2 European Expansion

European maritime expansion
Giovanni Favero, Economic Storia

economica 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 civilizations, together with

men, circulated not only commodities, but also
new species (from the Americas: potato, tomato, mais,
turkey, cocoa, tobacco; from Europe: sheep, 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
1520-1540
1540-1560
1560-1580
1580-1600
1600-1620
1620-1640
1640-1660
14.118
19.354
67.577
20.960
31.553
20.620
5.130
2.049
86.343
480.694
2.061.451
4.810.655
4.405.887
3.542.099
1.499.431
9
Quantitative Theory of Money

Price = Speed of circulation *
Money quantity / commodities

10
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.
11
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.
12
From Genoese to Jewish bankers
Genoese bankers dominated the moneyexchange 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

crowns 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.
13
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.
14
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

15
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
16
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
17
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
18
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
19
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

20

2 European Expansion

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2 European Expansion

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European maritime expansion

Giovanni Favero, Economic Storia

The Renaissance global turn

Before the geographical discoveries of the

Chinese /Indian : Malacca, Timor

Giovanni Favero, Economic Storia

Giovanni Favero, Economic Storia

Giovanni Favero, Economic Storia

Direct contact with other civilizations, together with

From an economic perspective, Asian trade grew very

Exploiting the Americas

Gold, but much more silver

This flow of bullion allowed Europe to

Spanish imports of American gold and silver (kgs).

Quantitative Theory of Money

Giovanni Favero, Economic Storia

Silver lever for Asian trade

This phenomenon was the real engine of

European price revolution

This involved changes in the European

> American silver arrived to Sevilla, but the Spanish

From Genoese to Jewish bankers

They were contractors for the payment of soldiers

This mechanism ended because of

the continuous fall of silver value (due to Spanish

In the 17th century, Jewish bankers (expelled

The limits of price revolution

In Asia, the production of exports (pepper, tea,

The English-Dutch rivalry for East-India trade

In the first half of 17th century, England and the

Giovanni Favero, Economic Storia

English merchants entered East India at the end of

East India Co. was allowed by the Queen

In 1602 was founded the Dutch East-India

Besides of Dutch company State-like powers,

Government control on VOC built conditions to

Ironic conclusion of this story:

Giovanni Favero, Economic Storia

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