Splendid Exchange, A

by Bernstein, William L

  The Spanish minted an enormous number of these coins. Their total production is unknown, but in the decade between 1766 and 1776, more than two hundred million coins, each weighing slightly less than an ounce, were produced in Mexico alone.24 Between the sixteenth and nineteenth centuries, the piece of eight, particularly the trusted Mexican coin, was the de facto world currency. Whether in the hands of the mighty trading companies or a lowly local merchant, Spanish dollars paid for nutmeg in the Bandas, calicoes in Gujarat, silk in Manila and Mexico, coffee in Yemen, and cinnamon in Sri Lanka.

  The coin tended to disappear and reappear according to monetary conditions. For example, in India in the late seventeenth century, when silver was highly sought-after, it rapidly found its way into crucibles where it was melted into rupees or jewelry.25 By contrast, in the United States the Spanish dollar was considered legal tender until 1857.

  From the perspective of the Dutch Company, the loss of treasure on Australia’s reefs was at least as grievous as the loss of life. The rescue mission sent to the Batavia carried expert Dutch and Gujarati divers, who recovered ten of the ship’s twelve chests of Spanish silver. When the Vergulde Draek failed to make the turn in 1656 and ran aground north of what is now Perth with its eight chests of silver, the crew, passengers, and Company fared even worse than those on the Batavia. Only seven of the Vergulde Draek’s survivors made it back to Java. The rest were never heard from again, and no trace of the ship’s silver was found until three centuries later, when an Australian boy stumbled over some old coins on the beach.

  In the 1960s, Australian archaeologists recovered approximately half of the estimated 46,000 coins loaded into the vessel’s chests in Holland. The wreckage had been partially ravaged by looters, some of whom used explosives; this caused a public outrage that resulted in legislation protecting Australian archaeological sites.26 Interestingly, almost all the coins carried the “M” stamp of the Mexico City mint, even though about 60 percent of New World silver came from Potosí in Peru and was minted in Lima. The reason for this was simple: the VOC avoided Peruvian coins, since the mint in Lima was notoriously corrupt, and its coins were often debased. In 1650 the officials responsible were punished—at least one was executed—and the VOC did not resume using the Peruvian coins until 1661, well after the shipwreck of the Vergulde Draek.27

  That this huge treasure was the property of the VOC hints that by the mid-1600s, long-distance global commerce had become the domain of multinational corporate capitalism. Over the course of the seventeenth century, the Dutch company would methodically roll up the corrupt, ramshackle Portuguese trading empire, only to face a far more serious threat from another corporate challenger, the English East India Company. The advances in navigation outlined in this chapter would enable these battles to center on European trading posts and plantations around the world. For the most part, they would not be clashes of sovereign armies and navies, but of corporations.

  9

  THE COMING OF THE CORPORATIONS

  On December 13, 1577, a five-vessel flotilla under the command of Francis Drake left Plymouth, England. Drake’s secret charge from Queen Elizabeth was threefold: to repeat Magellan’s circumnavigation, to establish trade with the Spice Islands, and to plunder Iberian shipping.

  Nothing could have suited Drake better. Just thirty-seven years old, he had already earned a reputation for navigational skill and bravery under fire. Nine years earlier, he had sailed the Caribbean to traffic in slaves with his cousin John Hawkins. While repairing their boats at the Mexican port of San Juan de Ulúa, they were double-crossed and nearly captured by the Spanish, an experience that left Drake with a lifelong hatred of Iberians. Five years later, he got even by robbing a Spanish silver train in Panama. He returned to England with a fabulous £20,000 booty for the queen.

  Drake’s circumnavigation succeeded beyond both his and Elizabeth’s wildest expectations. On September 26, 1580, his remaining ships returned to Plymouth harbor, not only having reached the Moluccas but also having sailed the west coast of the New World from Cape Horn to Vancouver Island. During his epic voyage, Drake had explored, traded, and raided. Now his boats lay low in the water with Spanish treasure and Portuguese trade goods wrested from galleons and caravels between Africa and Peru, and with cloves and nutmeg obtained more honestly from Babullah, the rebellious sultan of Ternate in the Spice Islands.

  In Europe, peaceful trade was the province of rich and powerful nations such as Spain and the Netherlands, who had a vested interest in keeping the seas free from piracy. Like many poor, weak, backward states, Britain in the late sixteenth century could not afford the luxury of permitting foreign merchantmen to sail undisturbed; there was simply too much profit in plunder. The majestic, liberal, and free-trading British Empire was more than two centuries in the future; Tudor England was a nation of bankrupt monarchs, crown monopolies distributed to court favorites, and royal letters of marque granting freebooters a piece of the action.

  The most valuable cargo landed that day at Plymouth was neither spices nor silver, but rather intellectual capital. Early in Drake’s odyssey, he had captured the Portuguese vessel Santa Maria near the Cape Verde Islands, off the west coast of Africa. His men were delighted to relieve the one hundred-ton caravel of its trade goods: woolens, linens, velvets, silks, and wine that had been bound for Brazil. It was also loaded down with canvas, nails, and tools—precisely the matériel needed on a long sea voyage.

  However, Drake was far more interested in the pilot, Nuño da Silva, one of Europe’s most experienced mariners. The Portuguese officer and the English pirate spent countless hours together examining and translating the Santa Maria’s charts; within a short time, Silva spoke English fluently. Over the ensuing months, the pilot dined at the captain’s table and was accorded his every wish, except, of course, his immediate release. (Drake did let him go a year later.) Through Silva and his charts, Drake appropriated for England the most closely kept naval and trade secret of the era: celestial navigation in the strange skies “below the line” in the southern hemisphere.1

  Nor was the transfer of this vital intelligence from southern to northern Europe the only historic symbolism to play out that day in Plymouth. When Drake arrived, crown authorities immediately spirited him away from public view. It would be five months before Elizabeth knighted him on the deck of the Golden Hind. State piracy was going out of fashion, and although in 1587 he would distinguish himself further with his daring raid on the war fleet of Philip II at Cádiz—the famous “singeing of the king of Spain’s beard”—for the moment, he had become an embarrassment. England’s future lay with trading, not raiding. The ledger book was soon to prove mightier than the sword, and the pirates, heroic lone traders, and swashbuckling naval commanders of the previous era were about to be replaced by the faceless managers of the two great multinational corporations of the premodern period.

  The first of these was the VOC, which dominated long-distance commerce in the seventeenth century; the second was the English East India Company (known hereafter as the EIC, or more simply, in the appropriate context, as “the Company”), which inherited its mantle in the eighteenth century. For two hundred years these two companies, with very different institutional origins and philosophies, battled each other for global trade supremacy, and their fortunes reflected the nations that gave them birth.

  Before Drake’s expedition, northern European ships had ventured east only as far as the Mediterranean via Gibraltar. If a Dutchman or an Englishman wanted to travel to the East, it would have to be on a Portuguese, Spanish, or Asian vessel, or by the overland route.

  Early in the sixteenth century, the Tudors began granting monopolies to trading syndicates. Probably the first of these was a group known as the Merchant Adventurers, chartered in 1505 to send vessels laden with wool to Cypress, Tripoli, and Sicily. When successful, they returned to England with silks, spices, cottons, and carpets. Further charters followed, most notably to the Muscovy Company in 1555, to the Ea
stland Company’s operations in Scandinavia and the Baltic in 1579, and to the Levant Company for trading with Turkey in 1581.

  When the Golden Hind returned to Plymouth in 1580 laden with the riches of the East, its contents repaid Drake’s backers fifty pounds for every one invested, not counting, of course, the £50,000 in Spanish pieces of eight and gold bars removed to the Tower’s vault as crown property.

  Inspired by Drake’s success, a steady stream of adventurers headed to the Indies by various routes. In 1583 four traders from London—James Story, John Newberry, Ralph Fitch, and William Leeds—traveled overland to India and presented a letter of friendship from Elizabeth to the Mogul emperor Akbar. Fitch’s written descriptions of the vast amounts of rubies, diamonds, silks, gold, and silver on display at the Mogul court galvanized London. In 1586, Thomas Cavendish conducted the third circumnavigation (after Magellan’s and Drake’s). He returned in 1588 laden with Spanish booty, his men clad in Chinese silk, his topsails trimmed with gold cloth, and his mainsail made entirely of damask. He departed on another circumnavigation in 1591 and was never seen again.

  An expedition commanded by James Lancaster also departed in 1591 for India via the Cape. Lancaster’s mission was plunder, not trade. During his three-year voyage, he roved between the Cape and the Moluccas, relieved several Portuguese Indiamen of their cargoes, and lost 90 percent of his crew to scurvy and storms. After unsuccessfully attempting to take the eastern coastal Brazilian province of Pernambuco from the Portuguese, he returned to London, where he would become a prime mover in a new venture, the EIC.2

  The origins of the VOC were radically different, and in order to understand them, we must first describe its political and social roots. Before the mid-sixteenth century, what is today Holland and Belgium consisted of seventeen mainly lowland provinces that were part of Burgundy. They were inherited in 1506 by the Habsburg King Carlos I of Spain, who later became the Holy Roman emperor. When Carlos’s son Philip II invaded this territory in 1568 to suppress the Protestant Reformation, the five northern provinces revolted. They formally declared their independence in 1579 with the Union of Utrecht, which banded them together into the United Provinces—what is now the Netherlands.

  At that time, Antwerp (now in Belgium) was northern Europe’s trading hub. This wealthy city attracted both Catholic and Protestant merchants from England, Germany, and the new United Provinces. All were more than happy to trade with Spain and Portugal, not just for spices but in other goods as well, most importantly the Iberian salt used to preserve Dutch herring. In exchange, the Dutch sent south their increasingly sophisticated textile products, as well as grain and timber from the Baltic.

  In 1585, Philip’s nephew the duke of Parma (in Italy) captured Antwerp, and with a decency uncharacteristic of the times allowed the city’s Protestants to leave peaceably. Nearly simultaneously, his uncle embargoed the United Provinces and seized its vessels in Spanish and Portuguese ports. Each of these three actions was a colossal mistake. At a stroke Philip had created a network of the hardest-working, most commercially savvy traders in the world—Antwerp’s now exiled Protestants, who were now dedicated to bypassing Iberian ports.3

  The largest number of the refugees settled in Amsterdam, which was the capital of Holland but heretofore an unimportant port. (“Holland,” strictly speaking, during that period referred to the largest of the United Provinces, not to the nation itself.) Between 1585 and 1622, Amsterdam’s population swelled with Protestant refugees, increasing from 30,000 to 105,000 and becoming one of the largest European cities. The rebels blockaded Antwerp, which shrank to insignificance.4

  In the late 1500s, a Dutchman, Jan Huyghen van Linschoten, would provide the final impetus for Holland’s push into the Indian Ocean. For several years he served as a secretary to the Portuguese archbishop of the Indian city of Goa, and after the death of the prelate in 1588, he decided to seek his fortune and head even farther east. He dreamed not of great fortune, but only of a small-time peddling trade: “If I possessed only two or three hundred ducats, they could easily be converted into six or seven hundred.”5

  On his eventual return home to Holland in 1592, van Linschoten began work on a book, best known by its nickname, Itinerario, describing the botany and commercial geography of southeast Asia, as well as offering advice on navigation. The book’s most useful recommendation concerned the East Indies trade:

  In this place of Sunda there is much pepper, and it is better than that of India or Malabar, whereof there is so great quantity that they could lade yearly from thence [500,000 pounds]. . . . It hath likewise much frankincense, camphor, and diamonds, to which men might very well traffic without much impeachment, for that the Portugals come not thither, because great numbers of Java come themselves unto Malacca to sell their wares.6

  In other words, sail south of Sumatra, then pass north through the Sunda Strait (between Java and Sumatra) to avoid the Portuguese, who were happy to have Indonesian merchants come to them well to the west at Malacca. Even though the book was not printed until 1596, van Linschoten’s observations and advice became common knowledge and were put to good use in Holland, soon after his return in 1592. Subsequently translated into several languages, Itinerario excited interest in France, England, and Germany.

  In 1594, spurred by van Linschoten’s observations and navigational charts (as yet unpublished), four Amsterdam merchants founded the “Company of Far Lands,” and a year later this syndicate sent four ships and 249 sailors to India. As was typical of the era, just eighty-nine men arrived home in 1597. Worse, they landed only a small cargo of pepper, and no fine spices at all. In spite of their poor luck and planning, the merchants still made a handsome profit, and this did not go unnoticed. Within the next twelve months, Far Lands and five new competing companies sent no fewer than twenty-two ships to the East. Again, only fourteen of the vessels and less than half of the men made it home, but the ships of Far Lands returned fully laden with six hundred thousand pounds of pepper, earning the investors an enormous profit.7

  When the first of these ships arrived back in Amsterdam in 1601, church bells rang with joy. According to one observer, “So long as Holland has been Holland, such richly laden ships have never been seen.”8 The Dutch were seized by a righteous commercial fervor that would do any modern free-trade enthusiast proud. Jacob van Neck, the commander of the successful expedition, noted that their modus operandi was “not to rob anyone of their property, but to trade uprightly with all foreign nations.”9 That would soon change.

  At the same time, events were also moving rapidly in England, where, as in almost every other nation of the period, no one doubted the appropriate course of action: the crown would either arrogate monopoly rights to the trade for itself, or else award them to a court favorite in return for a piece of the action. Elizabeth was a past master at this sort of quid pro quo; in 1583, for example, she had granted Sir Walter Raleigh the monopoly on sweet wines throughout England.

  The crown rushed to pursue the spice trade because of the success of the Dutch, whose merchants in 1599 cornered the pepper market and promptly tripled its price. English traders could not sit idly by.10 A group of London merchants, many of whom were already principals in the Levant Company, petitioned the privy council with papers entitled “Certain Reasons Why English Merchants May Trade in the East Indies.” The council indicated its approval, and over the next year and a half the organizers held meetings and solicited capital subscriptions totaling £68,000. Given the queen’s history of awarding monopolies on a whim, the organizers took no chances: they presented her with a fait accompli. Even before they formally requested a charter, they had purchased, overhauled, and supplied five vessels, and then filled them with trade goods and gifts for local rulers.

  By the time the petition reached Elizabeth, it bore more than two hundred signatures. On December 31, 1600, Elizabeth affixed her stamp and signature to the new company’s charter, good for fifteen years; just six weeks later, the flotilla, under the comma
nd of James Lancaster, slid down the Thames.11

  The year 1601 was eventful in Holland as well. In response to the success of the second Far Lands expedition, the six existing Dutch companies sent fourteen expeditions consisting of sixty-five ships around the Cape of Good Hope. By now, it was obvious that the rush for spices was getting out of hand, as the competing companies were crowding each other out at both ends of the supply chain, simultaneously bidding up prices in Indonesia and glutting the market in Amsterdam. If the profits were not to be entirely squeezed out of the trade, the Dutch government would have to regulate it.

  In England, as we’ve already seen, the natural inclination of merchant venturers to the Indies was to seek a monopoly charter from the crown. But Holland was not a typical medieval absolutist European nation, and the Dutch government was far more inclined to act in the interest of the nation as a whole, particularly when this was politically expedient.

  Just what was meant by the term “Dutch government”? For two centuries after 1579, when the Union of Utrecht established the northern provinces in revolt against Spain, the only national political institution was the States General. This representative body met in The Hague and decided military and diplomatic policy in conjunction with the stadholder, a hereditary prince of the House of Orange. Otherwise, each of the provinces governed itself, regulated its own merchants and businessmen, and championed its own companies in the States General, which was itself frequently at odds with the House of Orange. Creating a national trading company would not be easy.