The Asian Trade Revolution: The East India Companies and the Decline of the Caravan Trade

By Niels Steensgaard

In this work Neils Steensgaard combines an analytical economic approach with detailed historic scholarship to provide an imaginitive and important analysis of a central incident in modern world history. The event is the breaking of the Portuguese monopoly on Asian trade in the seventeenth century by English and Dutch mercantile interests. This change the author demonstrates, was not simply the triumph of the new powers over the old. Rather, the Dutch--English victory heralded a structural change in international trade: the triumph of entrepreneurial capitalism over the older economic mode of the "peddler-merchant."

Professor Steensgaard's study is divided into two major parts. The first examines the economic and political structure of the seventeenth century institutions in the Near East, Portugal, England, and the Netherlands. The author demonstrates that the rise to preeminence of the English and Dutch East India Companies over the Portuguese "State of India" was the result of the superior economic and bureaucratic organization of the former. The eclipse of Portuguese power in general, the author argues, is best understood as an institutional failure–an inability to adapt to changing patterns and demands of economic life.

The second part of Professor Steensgaard's study provides a detailed historical account of an important event in the fall of the Portuguese trading empire–the loss of the city of Hormuz in 1622. Hormuz, located at a strategic point at the entrance of the Persian Gulf, was a central port city on the Asian trade route. It fell to an English and Persian force. The author demonstrates why this event exemplifies the Portuguese institutional weaknesses that are discussed in the first part of the book.

• Language: English
• Publisher: University of Chicago Press
• Release date: Mar 15, 2017
• ISBN: 9780226771458

Book preview

The Asian Trade Revolution of the Seventeenth Century was originally published as Carracks, Caravans, and Companies, volume 17 in the Scandinavian Institute of Asian Studies Monograph Series, Copenhagen, Denmark, in 1973.

NIELS STEENSGAARD is a professor of history at the University of Copenhagen in Denmark. He is the author of several articles in the fields of European and Asian history.

[1974]

The University of Chicago Press, Chicago 60637

The University of Chicago Press, Ltd., London

© 1973 Studentlitteratur, Niels Steensgaard. All rights reserved

Published 1973. The University of Chicago Press edition 1974

Printed in the United States of America

78 77 76 75 74   987654321

ISBN 978-0-226-77145-8 (e-book)

Library of Congress Cataloging in Publication Data

Steensgaard, Niels, 1932-

The Asian Trade Revolution of the Seventeenth Century

Originally presented as the author’s thesis, Copenhagen.

Bibliography: p.

1. Commerce—History.   2. Europe—Commerce—Asia—History.   3. Asia—Commerce—Europe        History.   I. Title.

HF495.S83   1975          382'.094'05     74-16397

ISBN 0-226-77138-5      ISBN 0-226-77139-3 (pbk.)

Niels Steensgaard

The Asian Trade Revolution of the Seventeenth Century

The East India Companies and the Decline of the Caravan Trade

The University of Chicago Press

Chicago and London

Contents

Preface

Introduction

Part I. The Fall of Hormuz, a Comparative Study

Chapter I. The Peddling Trade

The Pedlars

The Economy of the Peddling Trade

The Peddling Market

Chapter II. The Redistributive Enterprizes

Publicans and Thieves

Persia

The Ottoman Empire

Estado da India

The Redistributive Institutions and the Market

The Redistributive Enterprizes

Chapter III. The Companies

The East India Company and the English Crown

The East India Company in the International System

The United East India Company and the Dutch Republic

Power and Profit in the Policy of the United East India Company

The Companies and the Market

The Companies as Institutional Innovation

Chapter IV. The Fall of Hormuz

The Cape Route and the Caravan Routes around 1600

The Triumph of the Companies

The Reversal on the Levant Markets

The Fall of Hormuz

Part II. The Loss of Hormuz. People and Events

Chapter V. The Dream of a Great Alliance

The Persian Initiative and Anthony Sherley

The Christian Princes’ Reply

The Replies come in, War begins

Seven Persian Ambassadors

The Course of the War and the Crisis of Confidence 1607–08

Chapter VI. Hormuz is the Question

The Carmelite Mission 1608

Robert Sherley

Anthony Sherley’s Projects

The Augustinian Mission 1608

Robert Sherley in Rome and Spain

Janghiz Beg and Gouvea in Spain

In Persia 1608–13

The Crisis of Confidence 1613–15, Gombroon’s Fall

Robert Sherley 1611–15

Chapter VII. The Loss of Hormuz

Sherley’s Second Spanish Embassy 1617–22

Figueroa in Persia

British Beginnings

The Loss of Hormuz

Part III. After Hormuz

Chapter VIII. The Losers

The Demolishment of a Town

The Portuguese Attempt at Revenge

The Portuguese without Hormuz

Sherley’s Last Journey

Chapter IX. The Attempt at Redirection of the Silk Trade

The Companies and the Persian Silk Trade

Silk Purchases in Persia

How Much?

Chapter X. Instead of Hormuz

The Rise of Bandar Abbas

The Companies and the Early Asian Trade

Conclusion

Appendix, Currency and Weights

Manuscript Sources

Printed Sources and Modern Works

Notes

Index

Tables

1. Monox’s estimate of the costs on the route Kazvin-Aleppo 1618

2. Dutch invoices for silk exported from Persia 1634/35–1636/37

3. Silk prices in Aleppo 1635–36

4. Pepper prices in Venice 1586–1590

5. Main items on the revenue budget of Estado da India 1584 and 1608–1607

6. Ports of origin of ships passing Bab-el Mandeb 1611, 1612 and 1616

7. Estimated and sales value of captaincies in Estado da India 1607 and 1615

8. Prices of pepper, indigo and cloves in Amsterdam 1624–26

9. Estimates of European consumption of Asian goods circa 1620

10. Known Portuguese return cargoes 1587–1609

11. Estimate of tonnage returned to Portugal from Asia 1571–1610

12. Estimate of European consumption of Asian goods around 1600

13. Ships returned to European harbour from Asia 1581–1630

14. English re-export of Asian goods 1626–1627

15. Attendance at the meetings of the English nation in Aleppo 1616–1629

16. Ships leaving Marseilles for Levantine ports 1614–18

17. Visnich’s estimate of the annual arrivals to Hormuz before 1622

18. Proceeds from sale of offices in Hormuz 1615

19. Company exports of silk from Persia 1618/19–1645/46, bales af approx. 100 kg

20. Metric equivalents of the most current units of weight

Maps

The Near East

India and the Indian Ocean

Diagram

Pepper prices and ships returned from Asia 1581–1630

Preface

The dramatic shift of balance in the European-Asian trade in the decades following 1600 has fascinated me for several years. It appeared to me that the decline of the Portuguese Empire in Asia, the decline of the intercontinental caravan trade and the triumph of the Dutch and English East India Companies – the confrontation of the carracks, the caravans and the companies – was more than a tale of triumph and disaster, but also constituted a decisive moment in world history, pointing towards that distribution of wealth and power which characterized later centuries and the world in which we live.

My point of departure was a study of the victorious companies, but I soon found that the shift in balance could not be accounted for by looking at the victorious side only. A satisfactory study would have to be made on a comparative basis, taking into account what evidence might be unearthed concerning the losers – the Portuguese Empire and the caravan merchants – as well as the evidence contained in the company records. An early working hypothesis based upon a simple comparison of the costs born by the merchants on the various routes proved insufficient; the composition of the costs revealed that the outcome was determined neither by size nor by technical and managerial efficiency alone, but rather by deep-rooted structural differences between the institutions concerned. I found that the shift in balance might best be conceived of as the outcome of a confrontation of structures or a structural crisis and that the comparative analysis should be focused on key institutional features. This approach implies a high level of abstraction. I hope, however, that I have nor broken what I consider a basic rule for the historian, and lost sight of the men who acted and the reality in which they found themselves.

The work on this book was begun in 1961–62 when I was a British Council scholar. I divided my time in London between the School of Oriental and African Studies and the archive of the Commonwealth Relations Office. It is with pleasure and gratitude I think of the hospitality and kindness extended to me by these institutions and by the British Council. On my return to Copenhagen I was more or less submerged in teaching in the difficult years when the number of students swelled without a corresponding increase in staff and facilities. A grant from Statens almindelige Videnskabsfond enabled me, however, to continue the collection of material in France and Venice. In 1967 I became a research fellow at the University of Copenhagen, a further grant from the University enabling me to visit archives in Spain, Portugal and Rome. In all essentials the manuscript was finished in October 1971.

There are still a few languages I ought to know in order to master all the evidence relevant to the subject, and there are archives I have not yet visited in which I suspect more data might be uncovered. The comparative approach has necessarily brought me into specialized fields and led me to conclusions that are in conflict with national historiographical traditions. I can only hope that I have substantiated my conclusions or, if I have erred, that my errors may prove useful.

One of the pleasures of this study has been the quest for material, which brought me to a large number of archives and libraries all over Europe. Everywhere I have met with kindness and efficiency and I am very glad to have this opportunity of expressing my gratitude to the staffs of the archives and libraries in which I have worked. I am also greatly indebted to the Scandinavian Institute of Asian Studies, which did me the honour of including this volume in their monograph series, to Karl Reinhold Haellquist, fil. lic., of the Institute, who saw the volume through the press, and not least to Mrs Paula Hostrup-Jessen, who heroically undertook to translate my convoluted Danish into English.

Numerous friends, colleagues and students have a share in this book. The Institute of History at the University of Copenhagen offers a lively and stimulating milieu for the study and teaching of history, and I am happy to acknowledge my debt to my friends and students at the Institute as well as to the many other Danish and foreign historians with whom I have discussed subjects bearing upon the problems of this book. I would especially like to mention the advice and guidance I have drawn from conversations with Professor C. R. Boxer, Professor Kristof Glamann, Professor Bernard Lewis, Professor Erling Ladewig Petersen and the late Professor Maurice Lombard.

I have a special debt of gratitude to Professor Aksel E. Christensen, who was the director of the Institute in its (and my) formative years, and to Professor Svend Ellehøj, the ideal superviser, who encouraged, but never interfered. Finally, I wish to acknowledge my debt of gratitude to the late Professor Astrid Friis who first introduced me to the study of the history of international trade, and who taught me that historical subjects should be studied, not in the safe hinterland of established categories, but in the unpleasant regions where one may have to revise one’s ideas on being confronted with the sources.

The Institute of History at the

University of Copenhagen

January 1973

Niels Steensgaard

Introduction

The destructive effects of the discovery of the sea route to Asia upon the traditional intercontinental trade routes were not felt until after the elapse of an entire century. After a set-back at the beginning of the 16th century the trade routes through the Middle East regained their former importance, and at the end of the 16th century the transcontinental caravan trade reached dimensions which must presumably be regarded as its historical culmination. No decisive blow was struck at the caravan trade until the establishment of the North-West European trading companies, the Dutch voorkompagnieën from 1595, the East India Company in 1600, and the Dutch United East India Company (VOC) in 1602. During the first few decades of the 17th century the most important Asian commodities disappeared from the west-bound caravans to the Levant towns; in some cases the west-bound stream of goods was replaced by an east-bound stream, the ocean having triumphed over the mainland.

This sequence of events, which may be regarded as established, raises a problem which the historical literature has so far only touched upon to a limited extent. How were the Companies able to triumph, where the Portuguese had failed? Why did the transcontinental trade, which had resisted Portuguese competition and attempted blockade throughout a whole century, have to retire in favour of the Companies?

No direct investigations of the problem are available, but although the question cannot be said to have been finally formulated or satisfactorily answered, several historians have dealt with it within a wider context. For Braudel, the problem is the survival of the caravan trade in the 16th century, not its downfall in the 17th century, the date of which, moreover, he does not regard as finally established. Braudel sees the explanation in the Portuguese ruthlessness and negligence and in the rise of alternative routes from the pepper-producing areas in South-East Asia to the Red Sea and the Persian Gulf, primarily based upon the Sultanate of Achin in North Sumatra. This development he places within a wider context: the relative abundance of silver in the Mediterranean region in the second half of the 16th century.¹ Ralph Davis emphasizes the relative power of the European nations: the Portuguese had not been able to avoid or control the wars hindering the free transport of goods, but the newcomers were able to carry on trade without regard to the political conditions.² Meilink-Roelofsz connects the decline of the transit trade with the North-West European Companies’ activities in South-East Asia, activities in this context implying both the purchase of spices and the blockade of the production areas.³ For all three historians the problems may be said to lie in the periphery of their spheres of interest; the explanations they have produced cannot very well be rejected, but cannot on the other hand claim to be exhaustive.

It is astonishing to find that the available literature scarcely seems to have mentioned such an important problem of discontinuity. Part of the explanation must be sought in the fact that it has only been possible to raise the question on the basis of the last generation’s research, but in addition the problem, even though on the surface it may be a simple breach of continuity, is particularly unwieldy. The answer is not hidden somewhere on the road between the Banda Islands and Amsterdam, but must be sought in the global, political and economic context. The downfall of the caravan trade, the defeat of the Portuguese and the triumph of the Companies was an episode in the historical process during which the Middle East and the Mediterranean region relinquished the economic leadership in favour of the Atlantic regions. It was part of the clash between the Catholic Iberian powers and the Protestant Channel powers, and it was part of the confrontation between older and newer entrepreneurial forms – a step towards the development of modern economy. If the problem of the downfall of the caravan trade is isolated from this context it is simultaneously cut off from the fields in which a relevant explanation may be sought. On the other hand, if it is viewed in its full context, what appears to be a concrete problem is lost in global confusion.

This dilemma is naturally none other than that which the historian so frequently encounters when attempting to delimit the problem in the face of the indivisibility of reality, and an attempt has been made in this book to overcome the dilemma in several ways. Firstly, attention has been concentrated on Hormuz, the Portuguese fortress at the entrance to the Persian Gulf, which fell in 1622 as the result of a combined Persian and English attack. A different town could have been chosen, such as Baghdad, Aleppo or Alexandria – towns we know more about – but the fate of Hormuz dramatizes the breach of continuity, because its very existence depended on the transit trade, and because its fall was so definitive and so clearly connected with the larger confrontation. If we know why Hormuz fell we are well on the way towards knowing why the Companies not only ousted the Portuguese, but also took over most of the trade which by the end of the 16th century still passed along the traditional transcontinental trade routes.

Secondly, two different methodological procedures have been chosen when investigating the problem: the comparative approach and the procedure of following the sequence of events leading up to the fall of Hormuz. In the comparative study the institutions concerned are compared, assuming that their institutional structures contain features able to explain their advance or decline. The question, why did the Companies triumph and why did the Portuguese fail, may thereby be reformulated as follows: did the structure of the Companies present features capable of explaining their success as compared with those of the competing institutions?

When employing the second method of investigation, i.e. following the sequence of events, the problem is reformulated correspondingly: were there any features in the sequence of events prior to the fall of Hormuz and in the actions and motives of the persons involved which might be able to explain the loss of Hormuz? The result of this investigation is negative, in so far as there turns out to be an astonishingly poor connection between the intentions of those involved and the actual chain of events. However, the very negativity of the result supports the thesis that is formulated on the basis of the comparative investigation: the conflict about Hormuz was not a conflict between contestants on an equal footing, but a structural crisis, in other words, a confrontation of fundamentally different institutional complexes. The Companies were victorious over the transit trade of the pedlars and the redistributive institutions because, by virtue of their greater control of the market and the internalization of protection costs, i.e. by subordinating the production of protection to the market mechanism, they utilized the resources more economically than the older institutions.

This thesis is substantiated and its limitations explored in the shorter, third book, which follows the adaptation of the parties concerned to the new situation that arose after the fall of Hormuz. The institutional innovations of the Companies are conspicuous, despite the differences between the two Companies, but there were limits to the extent of the innovation. The Companies represented a new entrepreneurial form as far as Asia was concerned, but they did not revolutionize the Asian market. The Company became an element in the early Asian trade.

Part I : The Fall of Hormuz

A comparative study

The intention in the first book is to represent by means of a comparative study the fall of Hormuz as a structural crisis, the latter being defined as a confrontation of fundamentally different institutional complexes. It endeavours by this means to furnish the structural description with a dynamic element, but it goes without saying that it does not thereby aim at an absolute distinction between a before and an after: before is not a state of rest, unaffected by things to come, afterwards is not a new era lacking all connection with the past. The demonstration of the structural crisis may be regarded as accomplished if it can be proved that the institutions controlling the scene at the end of the period were not victorious as the result of chance events or individual decisions, but because they belonged to a structural complex dominated by institutional innovations which, in the defeated structure, played a smaller part.

The comparative method presupposes an organization of the material on the basis of theoretical concepts which are not necessarily explicit in the sources. An early working hypothesis, which was based on a comparison of the costs met by the various competitors in the trade between Europe and Asia, turned out to be insufficient in the light of the cost structure ascertained. Important elements, first and foremost the cost of protection, made the comparative calculation to a great extent unrealistic. The comparison therefore concentrates on the institutional variables that distorted the simple cost analysis: the relationship to the market and the production and sale of protection.

The question of the universal validity of the theoretical market has been energetically raised by Polanyi and his associates. According to Polanyi the self-regulating market is an historical phenomenon characteristic of the Western World in the 19th and the beginning of the 20th centuries, whereas the concrete historical and empirical market is not necessarily governed by the same laws as the market of the economists. Not least, his demonstration that the roles of buyers and sellers were fixed in the concrete historical market is relevant here: In the modern market there is a price level at which bears turn bulls, and another price level at which the miracle is reversed. This has induced many to overlook the fact that buyers and sellers are separate in any other than the modern type of market.¹ In continuation of Polyani’s ideas Walter C. Neale has characterized the European situation between the 15th and the 19th centuries as "a stage between non-supply-demand-price Market Places and a supply-demand-price Self-Regulating-Market.²

The incongruencies between the empirical markets and the theoretical Market to which Polanyi and his associates have drawn attention are of fundamental interest in the present context. If the market institution itself and its elements, the supply and demand crowds and the price formation, are variables, the market and the relationship of the relevant institutions to the market must be incorporated in the comparative analysis. In 1931 van der Kooy published a thesis in which he sought to formulate a market theory that would explain the unique position of Dutch trade in international economy throughout the 17th century and its retrogression in the 18th and 19th centuries. In van der Kooy’s analysis the concrete nature and hierarchial construction of the pre-industrial market is emphasized. The goods are literally carried to local markets, and from there to regional and national markets, in a hierarchy the concrete capstone of which was the world market in the Netherlands.³ In his description of the Dutch market van der Kooy emphasized first and foremost the distinction between three market functions: imports, which were taken care of by geographically specialized zeehandelaars, storing, which was taken care of by kooplieden van de tweede hand, who specialized in certain types of commodities, and the export trade, which was taken care of by geographically specialized exportgrossiers.⁴

The description both of the hierarchical structure of the world market and of the triple nature of the Dutch market was schematic, and it has not been difficult for van der Kooy’s critics among historians to show that in practice the three functions were not separated. A more positive criticism of van der Kooy’s theory has been put forward by Klein in his entrepreneurial study of the family Tripp in the 17th century. He, too, criticises the all too rigid distinctions in van der Kooy’s scheme, but he emphasizes the justification of the distinction between various market functions, even if the three functions could quite well be executed by the same persons or by the same groups. Klein’s special contribution in this connection, however, is his attempt to replace van der Kooy’s static market description by a dynamic market theory, which was to explain why a market form like the Dutch attracted trade at the expense of other markets. Van der Kooy had fastened upon the price levelling effects of storing, and it is this aspect that especially interests Klein, who combines it with his own observations of the monopolist tendencies in the Dutch market.

In the past, historiography has as a rule implicitly regarded monopolies as damaging under all circumstances, this being in accordance with the conception of that time as expressed in the pamphlet literature as well as with the classical economic theory. Referring to Schumpeter’s theory of monopoly.⁵ Klein on the contrary maintains that under certain circumstances attempts at monopolization serve a productive purpose as far as social economy is concerned: namely, a reduction of the risks connected with stock formation. Schumpeter’s theory of monopoly has been elaborated with the creative destructions of industrial capitalism in mind, but van der Kooy’s results already showed that the same need for reduction of risk was present in the pre-industrial market. Here it was not the steady stream of new products and new production methods that made the entrepreneurs seek to protect their investments with the aid of monopoly, but on the contrary the imperfections of the technical apparatus. The demand for commodities was more or less predictable, but the supply was irregular and unpredictable. It is as intermediary or shock-absorber between supply and demand that van der Kooy places his koopman van de tweede hand. Klein goes a step further. In his opinion the risks attached to stock formation would discourage the entrepreneurs under the non-transparent conditions of the market if they did not have the possibility of controlling the market by means of a monopoly or a quasi-monopoly. The monopolistic tendencies reduced the risk and thereby the transaction costs, and thus, far from being disturbing elements, they fulfilled an important function in the concrete, pre-industrial market.

Whereas van der Kooy had solely characterized the market in relation to modern economy and had demonstrated its connection with an imperfect communication and transport technique, Klein, through his incorporation of monopolistic tendencies and his overall dynamic view, was able to determine the advantages of the Dutch market over more primitive market forms. The market’s concentration of supply and demand gave both the buyers and the sellers a greater chance of carrying out a planned transaction at the planned time. Furthermore, the conditions under which the transaction could be carried out became more predictable and information concerning prices and quantities became more easily accessible, i.e. the market became more transparent. Thereby not only were the risks attached to the acts of God and Man reduced, but also the risk of ruinous price fluctuations. Thus Klein is justified in emphasizing the correlation between the rational, calculating entrepreneur and this market form.⁶

On the basis of Weber’s theories, but with a mass of concrete details, van Leur has described the Asian market, or rather the Asian markets around 1600, as an institutional complex which appears in direct contradistinction to the market described by van der Kooy and Klein. It is difficult to summarize what van Leur describes as the characteristics of the early Asian trade; it is more like an impressionist picture than a systematic analysis. The central element is the pedlar, that humble servant of world trade who, with his small stock of goods, is for ever travelling from market to market. He is dependent upon the rhythm of the monsoons and employs routes and methods used by generations before him. He can follow the commodity from producer to consumer, but the commodity may also have changed hands many times before it reaches the last buyer. For van Leur it is a structure radically different from modern capitalism. The fundamental difference is not altered by the circumstance that some individuals may have an unusually large amount of capital at their disposal; van Leur classifies this phenomenon as political capitalism, a universal concept that must not be confused with modern capitalism.

To this entrepreneurial structure corresponds a market structure which is characterized by its lack of cohesion and by the large number of concrete markets: as many as there are towns or ports. He illustrates his description of the early Asian trade with a number of quotations obtained from descriptions of Asian markets from Arabia to Japan; the quotations substantiate his description convincingly, and for those who are familiar with the sources there can be no doubt that they are representative and that their number could be multiplied.⁷

For van Leur it is a matter of exposing a sociological structure, a historical constant, not of describing a dynamic system, and he goes so far in this respect as to place European activity in Asia before 1650 within this context. The sharp distinction between political capitalism and modern capitalism provides the basis for his placing the Portuguese expansion convincingly within the Asian context⁸, but it gets him into difficulties regarding the activity of the Companies, in which case he appears to contradict himself. On the one hand he draws a sharp line between Portuguese imperialism and the later (undated) colonialism, but on the other hand he maintains that around 1650 the Dutch East India Company had not yet contributed anything to the Asian economic structure.⁹ Although he does not in any place make himself clear, it must be assumed that van Leur feels himself bound, when faced with this question, by his (and Max Weber’s) definition of modern capitalism: exploitation of a rationalized organization for the mechanized mass production of goods built up with free labour and based on a free, specifically peaceful market for sales.¹⁰ Van Leur’s way of presenting and tackling the problem excludes a dynamic analysis: there is no room for qualitative alterations or institutional innovations prior to modern capitalism.

The institutional features alone present decisive differences between the Asian market, as described by van Leur, and the concrete world market, as described by van der Kooy and Klein. But the contrast appears even stronger if we consider the problem which for Klein, with his dynamic approach, is the central problem (whereas for van Leur, whose aim was sociological, it was peripheral), i.e., price formation under the respective market forms. A trend in the direction of greater transparency and greater price stability is for Klein the greatest advantage the Dutch market has to offer compared with other forms of market. The material produced by van Leur clearly shows that the market form he described precisely distinguishes itself by its poor transparency and extremely unstable prices. Ninety bahars of pepper can knock the bottom out of the pepper market in Aracan for a whole season. Too great supplies of pepper to Shihr and Aden can inflict a loss of up to 40%–50% on the merchants during one monsoon; another year the big ship from Suez to Mocha fails to arrive, and the Indian merchants have to return home with their goods unsold if they do not wish to suffer the great losses incurred by an immediate sale.¹¹

The examples could be multiplied on the basis of van Leur’s material alone, but the question will be discussed in more detail later on. At this point we need only draw attention to the fact that the asumption that the market is not a constant, but subjected to institutional change, is supported by that difference in price formation which may be observed within the two market forms. If some European entrepreneurs based their activities on a superior market form this is a relevant moment of decisive importance which ought to be incorporated in any further investigation.

A theoretical framework for analysing the economic role played by protection has been elaborated by Frederick C. Lane.¹² In Lane’s opinion the use of violence, at least in some cases, may be regarded as a productive activity, the service produced being protection. In its most primitive form the only result of the exercise of violence is the transfer of income, as for example in highway robbery, but in cases where violence is exercised in permanent and organized forms protection is produced, i.e. the roads and countryside are kept free of other agents of violence. The highwayman’s momentary and localized monopoly is replaced by a permanent and extensive, and thereby far more predictable, protection monopoly.

It is on this basis that Lane develops the concepts of tribute and protection rent. Tribute is defined as the transferred income that exceeds the production costs of the protection. Protection rent is defined as the difference between the profits made by the entrepreneur with the smaller protection costs and the entrepreneur with greater protection costs. Lane goes so far as to compare protection rent with land rent, interest and wages. The reason why the concepts of tribute and protection rent have largely been ignored in modern economy is that protection is implicitly regarded as a free service in modern Western societies, and the price is assumed to be identical with the production costs. The production of protection in modern society is controlled by the consumers of protection, but this is an unusual situation when seen in a historical light; protection rent and tribute are natural and necessary concepts when we are dealing with the pre-industrial period.¹³

Lane’s analysis presents certain logical difficulties: on the one hand Lane endeavours to place the protection producer within the context of market economy by regarding him as a producer of a service, on the other hand we must admit that the analysis of price, supply and demand with regard to protection cannot easily be carried out within the ordinary theoretical framework of a market economy. The supply and demand of protection are identical, and the price is determined by the seller. Exceptions may be found, but the general rule will be that it is not the demand but conditions within the protection-producing institution that determine the size, quality and price of the supply. The problem confronting us is precisely the problem that creates a barrier between theoretical economy and what economists call political policy.¹⁴

The logical problem may be overcome in two ways: we may decide to concentrate on the limited validity of the market model like Polanyi, who finds three main patterns in empirical economies, i.e. reciprocity, redistribution and exchange. Exchange corresponds to a market mechanism that is in accordance with the theoretical market of the economists, but the theoretical market has no relevance to the remaining patterns.¹⁵ If we follow this line of reasoning we must abandon the idea of the protector as producer of a service and regard him instead as entrepreneur in an economic pattern that is subjected to other laws than those of the market.

We can also solve the logical problem by regarding the protector as a monopolist who, in his transactions, has full freedom of movement within the limits determined by the marginal rate of substitution. He can expand his production apparatus without regard to the cost, for the buyers are sure to pay. He can also put up his prices and increase his tribute. But in the final instance his freedom of movement will be limited by the marginal rate of substitution. The ceiling may be high, with emigration, revolt, revolution or conquest from without as the only possible substitutes, but in certain cases the ceiling is not so high, as for example in the international transit trade in which the closest substitute is the choice of a different route.

The two solutions described above do not exclude one another. The first concentrates attention on what, seen from a theoretical point of view, is an irrational margin between production costs and prices, and on the redistribution of the available goods that takes place within that margin. In the second solution we fasten upon the circumstance that even the producer of protection is bound in the end by the laws of the market; the price of the services delivered can be so high or the quality so poor that emigration, revolt or, in the case of the transit merchant, the desertion of the usual routes, becomes an economically rational choice. The following has been based on both points of view. The producers of protection are regarded and described as redistributive entrepreneurs assuming that the primary aim of the institutions concerned was not to increase the total satisfaction of demand by the production of protection, but to carry out a redistribution of the available goods by means of armed force. At the same time it will be possible to show that the existence of substitution possibilities contributes a dynamic element to the structure; in several cases, but first and foremost as far as the Companies are concerned, entrepreneurial behaviour may be observed that aims at reducing the transaction costs by evading the existing protection institutions.

In theory the last possibility should have been ruled out. The tribute having left a wide margin above the production costs of protection, we should expect that the protector threatened with an evasion of his territory would lower his prices to compete with the alternative route. In practice, however, this was not the case. It can partly be explained as normal, rigid entrepreneurial behaviour: the protector had investments tied up in his production apparatus which he could not very well write off, and a large staff he could scarcely dismiss on the spot. Furthermore, the protecting institutions we are concerned with in this period were not monoliths. By this we are not referring to the all too frequently forthcoming generalizations such as the Arab trade monopoly in the Indian Ocean or the Venetian trade monopoly in the Eastern Mediterranean, but to the State’s incapability of acting with one will. Nobody familiar with pre-industrial society can be in any doubt that decisions taken centrally are often carried out with limited effectiveness, and that corruption in its widest sense constitutes an elementary component of the social, political and economic structure. The problem has caused contemporary historians great difficulties; it is embarassing to see personages in history, great or small, habitually devoting themselves to actions we regard as both criminal and morally reprehensible. A characteristic example is Hurstfield’s analysis of corruption in 17th century England. He takes the following definition as starting-point: If we assume that the object of the state is the welfare of all its members we may define corruption as the subversion of that object for other ends.¹⁶ In his subsequent analysis of the problem Hurstfield finds that corruption must be seen as a result of the rise of bureaucracy, its tasks and extent, that characterizes all West European states from the close of the Middle Ages, combined with the insufficient state revenue that prevented the payment of suitable wages. Hurstfield concludes that the concept of corruption is in reality an anachronism concealing more than it discloses if we are concerned with the period before the middle of the 18th century; the concept of corruption is of no value as a tool of analysis before a proper system of taxation is in force, as well as reasonable payment for civil servants and a feeling of responsibility in those occupying public positions.

We may follow Hurtsfield’s conclusion, but it should be added that the conclusion eradicates the definition he took as his starting-point. If essential parts of the national income are regularly transferred from some social groups to others as a result of corruption, the assumption that the object of the state was the welfare of all its members falls away. One cannot have it both ways, one cannot decriminalize corruption and at the same time maintain that the state and the civil servants were working for the general welfare.

Van Klaveren’s analysis of the phenomenon is far more penetrating.¹⁷ His basis, though implicit, is the conception of ancien regime as a political system lying mid-way between the out-and-out Absolute Monarchy and the out-and-out Sovereignty of the People. The corruption that interests him is not the accidental criminal corruption, but the corruption that is built into the constitution, as it were. Every civil servant finds himself in a position of monopoly; if he regards his office as a maximizing unit, and he constitutionally adopts an independent position as regards his customers, there will be no relation between the receipts of the office and its social utility value; his income will be determined by his ability to find the point of maximum gain under the current conditions of the market.

Corruption as a component of the constitution presupposes that the development towards a money economy has commenced and, furthermore, that the official classes and other intermediary groups have a certain amount of independence within the constitutional framework. The Prince might be able to limit corruption; in isolated cases (e.g. Louis XIV) the Absolute Princes even managed to overcome it. When a limited interference on the part of the Prince constituted the usual practice the cause might well be the Prince’s weakness, but another possibility was the fact that he, too, regarded corruption as constitutionally substantiated. The people served not only the Prince, but also the officials. Strangely enough van Klaveren does not take the same consequence as Lane in regarding the Prince’s income as the greatest of all the gains of corruption, but he indicates that corruption creates a vertical division of the governmental apparatus as opposed to the horizontal division of feudal society. New institutions or persons appointed to control the Establishment would more likely than not become monopolists seeking merely to reap the benefits of their office. Under a monarchy the corruption would be organized in hierarchial form, the senior officials seeking to thwart their inferiors with regard to such practice, not in order to protect the Prince or the People, but in order to maximize their own income. The struggle for corruption gains is gradually converted into political struggle for power, the right of patronage and higher incomes serves to secure the political position, which in turn secures the right of patronage and the higher incomes, and so on – a perpetuum mobile. Corruption may be the downfall of a politician, but the downfall is political, the corruption continues. A further consequence of this connection between corruption and political influence is that the system is cumulative and unstable.

The elements of a theory referred to above are not easily assembled to form a finished model for pre-industrial institutional innovation, but they can be assembled into a rough sketch, which has served as a heuristic guiding-line and as a basis for the organisation of the material in the comparitive section of the book. We assume with Polanyi, that empirical markets do not necessarily behave in accordance with the market of economic theory, and with Klein, that the creation of a concrete market or markets with a large degree of transparency and consequent price stability was an important step towards the development of modern economy. Furthermore, we assume with Lane, that protection was an appreciable expense for the pre-industrial entrepreneur, and that the administration of organized violence was an important source of income and formed the basis of the redistribution of the available goods. In accordance with van Klaveren this is extended not only to apply to the formal agents of organized violence, the states, but also to the states’ local representatives.

The implicated institutions are grouped according to these theoretical guiding-lines. Both the pedlars and the redistributive enterprises may be regarded as entrepreneurs within the early Asian trade, but with different functions. The pedlars were immediately attached to the market institutions; they were dependent for their survival on a correct calculation of prices, costs and possibilities for gain in a distant market. The redistributive institutions were sellers of a service, protection, but they normally found themselves in a position of monopoly and therefore possessed considerable freedom of movement within the framework determined by the marginal rate of substitution. Formally speaking, the Company was a new element in Asian trade; the analysis of the Companies seeks to determine whether they were in fact an institutional innovation. The first book concludes with an attempt to date and determine the extent of both the Companies’ victory and of the losses of the peddling trade and the redistributive institutions.

Chapter I: The Peddling Trade

Van Leur has provided the classical description of the early Asian trade – the peddling trade – in the following: "The international trade of southeast Asia was a small-scale peddling trade. The traders, shipping out with their goods by dozens on long voyages the periodicity of which was governed by the semi-annual monsoon winds, were pedlars with valuable high-quality products. They went out either as independent pedlars, perhaps in companies, or as traders on commenda."¹ The criticism that has been levelled at van Leur has scarcely invalidated this description as a sociological model, and it will be used as the starting-point for discussion in this chapter. However, the question will be handled in a slightly different way than van Leur handled it. What interested the latter was the peddling trade viewed as a sociological concept, whereas it is the validity of the concept from the point of view of economic theory that is of interest here. The following discussion will therefore be concentrated on exploring those features that presumably would be decisive when the peddling trade was confronted with an entrepreneurial form built on entirely different institutional lines, i.e. on cost structure and price formation.

The Pedlars

Van Leur based his description on indirect evidence, and first and foremost on the descriptions and reports of actual market conditions provided by the employees of the Dutch East India Company. The caravan merchants themselves seldom left any source material; among the hundreds of accounts of journeys in Asia published in the 16th-18th centuries, only a handful have been written by merchants.² This secrecy was probably intentional, the routes and market conditions constituting part of the merchants’ misterio, but there must be other sources for the activities of the caravan merchants that have not yet been brought to light – accounts and letter books still lying unnoticed. A valuable source, at present unique, is the journal of the Armenian merchant, Hovhannes, which was unearthed and analysed by Khachikian a few years ago.³

Hovhannes’s journal provides a penetrating close-up of the work of a pedlar, but we know nothing of his person other than what the journal reveals. The journal describes his journeys between 19th December 1682 and 6th December 1693. We know from a single reference in the journal that he had previously made at least one journey to Smyrna. We may furthermore conclude from the journal that he had received a thorough education, but that he himself was scarcely wealthy, at least not at the beginning of his travels. He was the factor of two brothers, who may presumably be identified with two prominent Armenian merchants from the Isfahan suburb of Nor Jougha.

During the eleven years in which we can follow Hovhannes he travelled far afield. In 1682 he left Isfahan and travelled via Bandar Abbas (Gombroon) to Surat. From there he continued inland to Agra. In 1684 he again went to Surat and from there he returned to Agra. He spent the greatest part of the following year travelling in the neighbourhood of Agra, to which he returned at the end of the year. In 1686 he left for Tibet, arriving at the capital, Lhasa, in September. He remained in Lhasa for nearly six years until June 1692. Thereafter he retraced his steps as far as Patna, but from there he journeyed to Bengal, to Hooghli and Calcutta, where his journal comes to an abrupt end.

Hovhannes was not an isolated adventurer. He followed roads which other Armenian merchants had followed before him,⁴ and everywhere he went, even in Lhasa, there was an Armenian nation, which he endeavoured to contact. We are scarcely entitled to conclude from this that he was none other than a typical Armenian caravan merchant, but there is nothing to indicate that he in any way differed from his contemporaries on the Asian caravan routes. That is, apart from the circumstance that his journal has been preserved.

At first glance Hovhannes’s journeys appear to have been quite aimless, but on closer inspection they show a certain pattern. They can be divided into a preliminary journey from Isfahan to India, two business trips to the densely populated central Indian region around Agra, the great journey to Lhasa and, finally, the return journey from Lhasa to Bengal. For we must presume that it was the return journey he had begun at that time, and that it was his intention to seek a passage home to Persia on an English ship. The rhythm of these journeys corresponded with Hovhannes’s business transactions. At his departure from Isfahan in December 1682 his capital was nominally 250 tomans – well over 3,000 piastres,⁵ including 18 English cloths at a total value of 217 tomans and the remainder as a bill of exchange drawn on Shiraz. The whole of that capital was given him on commenda, his own share being fixed by contract at 25% of the profit. He sold the cloth in India and bought indigo with the proceeds. The whole of the transaction – the conversion of three camel-loads of cloth into approximately as many loads of indigo – took nearly a year, and characteristic of Hovhannes’s activity was the slow wandering from town to town following upon his arrival in India. He was in Surat from 23rd March to 15th May, in Aurungabad from 29th May to 15th July; he arrived at Burhanpur on 21st July and continued after some time to Sironj, where he stayed from 11th August to 24th November. He was in Agra from 2nd December to 6th January 1684. From Agra he made a detour to Khurja in order to buy indigo, and on 13th March he was back in Agra. Eight days later, on 21st March, he again left Agra, and this time the journey was without interruption and detours, for he was in Surat already on 12th April. The contrast between the outward and return journeys is revealing: the eighteen English cloths were retailed, piece by piece and yard by yard until it was time to purchase the indigo.

Hovhannes did not himself accompany the indigo all the way back to his principals, but he left it in Surat in the charge of another Armenian, who was commissioned to take part of it to Isfahan, presumably to the principals, and the rest to Basra to be sold. It is probable that he had received a new supply of commodities from Persia in the meantime, because on 29th May he left Surat once more in order to repeat the lengthy inland journey of the previous year, and this time he purchased cotton cloth, which he forwarded to Isfahan through his Armenian connections at the end of the season.

In 1686 he set off for Lhasa. Before leaving Agra he concluded an agreement with an Armenian business acquaintance; he apparently still considered himself as being dependent upon his principals in Persia, but after the journeys of the past three years he possessed some capital himself, since he contributed half of the 9,370 rupees, i.e. more than 2,000 piastres, which constituted his working capital in Tibet throughout the next six years. In Tibet he sold the commodities he had brought with him in small quantities, at the same time purchasing gold and musk. But he also carried on a considerable amount of passive business, lending or selling on credit to merchants of Armenian or other nationality, who were following the almost 1,250 mile long route from Lhasa to Sining on the Chinese border in order to buy tea and gold.

Hovhannes was not a specialist, neither as regards the areas he frequented nor as regards the commodities that passed through his hands. During the first years his biggest transactions were in cloth, indigo and cotton, but this did not deter him from also interesting himself in other commodities, and on the eve of his departure to Lhasa he possessed an extremely varied assortment of goods. Khachikian has identified 174 articles of trade in Hovhannes’s journal, and in addition there are a number of items it has not been possible to identify with certainty. Van Leur’s description: pedlars with valuable high-quality products appears appropriate. Hovhannes’s capital is modest – 3,000 piastres on his departure from Isfahan; this was sufficient for him and his principals and his three camels.⁶ 4,000 piastres on his departure to Lhasa was sufficient to keep his business going for more than six years and, as far as we can judge, to ensure him a renumerative journey.

But this peddling trade should not be characterized as primitive.⁷ The technique may well be primitive, but the organization does not lack sophistication. Hovhannes acts a factor, as a partner in a company partnership, contributing his own capital, and he himself places capital at the disposal of other merchants. He does not have to accompany his goods to their destination, but can hand on part of the transport to others, at least on such frequented routes as Surat-Isfahan and Surat-Basra. He transfers money by means of bills of exchange, and some of the exchanges registered are pretty complicated. He does not use double-entry bookkeeping, but his accounts are meticulously kept, and he handles complicated calculations involving coins and measures with the greatest of ease.

Hovhannes is an Armenian, and his relations with the local Armenian communities, the Armenian nations, are vitally important for his business. Everywhere he goes he makes contact with local Armenians, and he contributes to Armenian churches and institutions. He participates with Armenians in credit transactions and concludes important business deals using Armenians as witnesses. It is only with reluctance that legal disputes are referred to local authorities, usually they are settled among the Armenian merchants themselves. Even in far away Lhasa legal disputes are settled by a body of Armenians supplemented with merchants from Kashmir, rather than being brought before the local authorities.⁸ To belong to a nation was at once a protection and an organizational advantage; in the eyes of the local authorities the possession of a distinct law and nationality ensured the merchant extra-territorial rights, at any rate as far as internal disputes were concerned.

It is possible with regard to some transactions to calculate Hovhannes’s gross profits; they were between 50–130% for those transactions that are identifiable. The lowest profit registered is on the large consignment of indigo he sent to Basra, this being at a gross profit of approximately 50%. The remainder of the identified transactions involved smaller sums, ranging from 17 to about 100 rupies.

Two rates of interest were charged for loans. When the lender and the borrower were staying in the same town, the customary interest was 3/4 % per month. When the borrower obtained a loan in connection with a journey the lender seems to have participated in the risk and has accordingly demanded a higher rate of interest.

At present Hovhannes’s journal is our only source of direct information; and both as regards time and space it lies outside the sphere of greatest interest in the present context: transcontinental trade in the years around 1600. It is now necessary to determine whether the indirect evidence obtained from Western sources supports the assumption that he is none the less a representative of a peddling trade that carried the Asian commodities all the way to the trading towns on the Mediterranean.

Six English merchants, who travelled from Aleppo to Hormuz in 1583, had a working capital of £2,000 or approximately 9,000 piastres.⁹ Four Venetians on their way from Hormuz to Aleppo, whom the merchants met in Basra, were carrying 20 bales of cloves, long pepper, cinnamon, musk and ostrich feathers.¹⁰ In 1608 the Carmelite, Paul Simon, travelled from Isfahan to Baghdad together with some Armenian merchants who were on their way to Aleppo to sell four loads of silk.¹¹ In 1613 a factor in the service of the East India Company, William Finch, who had great experience of trade in the Levant, left the Company’s service in India in order to return home over land at his own expense. At the time of his death in Baghdad his estate comprised eleven mule loads of indigo and a few curiosities of lesser value.¹² The many merchants, each with his small lot of bales and chests, became a feature of the carrying trade developed by the Companies between Surat and Gombroon following the fall of Hormuz. Thus in 1626/27 the Blessing carried six merchants with altogether 65 bales and chests from Surat to Gombroon,¹³ and on a similar journey in 1630/31 the Royal James brought 100 passengers with 689 bales to Gombroon and 70 passengers with 800 bales to Surat on the return journey.¹⁴ When in 1642 the Augustinian, Sebastian Manrique, wished to travel from India to Persia by way of Kandahar without attracting attention, his Indian friends advised him to disguise himself as a merchant. But if the disguise was to be foolproof it was essential to purchase at least two thousand rupees’ worth of the usual wares and load them on two camels . . .¹⁵ Anything less would be suspicious, but two camel loads on the six to eight months’ long march between Lahore and Isfahan was obviously nothing unusual.

Hovhannes penetrates right to the production areas when purchasing his indigo and cotton cloth, and he frequently deals in small quantities. We cannot with any certainty find parallel features in the European source material, but it may be said with some justice to be the same tendency that manifests itself when English, Venetian and French merchants travel farther along the caravan routes to more distant markets in times of hard competition in Aleppo. For the Armenians the tendency to get as close to both producer and buyer as possible seems to have been characteristic. The Armenians used to buy up raw silk in the production areas by the Caspian Sea,¹⁶ but it is also said of the Armenians when they were purchasing indigo in North India that they rushed from one village to the other, running and racing about like hungry folk.¹⁷ In his commentary on the Surat factors’ plan to establish trade with Persia, the English Ambassador to the court of the Great Mogul, Sir Thomas Roe, draws comparison to these merchants: to travel in an out like the merchants of Persia will neither become nor advantage them . . .¹⁸ And especially hard is the comment in Marseilles: "In order to earn a little bit more they are willing to run to the end of the world, and they live so miserably (si porque), that for the most part they only eat herbs."¹⁹

However indirect and fragmentary our knowledge, there can scarcely be any doubt that van Leur’s model is also valid for the Middle Eastern caravan routes. It is a prosperous trade plied by small people – a trade carried on by pedlars, buying and selling small quantities on continuous travels from market to market. The European material provides a large amount of evidence to this effect, and further confirmation is provided by the very silence of the sources as far as itinerant merchants carrying large quantities of merchandise are concerned. The only caravan merchants mentioned with more than a dozen loads in their charge are those the Shah of Persia occasionaly sent to Europe in order to sell silk (see below p. 103 ff).

But it would be wrong to characterize the peddling trade as primitive; the organizational sophistication documented in Hovhannes’s journal is confirmed by the indirect evidence. Based on his observations in Goa in the 1580s Sassetti declares that 6–700 ducats were sufficient for that merchant who wished to undertake a journey, but that over and above their own capital they usually took 8, 10 or 20 thousand ducats with them as bills of exchange at 2% per month. The high level of interest is explained by the great risk.²⁰ The second journey of the English merchant, Mildenhall, provides a concrete example of trade employing foreign capital. Following his arrival home from his first journey to India in 1609 Mildenhall applied for an appointment in the East India Company, but was rejected, presumably because his demands were too great.²¹ Instead he set out on a new journey along the caravan routes, at least part of his capital being placed at his disposal by four London merchants with great experience and interests in both Levant and Asian trade: Morris Abbot, Nicholas Leate, Richard Staper and Robert Offley.²² As time passed and nothing was heard from him the consortium grew uneasy, and in 1613 Richard Steele was sent out from Aleppo on Mildenhall’s tracks in order to contact him and demand settlement. Steele found Mildenhall in Tombaz, near the confines, presumably Tabas, three weeks’ journey east of Isfahan, and took over on behalf of the consortium money and goods to the value of 9,000 piastres. No explanation as to the year-long stay in Persia is forthcoming, but we are informed that upon his death he left a wife and two children in Persia. He died in Lahore the following year, and his estate was estimated at about £500 or over 2,000 piastres. Mildenhall’s year-long journey seems thus to have been undertaken with a capital of less than 10,000 piastres, and his own business capital at his death was little more than 2,000 piastres.²³

Also extremely informative is Sir Thomas Roe’s mention of a package of letters which came into his hands by way of his contact in Isfahan in 1616. These letters revealed that merchants of various nations in Aleppo, amongst others the English consul, had formed a company for the purpose of trading with Lahore, with a certain Bonelli as factor or active partner. However, the company had been informed that Bonelli had been killed by bandits in