!2 European Expansion

European maritime expansion
Giovanni Favero, Economic Storia ec 1

onomica del turismo, 2010/2011
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
Geographical discoveries

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 civilisations, together with men,
circulated not only commodities, but also
– new species (from the Americas: potato, tomato, mais, turkey,
cocoa, tobacco; from Europe: sheeps, 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.
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
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.

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

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.
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.
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.
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.
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

• 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

• 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

• 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

• 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

• 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


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!2 European Expansion

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European maritime expansion

Giovanni Favero, Economic Storia ec 1

Giovanni Favero, Economic Storia ec 3

• From an economic perspective, Asian trade grew very slowly

• This flow of bullion allowed Europe to

• and it is mainly silver coins circulation

Giovanni Favero, Economic Storia ec 8

Giovanni Favero, Economic Storia ec 9

• The Asian trade was hence the most profitable in

• In East Asia (mainly Indonesia) European merchants could

Giovanni Favero, Economic Storia ec 14

Giovanni Favero, Economic Storia ec 15

• Ending in the second half of the century with territorial

Giovanni Favero, Economic Storia ec 16

Giovanni Favero, Economic Storia ec 17

– Incentive provisions to managers obtained the same result

Giovanni Favero, Economic Storia ec 18

• Dutch success in Indonesia committed them to

• English merchants were forced by Dutch success

Giovanni Favero, Economic Storia ec 19

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