It took a combination of gold, silver, and force to dominate the spice trade, but the Portuguese succeeded in doing so, laying down a new law of the seas in the East, even if they never entirely monopolized their lucrative trades.5 For a short time Portugal, a nation of a million people, succeeded in imposing its will upon the Chinese, Arabs, and Venetians who had long plied these waters. They carried European tools and weapons to Africa, silver and gold to China, Chinese goods to Japan, and spices and silks back to Europe. On both coasts of Africa, the Portuguese established fortified towns where they could store goods and refit their ships: Mozambique and Mombasa on the east, Elmina and Luanda on the west. From spices to slaves, they conducted business around the world through some fifty settlements that they defended against all comers.
Rarely have such great riches fallen into the laps of rulers with so little effort on their part. The extraordinarily lucrative spice and silver trades promoted extravagant royal habits. In both Portugal and Spain taxes were high, and the distribution of wealth followed the traditional pattern in which the few indulged their taste for grandeur and the many penurious peasants and workers struggled to survive. Two powerful kings, Charles V, the grandson of Ferdinand and Isabella, and his son, Philip II, who ruled Spain from 1556 to 1598, knew exactly what they wanted to do with this seemingly endless flow of bullion. They would wage war against the Turks, French, Italians, Protestants, and even popes in order to establish their hegemony in Europe and protect the supremacy of Catholic faith, now challenged in the East by the Ottoman Turks and in Europe by Protestants. They also needed money to quell rebellion in their own empire, for the people of the Netherlands had begun a protracted revolt for independence in the 1580s. A heretical queen ascended the throne in England. The joining of the crowns of Portugal and Spain in 1580 made Spain more politically powerful, even if economically it was stagnating.
Spanish shipbuilders flourished with the new demand for oceangoing vessels. Spain’s woolen industry also prospered under royal favor, but the royal bureaucracy battened off most of the merchants, manufacturers, and farmers through a steady diet of customs, tolls, and taxes. The Spanish kings’ pervasive fear of heresy led them to curtail the travel of their subjects during most of the sixteenth century. Bans on the importation of books obstructed the free circulation of ideas as well as enterprise. The Spanish aristocracy resisted change, and the crown stifled new industries with onerous regulations and taxes. Spanish industry reached its high-water mark in 1560. After that the demand for the goods of English, French, and Dutch artisans and traders, who had been supplying Spanish consumers, took off while Spain’s cities became as barren as its land.
The appeal of enterprise could not overcome the aristocratic contempt for commerce that permeated the society. Spanish hidalgos, those elegant gentlemen, used their considerable political influence to protect their way of life. They put ceilings on domestic prices that cut domestic profits while encouraging cheap imports from abroad. This of course undercut their own artisans. The monarchy was equally indifferent to Spanish farmers, whose crops were at risk every winter, when the highly valued merino sheep moved from the northern mountains to the warmer south. State-mandated trails existed to keep the sheep from trampling nearby fields. But the Mesta, the guild of shepherds, ignored complaints, and the king, a great beneficiary of the taxes that the wool trade generated, failed to enforce the laws.
In a general history of this era, Spain and Portugal would get a great deal of attention, but this is a brief history of capitalism, to which they contributed little. Neither at home nor in their settlements did they move beyond the conceptual universe of hidalgos, honor, and heroic deeds. Don Quixote, created by Miguel de Cervantes in 1605, epitomizes the qualities that spelled economic failure for the Spanish. Perhaps his mistaking a windmill for a mighty opponent was Cervantes’s way of saying that Spanish gentlemen, mired in the past, couldn’t even recognize this benign source of energy for productive work.
We are so used to listening to the upbeat story of progress that it is only with difficulty that we can imagine a different narrative, one that is truer to the past than the future. What happened to Spain and Portugal was not dissimilar to the earlier arrests of prosperity in the Roman, Asian, or Islamic worlds. This was what had always happened: short-lived bursts of energy followed by inevitable decline as yet another ascendant power failed to vault the limits held in place by its resources, its institutions, and its internal contradictions. These tales of empires, rising and falling, spawned a strong sense that history was cyclical and that change brought catastrophes more often than sustained accomplishments.
Portugal and Spain did not fail at what was important to them, and their empires lasted longer than those of other imperial powers. What is striking is how little their amazing exploits in navigation, explorations, and trade changed their societies at home. Spain could halt the expansion of Islam when it defeated the Turks at sea near the Greek city of Lepanto in 1571 (at which Cervantes fought), but they could not or would not tolerate a restructuring of their societies.
Formal and informal warfare became intense and brutal in Atlantic waters. As early as 1564 Spain began to convoy its gold and silver fleets from the New World to the House of Trade in Seville. The convoys, leaving the Americas in April and August, continued for a century. The English too organized convoys once the tobacco grown in its Chesapeake settlements grew valuable enough to attract raiders. Europe’s endemic warfare lent some legitimacy to attacks on the high seas because all countries issued what were called letters of marque—licenses—to the owners of vessels to arm them for the purpose of capturing enemy merchant ships. As long as two countries were at war, as was much of the time, privateers were part of the nations’ armed forces. Dutch, English, and French privateers repeatedly raided Spanish settlements, and they lay in wait for straggling ships in the Spanish silver convoys, twice capturing the entire fleet. Not yet in possession of their own colonies, these countries chipped away at the profits of the trailblazers.
The most famous privateer in the English world was Sir Frances Drake, who repeatedly attacked Spanish settlements and ships in the Caribbean. On one occasion he seized Santo Domingo, freeing the slaves, burning the city, destroying the ships in the harbor, and receiving a handsome sum after returning the city to the Spanish. His audacity in sailing to the Pacific around Cape Horn in 1572 to attack the unarmed Spanish silver fleet going to the Philippines thrilled the English public, whose queen, the Protestant Elizabeth, had long been a target of the Spanish king. When war between the Spanish and English broke out, Drake once again was in business as a privateer. Leading fleets of two dozen ships, he raided up and down the north coast of South America, known as the Spanish Main. Another pirate, Henry Morgan, mobilized dozens of ships and thousands of buccaneers in his attacks on Spanish possessions in the Caribbean. He was arrested for breaking the peace, but the outbreak of a new war won him a reprieve, a knighthood, and command of England’s new colony of Jamaica.
On occasions like this when Europe’s warring powers signed peace treaties, many of the licensed privateers like Morgan became pirates, taking out after merchant ships without the cover of royal licenses. Drake, like the Portuguese sailors who commandeered the trade in the Indian Ocean, represented more of the old order than the new. Sixteenth-century pirates took advantage of the new trades to the Orient and New World and adopted the superior designs for boats, but these adventurers would have been recognizable to the Phoenicians who plied the Mediterranean in ancient times. The trade in silks and spices from the East Indies enticed pirates because one such prize would pay the outfitting cost of an entire voyage. Turkish pirates preyed on ships in the Mediterranean, though the pashas of Tripoli later found it more rewarding to exact tribute in formal treaties. Piracy also flourished in the Red Sea, Indian Ocean, the Strait of Malacca, and the South China Sea, but especially in the Caribbean because of the allure of the gold and silver carried home by the Spanish.
J
umping ahead for a minute, we can see that as the volume of legitimate trade increased, the sober, solidly middle-class side of commerce asserted itself. Merchants got tired of losing valuable cargoes to pirates and having to pay high insurance premiums even when they didn’t lose their ships. The great trading companies began agitating for protection from the random seizures of their goods. The celebrated career of Captain Kidd is exemplary. Hired to protect English East Indian vessels in the Red Sea in 1696, William Kidd, who operated out of New York, figured that he could make more money becoming a buccaneer. He scuttled his own ship, took one that was flying French colors, and began seizing the very ships that he had been hired to protect. Finally the government listened to the merchants. Captured when he returned to New York City four years later, Kidd was tried, convicted, and sent back to London for execution to publicize official intolerance of piracy.6 Governments were now charged with making the seas safe for legitimate commerce. When Edward Teach, who terrified sailors in the Caribbean, where he marauded as the pirate Blackbeard, turned honest, the colonial governor of North Carolina colony married him to his fourteenth wife!
What Spain and Portugal did most significantly was to open up doors for their neighbors. The baton of economic development, if we can so consider it, passed to France, Holland, and England. Informally, they had entered these trades as pirates and smugglers because profits from the East and West Indies trade made those risky occupations worth pursuing. By the beginning of the seventeenth century, the French, Dutch, and English governments had chartered legitimate trading companies to challenge the Spanish monarchy that now controlled both Iberian empires. The stakes were high. As Sir Walter Raleigh, another Englishman entranced by the New World, shrewdly observed, “Whoever commands the sea commands the trade; whoever commands the trade of the world commands the riches of the world and consequently the world itself.”
The Atlantic Ocean became the principal freeway of the trading universe that was fast becoming global in scope. First Spain and Portugal, then the Netherlands, France, and England benefited from easy access to the waters that carried European traders in all directions. The great losers in this geographic repositioning were the Italian city-states, the Turks, and other Muslims who had operated in the complex commercial network of the Indian Ocean. Up until the first half of the sixteenth century Venice had sent a fleet of merchants to trade with England, which had virtually no navy or merchant marine. All that changed when the English formed their own trading companies and sent ships around the world. Closed out by the Dutch from the spice trade centered in Indonesia, the English East India Company, chartered in 1600, established settlements at Surat, Bombay, Calcutta, and Madras. By the eighteenth century it had succeeded in taking control of most of India. The winners of this European intrusion into the Far East narrowed down to England and the Netherlands.
The Impact of Civil War
English and Dutch success invites a closer look at what was going on in these countries politically. While it might not have appeared a blessing at the time, both England and the Netherlands fought wars for greater national self-determination at the same time that they were challenging Spanish and Portuguese domination in the New World and East Indies. The Dutch fought for independence from the Spanish Hapsburg Empire over an eighty-year period. In the Netherlands there was greater wealth than in any place in Europe after the Dutch won their freedom from Spain in the late sixteenth century, officially recognized in 1648. But that wealth did not translate into the successive organizational and technological changes that characterize capitalism as a system. The Dutch grew fat and happy and complacent without following the English path toward progressive improvements. Indeed, its backward neighbor Belgium, which stayed within the Hapsburg Empire until the nineteenth century, industrialized first. Riches were not enough in these early decades of capitalist development to pry open the doors of a closed society in Spain and Portugal; Dutch prosperity did not translate into continued innovation.
From the 1620s through the 1680s, the English government was in turmoil. A king was executed, a Parliament dismissed, another king restored, and a hereditary succession rejected, ending with the so-called Glorious Revolution of 1688. Although these were primarily political conflicts, economic issues helped define the opposing sides. The king was the largest landholder in England, so his income could vary with good and bad times like that of other landed families. But the king, thanks to his unique prerogatives, had other sources of income, like payments from grants of monopolies, patents, and company charters. The most lucrative “gifts” he could sell were licenses for the exclusive public control of a product, a trade, or even a government service, like the inspection of tobacco or collection of customs.
King James I found in the granting of monopolies a particularly facile way of increasing his income. As one scholar reported, in the early seventeenth century a typical Englishman lived “in a house built with monopoly bricks…heated by monopoly coal. His clothes are held up by monopoly belts, monopoly buttons, monopoly pins…. He ate monopoly butter, monopoly currants, monopoly red herrings, monopoly salmon, monopoly lobsters.”7 The holders of monopolies had the exclusive right to sell these items and charged as much as people would pay for them.
Such a lavish sale of privilege would have been a burden at any time, but with the growth of internal and external markets, monopolies distorted the whole pattern of trade. Even the nobility became attracted to commercial ventures, especially if they involved colonies that would enhance the prestige of England.8 The more the English rulers attempted to extract money in unconventional taxes, grants, and patents, the more economic issues got pulled into parliamentary debates. Defenders of royal prerogatives exuded the confidence of carriers of an old commercial tradition, appealing more to sensibilities than to economic reasoning. Men close to power continued to evoke the old ideal of subordinating economic activities to social solidarity, but fresh disputants were finding their voices and a new vocabulary for talking about harvests, rents, trade, and taxes as part of a new economic order.
In England the king came to represent adherence to tradition and the use of arbitrary power. Monopolies and closed corporations shared in the opprobrium of all things royal. In the wrangling over monopolies and other economic ills, a large swath of the English elite with seats in Parliament—improving landlords, members of trading companies, clothiers—discovered their common interests. Economic grievances transmogrified into political issues. With gross simplification it could be said that even if the forces behind economic development didn’t cause the English Civil War, the conflict assured that they would eventually triumph.
Civil unrest in the seventeenth century, because it lasted so long, weakened the political authority requisite for policing economic restrictions. It’s one thing to have a law—even a venerable law—on the books and another to be able to enforce it in the face of powerful incentives for evasion. With the leaders of England’s political and religious institutions distracted by the long civil unrest, entrepreneurs strengthened internal transportation systems, marketed colonial products, and turned London into a great emporium. After this thirty-year period during which authorities were elsewhere engaged, many defended defiance of restrictions as good for the country. With less formal direction, an informal system of cooperation had prevailed. Once some restraints were removed, the subsequent commercial buoyancy earned more supporters for freeing up economic life. In the Netherlands and England, merchants and manufacturers ended up with a greater share of political power and a louder public voice than they had before.
After the Dutch achieved independence, they established a loose confederation with each province headed by a regent who was usually a prominent merchant. This decentralized blend of political and economic power put government squarely behind the commercial interests in the Netherlands. Only the northern provinces of Holland and its neighbors, which were largely Protestant, gained independence. More than offering protection to traders and manufacturers, D
utch leaders devised new supports for their economy with free ports, secure titles to land, efficient processes for settling lawsuits, the teaching of bookkeeping in schools, and the licensing of agents to sell marine insurance.
The Dutch as an Economic Model
In their struggle to hold on to the Spanish Netherlands, Spanish troops had destroyed Antwerp, whereupon its famous bankers simply moved north to Amsterdam. As a magnet of payments as well as of goods Holland became Europe’s financial center. The Bank of Amsterdam, established in 1609, offered interest rates less than half those available elsewhere. Again flexibility triumphed as the Dutch developed credit arrangements for every circumstance and customer. Even the spurned Spanish monarchs turned to the bankers of their erstwhile possessions to borrow money. Over time the Spanish monarchy became so indebted to Dutch financiers that the famous silver fleet convoyed across the Atlantic sailed directly to Amsterdam. Those largely Catholic provinces that remained in the Hapsburg Empire later formed themselves into an independent Belgium.
Everyone marveled at the prosperity of the Dutch. How could a couple of million people packed into cities and towns along the North Sea defy all odds and grow rich? The backbone of their trade was a humble fish, the herring. Herring could be easily dried, and as an all-season source of protein in a protein-short world, it was in great demand. One contemporary estimate concluded that the fishing industry with its hundreds of boats employed half a million Dutchmen and women, twice as many as in agriculture and almost as many as those in crafts, retailing, and finance. Guilds closely controlled the fishing industry, making sure that fishermen observed the government standards of quality. During the first half of the seventeenth century, more than a thousand Dutch ships carried grain from the Baltic countries, exceeding the English by thirteen to one.9 In England, Dutch success started a cottage industry of pamphlet writing to explain it.
The relentless revolution: a history of capitalism Page 5