the Atlantic economy,– favoured by European demographic and demand

growth• In Asia, the production of exports (pepper, tea,

cotton) grew, but it was not so important in the whole economy to allow an adjustment in prices due to silver imports.

• Technical bottleneck for high transportation costs on the Cape route or on the Pacific route.

• The Asian trade was hence the most profitable in 17th and 18th centuries, and new maritime powers were fighting to control it.


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The English-Dutch rivalry for East-India trade

• In East Asia (mainly Indonesia) European merchants could exploit arbitrage opportunity to make profits by means of differential in spice price – (allowed by American silver)

• In the first half of 17th century, England and the Netherlands were the only European powers remained competing in those seas– Spain had been assigned Americas by a papal decree in 1493– Portugal was assigned Africa and Asia (and Brazil) but in the first

17th century was rapidly declining, to become a marginal trader– France was not investing in Asian trade until the second half of the

century


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• English merchants entered East India at the end of 16th century

– In 1600 a group of merchants founded the East India Company, as a joint-stock company* designed to take advantage for England of new trading opportunities

• East India Co. was allowed by the Queen Elizabeth I a charter granting

– 15-years exclusive monopoly for trade beyond the Cape of Good Hope (than renewed)

– Customs concessions– Permission to export species• But it was only a shipping company


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• In 1602 was founded the Dutch East-India Company (V.O.C.)

– Initiated and partially financed by Dutch government (the States General) in order to contrast effectively English expansion in East Asia

– Allowed exclusive monopoly rights in trade with Asia– Empowered to make political treaties in the area, to

conclude monopoly contracts with suppliers, to acquire land and build fortifications

• Ending in the second half of the century with territorial control, as a means to dominate international trade in the area


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• Besides of Dutch company State-like powers, another difference among the two companies accounts for its success in trade competition

– English East India Co. was a joint-stock chartered but private firm, run solely by shareholders merchants in order to maximize their profits

– VOC was managed by bewindhebbers (managers) participating in profits and directly accountable to shareholders,

– but since 1602 also to the government, who allowed monopoly privileges imposing its control by means of incentives to managers by provision, in order to maximize the turnover, even against profits


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• Government control on VOC built conditions to expand trade insulating managers from investors by means of provisions

• This provoked time-to.time stockholders unrest, because costs of increasing territorial control and provisions to managers reduced disbursable profits,

• even if total profits in the long run were finally higher because of the leadership, monopoly position acquired by VOC in East-India trade

– Incentive provisions to managers obtained the same result of export subsidies to independent companies using profits instead of State money


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• Ironic conclusion of this story:

• Dutch success in Indonesia committed them to pepper trade, that was declining in the second half of 17th century

• English merchants were forced by Dutch success to divert to India, where they capitalized on the rapid-growing cotton-textile trade

2 european expansion

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