Splendid Exchange, A
Page 1
A SPLENDID EXCHANGE
William Bernstein is a financial theorist and historian whose books include The Birth of Plenty, published in 2004 to critical acclaim. He lives in the United States.
ALSO BY WILLIAM BERNSTEIN
The Intelligent Asset Allocator
The Four Pillars of Investing
The Birth of Plenty
First published in the United States of America in 2008 by
Grove Atlantic Ltd.
First published in hardback in Great Britain in 2008 by Atlantic Books, an imprint of Grove Atlantic Ltd.
This ebook edition published in Great Britain in 2012
by Atlantic Books
Copyright © William J. Bernstein 2008
The moral right of William J. Bernstein to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Acts of 1988.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of both the copyright owner and the above publisher of this book.
Every effort has been made to trace or contact all copyright-holders. The publishers will be pleased to make good any omissions or rectify any mistakes brought to their attention at the earliest opportunity.
A CIP catalogue record for this book is available from the British Library.
ISBN: 9781782390749
Maps by Matthew Ericson
Printed in Great Britain
Atlantic Books
An imprint of Grove Atlantic Ltd
Ormond House
26–27 Boswell Street
London WC1N 3JZ
www.atlantic-books.co.uk
To Jane
CONTENTS
List of Maps
Introduction
1 Sumer
2 The Straits of Trade
3 Camels, Perfumes, and Prophets
4 The Baghdad-Canton Express
5 The Taste of Trade and the Captives of Trade
6 The Disease of Trade
7 Da Gama’s Urge
8 A World Encompassed
9 The Coming of Corporations
10 Transplants
11 The Triumph and Tragedy of Free Trade
12 What Henry Bessemer Wrought
13 Collapse
14 The Battle of Seattle
Acknowledgments
Notes
Bibliography
Illustration Credits
Index
MAPS
Ancient Silk Routes
World Trade System, Third Millennium BC
Ancient Canals at Suez
Winter Monsoon Winds and Summer Monsoon Winds
Athenian Grain Routes
Incense Lands and Routes
The World of Medieval Trade
The Spice Islands
Eastern Mediterranean Spice/Slave Trade, Circa AD 1250
The Black Death, Act I: AD 540–800
The Black Death, Act II: 1330–1350
The Tordesillas Line in the West
Da Gama’s First Voyage, 1497–1499
The Global Wind Machine
Banda (Nutmeg) Islands
Strait of Hormuz
Dutch Empire in Asia at its Height in the Seventeenth Century
Coffee-Growing Area and Ports of Late-Medieval Yemen
The Sugar Islands
Pearl River Estuary
The Erie Canal and Saint Lawrence Systems in 1846
World Oil Flows, Millions of Barrels per Day
INTRODUCTION
The circumstances could not have been more ordinary: a September morning in a hotel lobby in central Berlin. While the desk clerk and I politely exchanged greetings in each other’s fractured English and German, I casually plucked an apple from the bowl on the counter and slipped it into my backpack. When hunger overtook me a few hours later, I decided on a quick snack in the Tiergarten. The sights and sounds of this great urban park nearly made me miss the tiny label that proclaimed my complimentary lunch a “Product of New Zealand.”
Televisions from Taiwan, lettuce from Mexico, shirts from China, and tools from India are so ubiquitous that it is easy to forget how recent such miracles of commerce are. What better symbolizes the epic of global trade than my apple from the other side of the world, consumed at the exact moment that its ripe European cousins were being picked from their trees?
Millennia ago, only the most prized merchandise—silk, gold and silver, spices, jewels, porcelains, and medicines—traveled between continents. The mere fact that a commodity came from a distant land imbued it with mystery, romance, and status. If the time were the third century after Christ and the place were Rome, the luxury import par excellence would have been Chinese silk. History celebrates the greatest of Roman emperors for their vast conquests, civic architecture, engineering, and legal institutions, but Elagabalus, who ruled from AD 218 to 222, is remembered, to the extent that he is remembered at all, for his outrageous behavior and his fondness for young boys and silk. During his reign he managed to shock the jaded populace of the ancient world’s capital with a parade of scandalous acts, ranging from harmless pranks to the capricious murder of children. Nothing, however, commanded Rome’s attention (and fired its envy) as much as his wardrobe and the lengths he went to flaunt it, such as removing all his body hair and powdering his face with red and white makeup. Although his favorite fabric was occasionally mixed with linen—the so-called sericum—Elagabalus was the first Western leader to wear clothes made entirely of silk.1
From its birthplace in East Asia to its last port of call in ancient Rome, only the ruling classes could afford the excretion of the tiny invertebrate Bombyx mori—the silkworm. The modern reader, spoiled by inexpensive, smooth, comfortable synthetic fabrics, should imagine clothing made predominantly from three materials: cheap, but hot, heavy animal skins; scratchy wool; or wrinkled, white linen. (Cotton, though available from India and Egypt, was more difficult to produce, and thus likely more expensive, than even silk.) In a world with such a limited sartorial palette, the gentle, almost weightless caress of silk on bare skin would have seduced all who felt it. It is not difficult to imagine the first silk merchants, at each port and caravanserai along the way, pulling a colorful swatch of it from a pouch and turning to the lady of the house with a sly, “Madam, you must feel this to believe it.”
The poet Juvenal, writing around AD 110, complained of luxury-loving women “who find the thinnest of thin robes too hot for them; whose delicate flesh is chafed by the finest of silk tissue.”2 The gods themselves could not resist: Isis was said to have draped herself in “fine silk yielding diverse colors, sometime yellow, sometime rose, sometime flamy, and sometime (which troubled my spirit sore) dark and obscure.”3
Although the Romans knew Chinese silk, they knew not China. They believed that silk grew directly on the mulberry tree, not realizing that the leaves were merely the worm’s home and its food.
How did goods get from China to Rome? Very slowly and very perilously, one laborious stage at a time.4 Chinese traders from southern ports loaded their ships with silk for the long coastwise journey down Indochina and around the Malay Peninsula and Bay of Bengal to the ports of Sri Lanka. There, they would be met by Indian merchants who would then transport the fabric to the Tamil ports on the southwest coast of the subcontinent—Muziris, Nelcynda, and Comara. Here, large numbers of Greek and Arab intermediaries handled the onward leg to the island of Dioscordia (modern Socotra), a bubbling masala of Arab, Greek, Indian, Persian, and Ethiopian entrepreneurs. From Dioscordia, the cargo floated on Greek vessels through th
e entrance of the Red Sea at the Bab el Mandeb (Arabic for “Gate of Sorrows”) to the sea’s main port of Berenice in Egypt; then across the desert by camel to the Nile; and next by ship downstream to Alexandria, where Greek Roman and Italian Roman ships moved it across the Mediterranean to the huge Roman termini of Puteoli (modern Pozzuoli) and Ostia. As a general rule, the Chinese seldom ventured west of Sri Lanka, the Indians north of the Red Sea mouth, and the Italians south of Alexandria. It was left to the Greeks, who ranged freely from India to Italy, to carry the greatest share of the traffic.
Ancient Silk Routes
With each long and dangerous stage of the journey, silk would change hands at dramatically higher prices. It was costly enough in China; in Rome, it was yet a hundred times costlier—worth its weight in gold, so expensive that even a few ounces might consume a year of an average man’s wages.5 Only the wealthiest, such as Emperor Elagabalus, could afford an entire toga made from it.
The other way to Rome, the famous Silk Road, first opened up by Han emissaries in the second century of the Christian era, bumped slowly overland through central Asia. This route was far more complex, and its precise track varied widely with shifting political and military conditions, from well south of the Khyber Pass to as far north as the southern border of Siberia. Just as the sea route was dominated by Greek, Ethiopian, and Indian traders, so would be the overland “ports,” the great cities of Samarkand (in present-day Uzbekistan), Isfahan (in Iran), and Herat (in Afghanistan), richly served by Jewish, Armenian, and Syrian middlemen. Who, then, could blame the Romans for thinking that silk was manufactured in two different nations—a northern one, Seres, reached by the dry route; and a southern one, Sinae, reached by water?
The sea route was cheaper, safer, and faster than overland transport, and in the premodern world had the added advantage of bypassing unstable areas. Silk originally reached Europe via the land route, but the stability of the early Roman Empire increasingly made the Indian Ocean the preferred conduit between East and West for most commodities, silk included. Although Roman commerce with the East tapered off during the second century, the maritime route would remain open until Islam severed it in the seventh century.
The seasonal metronome of the monsoon winds drove the silk trade. The monsoons also dictated that at least eighteen months separated the embarkation of the fabric from south China and its arrival at Ostia or Puteoli. Mortal peril awaited the merchant at every point, especially in the hazardous stretches of the Arabian Sea and the Bay of Bengal. The loss of lives, bottoms, and cargoes was so routine that such tragedies were usually recorded, if at all, with the short notation: “Lost with all hands.”
Today, the most ordinary cargoes span such distances with only a modest increase in price. That the efficient intercontinental transport of even bulk goods today seems so unremarkable is in itself remarkable.
Our high-value items fly around the globe at nearly the speed of sound, conveyed by crews manning air-conditioned cockpits and greeted at journey’s end with taxis and four-star hotels. Even those tending bulk cargoes serve on vessels stocked with videos and bulging pantries that provide a degree of safety and comfort unimaginable to the premodern sailor. Today’s aircraft and freighter crews are highly skilled professionals, but few would recognize them as “traders.” Neither would most of us apply that term to the multinational corporate sellers and buyers of the world’s cornucopia of commerce.
Not so long ago, the trader was simple to identify. He bought and sold goods in small amounts for his own account, and he accompanied them every step of the way. On board ship, he usually slept on his cargo. Although most of these traders left us with no written records, a vivid window into premodern long-distance commerce can be found in the Geniza papers, a collection of medieval records stumbled on in a storage room adjacent to Cairo’s ancient main synagogue. Jewish law required that no document containing the name of God be destroyed, including routine family and business correspondence. Since this rule applied to most medieval written material, great quantities of records were stored in such repositories at local synagogues—the geniza. Cairo’s Jewish population thrived in the relatively prosperous and tolerant atmosphere of the Muslim Fatimid Empire of the tenth to twelfth centuries, and that city’s arid climate preserved the papers (typically written in the Arabic language but with Hebrew script) well enough that they survived into the present. This routine correspondence among relatives and business partners, strung from Gibraltar to Alexandria to India, provides a rare glimpse into the slow, perilous, grim, gritty world of the peddlers who bought and sold merchandise.
Preparation was onerous even before the journey began. Traders did not venture abroad without letters of introduction to expected business contacts, or without letters of safe conduct from the local rulers along their route. Otherwise, they were certain to be robbed, molested, or murdered. Further, all travelers in the medieval Muslim world required a rafiq, or companion, usually another trader. The trader and the rafiq entrusted their personal security to each other. Few catastrophes en route were worse than the death of one’s rafiq, since the local authorities would assume that the traveler was now in possession of the rafiq’s money and belongings, a virtual guarantee of confiscation and torture. To send a relative or guest on a journey without a rafiq was considered a disgrace.6
In this world, travel was faster, cheaper, safer, and more comfortable by ship than by land. “Faster,” “cheaper,” “safer,” and “more comfortable,” however, are all relative terms. Before the advent of the European caravel and the carrack in the Iberian peninsula in the fifteenth century, vessels that moved primarily under sail were reserved for bulky, low-value cargoes; passengers and precious freight moved on oared craft, which provided the most rapid and reliable method of maritime transport. A galley 150 feet in length might carry up to five hundred oarsmen, not counting other crew, officers, and passengers. Cramming so much humanity into a small space utterly lacking in sanitation turned such craft into floating sewers. “I suffered terribly because of the diseases of my fellow travelers and their disgusting odors,” reported an anonymous merchant on a Nile River boat. “Things went so far that three of them died, and the last of them remained on the boat for a day and a half until he became putrid.”7 The captain’s reluctance to land and bury the corpse on the day of death, a severe violation of Muslim custom, hints at the danger awaiting passengers and crew on shore.
Basic hygiene aside, the captain and crew were often themselves sources of danger. Shipboard robbery and murder were not uncommon, and merchant ships provided corrupt government officials with easy targets. After paying an official the despised “head tax” before leaving port, our Nile River merchant was still suspicious that the same official would return to shake him down a second time:
I left the boat and went ahead, overtaking it at al-Rumayla, where I boarded it again after its arrival. I learned indeed that my apprehensions had been justified. After I had left, the policeman had appeared again to arrest me.8
Such hardships and peril were not unique to Muslim boats. Egyptian merchants often had the option of traveling on Italian or Byzantine vessels; these offered no additional safety or comfort. Any boat might fall casualty to murder, piracy, or disease and then drift without aim for lack of control. These “ghost ships” bore horrifying witness to the human cost paid by crews and passengers, particularly on the remote Indian Ocean spice routes.
Yet however expensive, unpleasant, and perilous medieval sailing was, traders preferred it to the overland route. Even along main roads in the heart of the Egyptian Fatimid Empire, a letter of safe conduct did not protect against bedouin raids. Weeks on a heaving, rancid deck were still preferable to months on the lookout for brigands from the back of a donkey or camel.
The Geniza papers also describe the high expense of land transport. For most of recorded history, the primary manufactured trade commodity was cloth. The total transport costs from Cairo to Tunisia for a bale of “purple” (a camel’s
load of textiles, weighing roughly five hundred pounds) was eight gold dinars. This sum was equivalent to about four months’ living expenses for a medieval Egyptian lower-middle-class family. Half of this cost covered the relatively short 120-mile ground segment from Cairo to Alexandria, and the other half the twelve hundred–mile sea route from Alexandria to Tunisia. Thus, mile for mile, ground transport was ten times more expensive than maritime transport.9 Given the enormous costs, risks, and discomfort of the dry route, merchants chose it only when they could not go by sea: for example, when the Mediterranean was “closed” for the winter season.
Were the trader lucky enough to complete the journey with his cargo and person intact, ruin could still come at the hands of a fickle marketplace. Prices were wildly unpredictable, often brokered with caveats that “Prices follow no principle,” and “The prices are in the hand of God.”10 Why would anyone risk life, limb, and property on journeys that might carry him from hearth and home for years on end, yielding only meager profits? Simple: the grim trading life was preferable to the even grimmer existence of the more than 90 percent of the population who engaged in subsistence-level farming. An annual profit of one hundred dinars—enough to support an upper-middle-class existence—made a trader a rich man.11
Adam Smith wrote that man has an intrinsic “propensity to truck, barter, and exchange one thing for another,” and that this happy tendency was nothing more than human nature “of which no further account can be given.”12 Yet few other historical inquiries tell us as much about the world we live in today as does the search for the origins of world trade—if we ask the right questions. For instance, from the dawn of recorded history there was a vigorous long-distance commerce in grain and metals between Mesopotamia and southern Arabia. And going back even further, archaeologists have found strong evidence of the prehistoric conveyance over long distances of strategic materials such as obsidian and stone tools. While other animals, particularly primates, groom and share food with each other, systematic exchanges of goods and services, particularly over great distances, have not been observed in any species besides Homo sapiens. What drove early man to trade?