Prologue

An historical perspective is probably the most common way to begin a description of any kind of human activity. History is the backbone of all disciplines and its study is important in understanding human behaviour. In our case, the sheer task of covering the entire trading history of homo economicus is, at the least, overwhelming. The aim of this chapter is to sketch a brief picture of human society progressing from a world without merchants to a tangled web of multilateral economic and trade links among a large number of nations.

In a world dominated by commercial transactions, it may be difficult to imagine a society without any exchange of goods, where individuals satisfy their consumption needs without any resort to goods produced elsewhere and traded in some form of organised market. This is exactly where we start, and we will be following the fortunes of a number of great civilisations and their impact on the development of trade and merchant activity. Not surprisingly, some of the commodities traded today have been traded from the beginning of civilisation. ‘Commodities’ like wheat, oil, wine, copper, tin, incense and spices have been traded for thousands of years, although their importance has changed in line with the needs of the parties engaging in their exchange.

A world without merchants

The further back in human history we delve, the more difficult it becomes to trace the distinctive economic behaviour that is called ‘merchandising’. As the primitive hunters abandoned nomadic life in a never-ending search of new areas with fresh supplies of game, they settled down and applied their skills to cultivate the land, domesticate animals and invent tools that helped them work more effectively. As people engaged in a number of productive activities, several craftsmen were distinguished for their skills which helped them produce more than was required to cover their domestic consumption needs. Hence, the first producer surpluses emerged, seeking new markets and pushing more individuals to engage in barter exchange activities. Might these individuals be the world’s first merchants? One cannot be certain, for a merchant is a lot more than a mere surplus producer. A merchant seeks new markets, investigates new opportunities, takes risks, negotiates with local producers and undertakes the onerous responsibility of transferring the products to the place of consumption. His motive is profit, which compensates for his exposure to a number of risks.

Fabrics, jewels and food, were thought to be among the first goods to be traded. Exchange took place initially in the confines of the local community or village. Later on people felt the need to come together regularly in a common place, during a fair or a festival, and exchange their produce. The variety of goods increased as well, as civilisation moved from the Neolithic to the Chalcolithic and then the Bronze Age. Now copper and tin were sought after, for they were both needed to produce bronze, which was easier to shape and much more durable than stone. Unfortunately, neither metal was easily available. They had to be carried over long distances and the locals who had them were keen to hold on to their supplies.

The need to secure steady sources of raw materials has not always been catered for only through economic negotiations. Predation is as old as the human instinct for survival and military activities have all too often been the medium to ensure the satisfaction of economic needs. Can we distinguish between trade and the mere selling of military loot? Probably not! In one way or another, they have both co-existed, the latter in many cases preceding and establishing the foundations for the former. The quest for new, better materials for everyday life and self-protection, soon resulted in bronze giving way to iron, a metal much harder and hence more suitable for the construction of tools and weapons. Copper, however, was still used for ornamental purposes, substituting the much rarer and substantially more expensive gold.

Along these very broad lines we have already covered several thousand years of human history. Was the first commercial transaction struck some time around 10000 BC? We will probably never know. What we do know, however, is that the basic human instinct of staying alive and satisfying one’s needs was starting to become more refined and sophisticated. Homo habilis was gradually turning into homo economicus. The trend was reinforced from one great civilisation to the next. But let’s start at the beginning.

Mesopotamia

Between the rivers Tigris and Euphrates, at about the same time Abraham left Ur of the Chaldees to find a new home in Palestine, the signs of the very first recognisable civilisation began to emerge. The time was estimated to be around the first half of the 4th millennium BC and the Sumerians made a series of important discoveries: they domesticated wild cattle; they tilled the soil; they planted the first grains. By 3000 BC they used the wheel for transport. Metal was soon used instead of stone; copper could be shaped into weapons and tools much more easily than the hard and brittle stone, but it was too soft. When a small quantity of tin was added to it, however, its hardness was remarkably improved. Unfortunately, both metals were scarce and rarely ever found in large concentrations. The closest supplies were located on the Sinai Peninsula and in Syria. The first merchants sought both metals in exchange for agricultural produce.

Bronze was not the only produce of this first civilisation. Pottery was another expression of human economic activity. The famous Uruk pots were produced massively by what seemed to be a population of specialised craftsmen. Soon enough, they had surpluses which were also traded for copper tin and timber. The latter was also sourced from the nearby forests of Mount Zagros and were used primarily as fuel in the pottery kilns. The large-trunked cedar logs from Levant, however, were being imported for the construction of lodging, temples and palaces. A primitive trading system seemed to be in place, with the Sumerians also obtaining goods, such as incense, from the Indus valley, possibly indirectly via the Arab peninsula, by 2000 BC.

The first record of human writing was also directly linked to economic activity. The earliest writings were pictograms inscribed on clay tablets; they were memoranda, lists of goods and receipts. Business always comes before pleasure, accountancy before poetry! These ancient ledgers were used to keep a detailed account of daily or periodic activities, such as planting, irrigation and harvesting of crops. Information was thus organised and passed down to subsequent generations for convenience and further improvement.

The reign of the Sumerian civilisation lasted for about fifteen centuries. The beginning of the end started about 2000 BC with the fall of the city of Ur to the Elamites. The reason behind this is not known, but it might have very well been the culmination of a struggle between the two peoples for the control of access to minerals vital for economy and warfare. The next milestone was the destruction of Babylon by the Hittites at around 1600 BC. From then on the course was downhill until the Sumerians were finally amalgamated in the big ‘cauldron’ of the Fertile Crescent with a multitude of new kingdoms and peoples that were paving the way to the next great civilisation: that of the Assyrians.

In so doing, however, they left behind Hammurabi’s code, the cuneiform script and a scientific heritage that included the plotting of the path of the sun and some of the planets against other stars, the prediction of lunar phases, the development of mathematical tables and algebraic geometry, and the sexagesimal system that survives to date in our circle of 360 degrees and the hour of sixty minutes. But now let us focus our attention to the west of Mesopotamia, on another great ancient civilisation; that of the Egyptians.

Ancient Egypt

The first account of Egypt’s fascinating civilisation was recorded in the ‘Historiae’ of the ancient Greek historian and traveller Herodotus of Halicarnassus. He recited stories of gods being half men and half beasts, and of strange Egyptian habits like that of using one’s hands to make mortar, but one’s feet to make bread! Economy, the art of taking care of one’s household, was very much regulated by the geography and the climatic conditions of a country; even more so in the case of Egypt whose households were along the banks of a river subject to periodic flooding - the Nile. Life was essentially due to the existence of the river and revolved very much around its annual cycles. The first signs of civilisation emerged around the same time as in Mesopotamia, perhaps somewhat later. Indeed, it seems incontestable that the two civilisations had a multitude of fruitful connections, possibly as early as the 4th millennium.

Like the Sumers, Egyptians developed important crafts and skills; they built flat-bottomed boats to navigate the Nile, worked hard materials such as basalt and applied copper to daily use. But a great change seemed to occur around 3500 BC when trade and contacts with neighbouring civilisations in Mesopotamia and Levant flourished. In the latter, they had contacts with the city of Byblos and, from its inhabitants, the Egyptians learned the construction of the keeled vessel. Unlike their clumsy rafts and flat boats, the keeled ship could navigate in the wider, deeper and stormier parts of the Nile, as well in the open sea. Soon,  the new invention gave rise to a significant trade in cedar logs for ship construction. This was not, however, the only reason for the emergence of trade. Egypt was poor in forest resources. It needed logs for building as well as for the kilning of pottery. Moreover, the oil from the tree was used for fragrance and embalming, while its resins were used by priests for burning in temples.

Seaborne transport was undoubtedly the most efficient mode for the carriage of goods over long distances. Vessels would soon be equipped with a sail and mast, although these were only a single central mast and a square sail. Oars were also used, but they were predominant in warships. The restless, enterprising spirit of these primitive merchants naturally selected the cheapest, most efficient option from the very early stages.

Despite its great civilisation, spanning three millennia, Egypt would never become a nation of merchants, unlike the inhabitants of Byblos who engaged in trade purely in order to earn their livelihood. Egyptians were only active in barter exchange of their surpluses for raw materials they desperately needed. Although not outstanding enterprising spirits, Egyptians are still admired for coping with the massive logistics problems of organising the construction of the great landmarks that bore the Egyptian legend throughout the centuries.

A first glimpse at the Sumers and the Egyptians will make evident a large number of dissimilarities. The single most marked one was the Egyptians’ apparent interest in posthumous fame, which was the reason we know so much about their civilisation today. Another difference was the complex administrative bureaucracy designed to govern large areas and to support the power of the Pharaohs, in the face of whom secular authority and religious omnipotence were inextricably intertwined. When we take a closer look at both civilisations, however, we can distinguish several similarities, especially in relation to their raw material requirements. Both of them needed copper and tin for their tools, weapons and artefacts. Both of them needed cedar trees for their construction and fuel requirements. Finally, neither of them was a merchant nation, although they both engaged in trade to cover their demand deficits in return for their production surpluses.

In terms of trade, Egyptian civilisation did not bequeath anything exciting. It showed a remarkable staying-power, but had little to show in terms of resilience and international appeal. As Roberts (1990, p. 99) put it: 

“...the history of Old Egypt goes on for thousands of years, virtually a function of the remorseless, beneficent flooding and subsidence of the Nile. On its banks a grateful and passive people gathers the richness it bestows. From it could be set aside what they thought necessary for the real business of living: the proper preparation for death.”

Early merchants

Egypt and Mesopotamia were not the only foci of interest. Sinai, Palestine, Levant, the Greek peninsula and the lands surrounding the Fertile Crescent were brimming with Semitic and Indo-European tribes struggling for domination. Warfare took precedence over all other activities and, like in contemporary history, it sharpened human creativity and inventiveness, thus, almost literally ‘spearheading’ peace-time prosperity. The slow, clumsy four-wheeled carts of the Sumers, which were hauled by asses were comprehensively overpowered by the flexible, two-wheeled, horse-drawn chariots of the Kassites around 2000 BC. At about the same time, iron made its appearance, replacing copper alloys in munitions. The new metal was both harder and more abundant than copper and tin. It would take scores of decades, however, before its use spread to agriculture and domestic use. It would take a good 1000 years before the line dividing the Bronze and Iron Ages could be drawn with a fair degree of certainty.

Minoan Civilisation

Two of the most fascinating legends of antiquity had their source in the island of Crete: that of Daedalus whose son Icarus died tragically after flying too close to the sun with his wax wings, while they were escaping King Minos’ captivity; and that of the Minotaur, the monstrous offspring of King Minos’ wife Pasiphaë, who devoured the human sacrifices offered by Greece as a tribute of respect to the King’s power.

Both legends reveal the veneration and fear of other Aegean civilisations towards Minoan Crete, but the frescoes in the palaces of Knossos and Phæstos present us with a picture of a liberal, lively, colourful and enterprising people. What is to be made of these legends is still very much the subject of scholarly debate. What is certain is that Cretans were very confident sailors and navigators, and used their skills for one purpose: trade. The vine and olive tree remain to date the most important crops of the island. Olive oil, wine and pottery produced by the Minoans found their way to Greece, Sicily, Syria and Egypt. Ideas and cultural influences also travelled with the goods and this early example of cross-fertilisation between civilisations, due to trade, can be seen in some of the art of the New Kingdom.

The proximity of the Minoan civilisation to the sea was the force driving Cretans to take to the open sea and trade their oil, vases,  – some argue – even timber, grapes and opium for metal, predominantly copper. Their geographical position and their strong fleet helped them reach their peak at about 1600 BC. Approximately a century later the very foundations of the Minoan civilisation were rocked, literally and metaphorically, by the cataclysmic eruption of the volcano in the island of Thera. At the same time new Indo-European tribes settled in Greece and challenged the dominance of Cretans who eventually had to succumb to the power of the Acheans.

Mycenae

Obliterated most probably by the aftermath of a massive volcanic eruption in the Cyclades, the Cretans eventually succumbed to the hegemony of the new inhabitants of mainland Greece. The first Acheans were well established in the mainland by 1400 BC. Their civilisation was centred around the ‘city-state’ model, a paradigm that we will see being repeated many a time. The most famous of these cities was Mycenæ, which replaced Cretan trading supremacy in the Aegean. The dominance extended to the coast of the Levant, where Mycenean pottery soon replaced Minoan and the new city-state was treated as a power by the Hittites.

The Acheans, however, were not a trading nation per se. They were primarily a military people, always aware of the need for self-protection and pioneers of town fortification with the erection of an acropolis. At the same time they sought access to goods produced abroad and for this reason they set up colonies in Asia Minor. Troy was at the centre of this trading activity. The military spirit soon took over, however, with the Acheans participating in raids against Egypt and launching an offensive at about 1200 BC which culminated in the seizure of Troy and was immortalised by Homer in his Iliad. The Mycenean civilisation was eclipsed in its turn by the new Indo-European peoples from the north. Dorians were the most dominant of them and bequeathed their austere customs to the communities created around the latter city-states of Sparta and Argos.

Merchant nations

Phoenicians

The history of the Phoenicians begins some 2700 years BC, on the eastern shore of the Mediterranean. They were a Semitic nation, marginalised by Jews, Egyptians and Hittites, in turn. They were barred from the inner land by the Lebanon and the Anti-Lebanon, and so turned to the sea for prosperity. Overshadowed by the trade dominance of the Minoans, they still engaged in profitable trade in cedars, copper and tin, first with the Sumers and later with the Egyptians. Their most important cities were Byblos, Tyre and Sidon. They assumed a leading role in the Mediterranean, however, around 1000 BC, after the apogee of the Minoans and the Acheans.

Phoenicians were probably the first to embody the quintessence of a merchant: a person living by trade, profiting from wares which others had produced. It was exactly this activity that made them sail the entire Mediterranean, go beyond the Herculean Pillars and find new sources of copper and tin in Cornwall. During their journeys they founded several trading stations, scattered along the Mediterranean coasts. The last of them, Carthage, would be causing a headache to Greeks and Romans for several centuries to come.

Phoenicians were not renowned for their cultural or artistic heritage. One of their few achievements seems to be the progression from syllabic to character-based writing and Greeks attribute the origins of their alphabet to them. More than anything else, though, they were merchants and colonisers. They soon became famous for trading in a multitude of raw materials and luxuries. Their proliferation was thus immortalised by the prophet Ezekiel, as quoted in Samhaber (1960):

“O Tyrus, thou hast said, I am of perfect beauty. Thy borders were in the midst of the seas, thy builders had perfected thy beauty. They had made all thy ship boards of fir trees of Senir: they had taken cedars from Lebanon to make masts for thee. Of the oaks of Bashan had they made thine oars; the company of the Ashurites had made thy benches of ivory, brought out of the isles of Chittim.... All the ships of the sea with their mariners were in thee to occupy thy merchandise.... Tarnish was thy merchant by reason of the multitude of all kind of riches; with silver, iron, tin, and lead, they traded in thy fairs.... Syria was thy merchant by reason of the multitude of the wares of thy making: they occupied in thy fairs with emeralds purple, and broidered work, and fine linen, and coral, and agate. Judah and the land of Israel, they were thy merchants: they traded in thy market wheat of Minnith, and Pannag, and honey and oil and balm. Damascus was thy merchant in the multitude of the wares of thy making, for the multitude of all riches: in the wine of Helbon, and white wool... The merchants of Sheba and Raamah, they were thy merchants: they occupied in thy fairs with chief of all spices, and with all precious stones, and gold. Haran and Canneh, and Eden, the merchants of Sheba, Asshur , and Chilmad, were thy merchants. These were thy merchants in all sorts of things, in blue clothes, and broidered work, and in chests of rich apparel, bound with cords, and made of cedar, among thy merchandise. The ships of Tarshish did sing of thee in thy market: and thou wast replenished, and made very glorious in the midst of the seas. Thy rowers had brought thee into great waters.”

In the seventh century, Sidon was razed to the ground by the Assyrians and the daughters of the King of Tyre were abducted to the harem of King Ashurbanipal. The Phoenicians were soon reduced to their colonies, Carthage being the most important amongst around twenty five others in the Mediterranean. Like many before them, the Phoenicians were traffickers of civilisation. The carried with them physical and cultural products of third parties; they were intermediaries par excellence, or – to the purists – just parasites. They fulfilled, however, a very important role. They were willing to bear the risk of undertaking new ventures, finding new supply sources, trade in new, previously unheard of commodities, and expected to be compensated for taking that risk. Their task was a thankless one and merchants would always be frowned upon, but also sought after by monarchs and governments in dire straits.

Classical Greece

One of the many beautiful tales of Greek mythology tells us of the fight between Poseidon and Athena for the patronage of the small town built on the rocky, inhospitable south part of Attica. Poseidon offered water, whilst his sister offered the olive tree. The locals chose the second, the town was named after the goddess of wisdom and the Greeks (or Hellenes) inherited an excellent liquid fat for cooking. The fact remained, however, that the soil in and around the city remained inhospitable, yielding rather poor food crops. The inhabitants had eventually to turn to the sea to seek new sources of food and other raw materials.

The earliest manifestation of Greek civilisation is in the form of characters inscribed on a jug, dating to 750 BC. This early alphabet resembled that of the Phoenicians, and so did the strategy of its users to exploit the sea, seek more fertile lands abroad and colonise the Mediterranean with prosperous trading posts. By 500 BC the Mediterranean was more or less navigable in its entirety, except perhaps when the weather would not allow it. Greek colonies mushroomed in the Balearics, the south of France and Italy and the north of Africa. The settlements were set up to secure procurement of raw materials – particularly metals – and to market Greek products. Even more important, colonies were set up to secure food supplies. Black Sea served as the granary of the ancient Greek world and the predominance of Athens – and for a short while Sparta – over the often unruly Aegean islands, created a safe trading zone for Greek vessels.

Classical Greece, however, is renowned for its cultural heritage. People who excelled in such activities were usually landowners. The ‘lowly’ activities of producing were left to slaves –  ‘barbarians’ captured and brought back from overseas expeditions. In the best case – in Athens – these could be metoikoi, former slaves who managed to buy back their freedom, but would never be able to become citizens on an equal basis. Alongside the metoikoi, a new class of individuals developed, the emporoi. They were the equivalent of the Phoenician merchants. Their business was trade, the sale and purchase of other peoples’ produce. Quite often they also owned the vessels carrying the goods, in which case they were called naukleroi. Trade was widespread in a variety of goods; pottery from Athens and Corinth; oil and wine from the islands of Chios and Samos; barley from the Black Sea; corn from Egypt. By the end of the 7th century, the foundations of a money-based economy were laid, with the introduction of silver coinage, which was widely adopted with the exception of Sparta.

The success of the Greeks throughout the Mediterranean mobilised those other veterans of naval and trade supremacy, the Phoenicians, who founded new colonies. The most important of them, Carthage, was set up to check the increasing affluence of Syracuse.

Greek supremacy, however, did not falter despite being put to the test by Phoenicians, Lydians and Persians alike. The latter demonstrated to all Greeks, particularly Athenians, the importance of having a strong navy not only for swift military activities, but also to preserve the safety of the precious trading routes – the life-blood of the Greek city-states. This was amply manifested by the strength of the Delian League and its reliance on the navy to counter-balance the increasing power of the Spartan League which was also joined by the Corinthians and the Boetians. Some two thousand years later, a similar blend of naval supremacy, commercial activity and ideological confidence formed the basis of the British Empire.

The evil seed of dissension among people united by a common language did not take long to sprout. The Peloponnesian War, the subject of the first ever work of a scientific historian, Thucydides, left all sides deeply scarred. It also facilitated the entry of a new major player in the scene: Macedonia of Philippe II.

Hellenistic era

King Philippe II of Macedon set the foundations of what was to become the Hellenistic world; a collection of disparate peoples with one common reference point: Greek language and culture. His son Alexander – ‘he who repels men’ –  expanded the Kingdom he inherited and stretched it to Persia and Egypt. In doing so, he shifted the gravity point  of economic activity and trade from the mainland to the east of the Mediterranean, where new cities took centre stage, led by Rhodes, Antioch and Alexandria. Rhodes rose to power following the paradigm of Athens and that of the Phoenicians: widespread trading activity, backed by a strong and reliable navy, that could secure safe passage to merchant ships and stave off pirates.

Greek and Syrian merchants dominated the eastern Mediterranean, Egypt, Persia and the Black Sea. Merchants played yet again the important role of the risk-taker. Motivated by the possibility of large profit, they ventured money, vessels and personal safety and they brought back with them a wide variety of goods. They carried staple foods in large quantities like oil, wine, honey, figs and grains; and raw materials, such as timber, copper, tin and iron. They also carried exclusive and speculative goods, at higher risk but also with higher profit margins; exotic perfumes for men and women like myrrh; incense for the priests; spices, like cinnamon and pepper;  fabrics, especially silk, linen and cotton; and precious stones and metals. Many goods considered common today were introduced to the Hellenistic world by merchants; cotton, rice, oranges, lemons and cherries were some of them.

Greeks and Syrians, however, were not the only merchants active in the then known world. Beyond the eastern boundaries of Persia, throughout the Indian Ocean and as far as China, Arab merchants dominated all trade routes. They were able navigators; they were believed to have used the astrolabe, an early form of sextant, to take advantage of the position of the stars in the night sky for orientation. They were also cunning negotiators and their routes and contacts were well-kept trade secrets. Greek traders were kept off the Indian continent until the 1st century BC, while Indian merchants never ventured in the open sea. Arabs were also dominant on the ‘Silk Road’, from China to Europe, well into the next millennium.

The Hellenistic world had more to offer in areas like mathematics, astronomy and philosophy. The edifice erected by Alexander and ruled by his diadochi – his successors – began, however, to show the first cracks. Religion gave way to superstition, the new kings saw themselves as absolute rulers – in the tradition of the Pharaohs and the Persian monarchs – and built an arteriosclerotic bureaucracy around them. Meanwhile, the inhabitants of the small city built on the seven hills around the River Tiber started taking their fate and that of their peninsula in their hands.

Roman era

The tale of Romulus and his twin brother Remus, fed by a foster mother-wolf, delineates a colourful prelude to the history of a civilisation as great as the Greek, but also as ridden with problems and controversies as its predecessors. The Etruscans set the foundations of dominance on the Italian peninsula and inherited and developed the use of iron in their economy. The Latins took over from them and based their expansion on military power, adopting their predecessors’ custom of organising army troops in ‘centuries’. They started by obliterating Macedonia very quickly and soon afterwards reduced the inhabitants of all the remaining Greek cities to vassals. They expanded their suzerainty to include the lands to the east of the Aegean, stretching to Armenia and the old Mesopotamia; Palestine and Israel; a strip of land extending from the Sinai peninsula to the ‘Herculean Pillars’ and including Egypt, which was to become the north African province of the empire; the Iberian peninsula; the Gallic provinces; Britannia; the provinces on the south of Germania; and the provinces in the north of the Balkan peninsula, thus including the entire Pontus Euxinus – the Black Sea – into their dominion.

The peoples that resisted Roman invasion were vassalised soon after their surrender and were sold off in slave markets, notably that of the island of Delos. Indeed, the slave trade was central to the economy of the Roman Empire throughout its history. Latins were predominantly farmers and the Roman society was predominantly an agrarian one. They were forced, however, to serve the emperor’s army for a large number of years – some 24 years some times, but not throughout Rome’s history. War became their business and looting their trade. The haphazard depredation of people and wares was ‘streamlined’ and ‘rationalised’ by the mangones – the escorting slave merchants – who disposed of the booty for hard cash.

Slaves, however, were not only a tradable commodity; the smartest and ablest were recruited to run their master’s latifundia and maintain their business while they were fighting with the legions away from home. These large estates were producing agricultural commodities which were, subsequently, exported to other Roman provinces. Slaves were also used for their craftsmanship, notably in pottery, building and textile manufacturing.

The haemorrhage of precious human stock, however, would soon take its toll on Roman economy. Romans became professional soldiers, severed their ties to the countryside and moved into the cities. Exacting and prolonged military activities weakened the agrarian base, thus progressively increasing the need for imports of staple foods and for the recruitment of mercenary legionnaires. Production sites gradually relocated from the capital of the empire to its provinces around the Mediterranean, making the availability of reliable frequent transport of foremost importance and manifesting the pivotal role of the Jewish, Greek, Arab and Persian merchants of the time. Wine and olive oil, the traditional produce of the Italian peninsula, were now being produced in Spain and Gaul. The north of Africa and Egypt flourished to the detriment of Rome. As the wars of expansion ceased and Pax Romana settled in, Romans could not depend on their looting to accumulate wealth. They had, instead, to re-focus on peaceful activities – production and trade – to earn their living.

The ‘lowly’ activity of trading had been left entirely to the cunning oriental merchants of the time. Thus, important Jewish and Greek merchant communities flourished in Alexandria and Antioch, controlling most commercial activities in and around the Mediterranean. Further to the east, Persian merchants were laying trade routes  to India and China, the famous 'Silk Road', where silk, cotton and spices originated. Arab merchants continued their unrivalled domination of the Indian Ocean until the first century AD when the Greek helmsman Hippalos discovered the monsoon patterns and opened the sea route, from Africa to India, to Greek merchants.

In Rome, meanwhile, Roman citizens queued up in front of the annona to receive food aid issued by the state. Other cities also started attracting peasants who left the country in search of employment. The great nation of conquerors gradually turned into a nation of tax collectors. The emperors needed administrative skills more than anything else, in order to manage an increasingly troublesome body of angry Roman citizens, independently-minded provinces, barbaric tribes from the north and a new peaceful movement that would cast the empire the deadliest blow yet – Christianity.

Byzantium and the rise of Islam

From the second half of the 2nd century AD it was evident that the Roman empire was on its deathbed. The western provinces and the Italian peninsula were struggling with the indomitable hordes of new Indo-European tribes coming from the north and the west. The eastern provinces of the empire, on the other hand, were being quickly proselytised to the new force of Christianity which was gaining ceaseless momentum. Diocletian made the split official by appointing two augusti, one for the eastern and another for the western provinces of the empire. Eventually, Constantine the Great gave the Christian church official houseroom and became a Christian himself in 324 AD. Six years later he founded the new capital of his empire at the site of the old Greek colony of Byzantium, strategically located close to the grain producing regions around the Black Sea.

The following couple of centuries were ridden with unrest, wars against and amongst the new tribes in the west, while the east strove to establish a secure political and religious structure in order to support the new Byzantine empire. The conditions were hardly ideal for trade to take precedence over other more important issues. This did not mean, however, that it ceased to exist. Arab merchants preserved the remains of trade with the Roman empire – or more adequately ‘trade with the remains of the Roman empire’. Egyptian linen, Syrian glass and artefacts were exchanged for Indian cotton, Chinese silk and Indonesian spices. Greek and Syrian merchants were also active and co-existed peacefully with the Arabs.

With the emperors in Constantinople enjoying the stability of the now firmly established Byzantine sovereignty, and the West preoccupied with the definition of the rôle and authority of the newly emerging papacy, conflict focused on the flagrant political and religious divergence of the two centres of power: Rome and Constantinople. It was yet another religious movement that matched Christianity’s expansive and adaptive power, and shook both sovereigns to the harsh reality. Ironically, the instigator of the new movement was married in his twenties to a wealthy Qurayashi widow, who had money in the caravan business (Roberts, 1990, p. 315).  Mohammed laid the foundations of a new faith, but also created the linguistic and cultural groundwork of the Arab world. The impetus of Muslim Arabs brought whirlwind changes to the status quo around the Mediterranean, in their strife to spread the word of Islam. In about a century and a quarter they conquered the entire Arabian Peninsula, Persia, North Africa, the Iberian Peninsula and even parts of the South of France.

It was only natural that this massive expansion of the Islam presented Arab merchants with a more expanded territory and instilled into them more confidence to pursue a business in which they already had the upper hand. The Arab merchant was a gambler – unlike the Roman, who was a business owner entrusting the running to his slaves. They focused on the trade from the Mediterranean to the Indian Ocean and set up a series of strong bases – in Siraf, Ormuz, Katif and Muscat – that consolidated their control of the trading routes in the area. From the days of the Roman Empire, Arab merchants were organising caravans carrying goods to and from the east, moving from one caravanserai to the next and skilfully negotiating their way through Mongolian and Chinese territory. At the same time sea routes were becoming very important too. In the late 8th century Arabs sailed into Chinese ports and traded in cotton fabrics, leather goods, wax, carpets, bows and arrows. They also made their mark in the world of science.  Arabic numbers – including the word ‘zero’ – , algebra, alchemy and accounting practices were bequeathed to all subsequent civilisations. They also devised a technical vocabulary for trade, with words like ‘tariff’ and ‘douane’ being a reminder of their supremacy.

Trade was not as central to Byzantine civilisation nor, indeed, to that of Western Europe. The rôle of the Church and its inseparable entwinement to the State, was the central theme in Byzantine society. Trade was a fringe activity and to a large degree centrally regulated, with imperial officials levying direct taxes on produce, channelling food to the cities, and organising artisans and tradesmen in guilds and corporations. Nevertheless, trade was not altogether extinct. An important transit commerce from Asia to the West was captured by Byzantium, but its economic base remained agrarian, with the rôle and wealth of landowners ever increasing.

Meanwhile, north of Byzantium a number of dispersed tribes were slowly coming into the limelight. Bulgars and Slavs were the first among them and soon enough they were proselytised to Orthodox Christianity. The newest and most potent threat, however, came from the Rus, a people descending essentially from Vikings who overpowered the local Slavs. They set foot in Novgorod initially and later moved their capital to Kiev. When they threatened Byzantium seriously at the beginning of the 10th century, they were granted favourable trade agreements. The importance Russia and Byzantium attached to each other became evident later in the same century, when Prince Vladimir accepted Orthodox Christianity for himself and his people. Their alliance was of great political and military significance, but it also opened the much-needed market for Russia’s beeswax and furs.

During the 11th and 12th centuries the Mediterranean became the theatre of turbulent changes, with the demise of the Arabs, the rise of the Turks, the developments in Western Europe and the Byzantine emperors struggling to assert their power. But let us take a break for a moment and cast our eye toward the east.

Asian Civilisations

In the last few pages I often mentioned the important connections of European and Middle Eastern civilisations with the east; India and China in particular. The embodiment of this was the well-known ancient `Silk Road´, which inspired the modern-day Belt and Road Initiative (BRI) instigated by China. It is time, therefore, to concentrate our attention on the origins and development of the major civilisations in Pacific Asia.

India

The first signs of settlements and early civilisation were as early as 3500 BC and all ancient civilisations that we have discussed had some form of contact, more or less frequent, with the inhabitants of the Indian Peninsula. By 2250 BC, a civilisation was well in place, with the cities of Harrapa and Mohenjo-Daro making evident the existence of  considerable administrative and organisational skills. The economy was largely agrarian, with a continuous struggle to contain the destructive floods of the River Indus, and there was evidence of long distance trade with the north, reaching as far as Mesopotamia. By 1750 BC, the so-called Harrapan civilisation was brought to its knees, probably by natural disasters and also by the invading Aryans from the North. The new settlers were nomadic warriors who brought with them bronze weapons. They eventually gave up their nomadic habits, fused with the civilisation they conquered and settled into agricultural life.

During the following centuries Indian civilisation evolved into the complex cast system that is still in place today. By 1000 BC, iron made its appearance and was promptly used to improve agricultural tools. By the 7th century, the Ganges Valley was the centre of activity, probably because of the prosperous cultivation of rice in the area. Trade was often a fringe activity, sometimes taken up out of necessity. An example of such a case was Jainism, a sixth-century cult, which advocated the respect for animal life. As agriculture and animal life were ruled out, Jains became merchants and in modern times their community is among the wealthiest in India. But even if Indians were reluctant merchants, their Middle Eastern counterparts were always eager to take advantage of trading in exotic – and lucrative – spices and other rare goods, like silk. The latter gave its name to another, already prominent, trade route – that between China and the Western world.

China

Probably the land with the longest record as a sovereign state in human history, China, never ceases to fascinate its students, whatever their discipline may be. Its sheer bulk and length of existence are enough to dismiss any frowning eyebrow and the study of its past is usually a must for anyone interested in its present rôle and future potential.

The country itself is vast and geologically diverse, with major internal divisions set by mountains and rivers. Such divisions include South China, the Yangzi River region, the Hwang-Ho River region, North China and the ‘barbarian’ northern border region. It was on the banks of Hwang-Ho, the Yellow River, that the first nomadic peoples settled into agriculture. Evidence from North China suggests that agriculture began sometime around 5000 BC. Knowledge about the early civilisations remains unclear, although some kind of stratified society seemed to be in place. At the same time the widespread use of millet and bronze-casting were introduced, together with pottery. The former remained part of the people’s stable diet until a thousand years ago, whilst the latter two reached a high degree of refinement and complexity.

The history of China is usually traced though a succession of predominant tribes, who imposed themselves on their neighbours and established dynasties of rulers. The first such tribe was the Shang, which ruled a large part of the Hwang-Ho Valley from about 1700 BC, until it was finally deposed by the Chou dynasty. After about three centuries the Chou were pushed farther east, but contended for their supremacy for the next four and a half centuries. It was yet another dynasty, however, the Qin that asserted their power on a much larger basis, eclipsing all previous kings and rulers. King Zheng assumed the throne in 245 BC. By 221 BC he had extended his rule over a much larger area, which he named after the name of his own state – Ch’in – , whilst he himself assumed the title of the Qin First Emperor. The emperor’s power, however, was very much contestable and he soon felt the need to strengthen his fortifications in the north to check the hostile Xiongnu empire. It took several more dynasties to develop these early fortifications into the Great Wall.

Much can be said about the progression of Chinese civilisation and the succession of dynasties that extended and asserted the power of the Qin era. It was civil and not military power, however, that swept through the Chinese state, redefining the societal organisation and influencing the entire Pacific Rim to modern times. K’ung-fu-tzu, or Confucius, as he was conveniently renamed by seventeenth century Europeans, was a scholar. He was one of the many intellectuals criss-crossing the country and offering his advice to several warring rulers. Like Socrates, he never wrote down his ideas, nor did he assume a position of responsibility that would allow him to put his ideas into practice. His thoughts were recorded by his disciples, who collected them into a compendium, the Analects. Concerned by the decline and disorder of his era, Confucius advocated a return to conservative values, order and societal stability. Family, hierarchy and seniority were central to his teaching, as these were the foundations of his morally and spiritually healthy society.

The teachings of Confucius and his disciples influenced the whole ‘texture’ of the Chinese state. They also influenced the views of emperors and citizens towards outsiders. Benevolence and gentility were not exactly the qualities embodied in the individualistic, profit-seeking merchants that approached the Chinese and solicited their custom. Merchants – be they Arabs, Portuguese, Dutch or English – were merely part of the squabbling riff-raff, unworthy of the mighty emperor’s attention. Hence, they were restricted to a single port, Guangzhou (Canton), where they grappled with one another for trade privileges. Before leaping too far ahead though, let us revisit Europe, just as it started moving out of the Middle Ages.

European Resurgence

During the consolidation and expansion of the Byzantine Empire, the west part of the old Roman Empire was crumbling to pieces owing to successive invasions from the north by Gothic tribes fighting for dominance. Ostrogoths, Visigoths, Vandals, Burgundians and Lombards made up the east Germanic group, while the north Germanic group consisted of Franks, Alamanni, Saxons, Frisians and Thuringians. From the 4th century and for the next two centuries they would be part of the Völkerwanderung that took place in Europe. Some of these tribes were already Christian; others were pagan but were soon proselytised. Over the next few centuries they fought each other relentlessly for survival and power, stopping only when they were threatened with obliteration by Attila the Hun. An in-depth study of this era is intriguing, but would be beyond the scope of this book. Suffice to say that two major developments paved the way to the resurgence of West Europe into world prominence: the reinforcement of papacy and the agricultural revolution.

The rise of Italian cities

During the so-called ‘Middle Ages’ – a term most probably irrelevant to civilisations other than the European ones – the centre stage of European affairs was taken by the Church, a term used to describe both lay and clerical members of the almost exclusively Christian European population. The importance of Church in matters not only celestial, but also terrestrial, was reaffirmed in the West during the 12th century. Roman papacy claimed secular jurisdiction and hegemony over the peoples who made up christianitas, but was often criticised and openly contested by several European kings. It maintained, however, active interests in all subsequent expeditions of European military and trading powers.

From about 1100 BC, Italian history was marked by the ‘communal’ movement and the rise of commercial wealth. In many Italian cities the rising classes of wealthy merchants and professionals started clamouring for more political power. The result was the emergence of citizens’ assemblies, which named themselves parlamenta, and represented municipal oligarchies supported by the financial strength of the new classes.

Trade and Shipping

The new state of affairs was the culmination of a continuous process of socio-economic evolution, manifested by the explosive growth of population in Europe. This was facilitated by the rapid advancements in agriculture, boosted both by an increase in arable land and a considerable improvement of its productivity. Serfdom gave way to free labour and feudal estates soon turned into agricultural units producing surplus for sale. The rapid growth of urban population created the need for trade and transport of goods produced elsewhere in substantial quantities, particularly cash crops. The availability of such surpluses assisted, in its turn, urbanisation, creating a recursive relation between the two.

The new developments put power in the hands of people involved in the sale, purchase and movement of produce surpluses. Merchants accumulated wealth and were soon followed by professionals in the new cities: lawyers, doctors, traders and bankers. It was no coincidence that cities grew around established markets or sprang along great trade routes such as the Meuse and Rhine.

In many respects Venetians resembled those other great merchants of antiquity – Phoenicians. They built their maritime dominance on the basis of a powerful and fearsome fleet, despite not possessing any agricultural or manufacturing produce of their own, managing to control everything moving from East to West and vice versa.

Initially they strove to secure trade privileges between Byzantium and Ravenna. They carried silk from India, blades from Damascus, fabrics from Mossul and spices from India. Byzantium developed its own silkworm breeds and could also export silk garments. From Egypt, Venetian merchants brought flax and fine linen, while cloves from the Moluccas were also in great demand. The mutual support between Venetians and Byzantines strengthened the position of the former in the Black Sea – the hub of overland trade routes from India and China via central Asia and Persia – in return for their military assistance to the latter.

In its strife for domination, Venice was not without challenge. Genoa was its main competitor, but the cunning Venetians managed to overpower their rivals and establish tight control over Crete and Cyprus. They didn’t even hesitate to turn the Crusaders against Constantinople, when they felt that their trade privileges were at stake. Trade and military power went hand in hand, the latter securing uninhibited operation for the former, while the former financed the latter.

Genoa was the other dominant player in international trade and the struggle for dominance between Genoese and Venetian merchants was long and bitter. Genoa also based its strength on naval power and sought to establish its own strongholds in the Mediterranean, in order to control its vital merchant routes. It succeeded in doing so by founding trading posts on the islands of Rhodes and Chios.

A different model of trade supremacy was followed by Florence, the third major Italian city-state. Its people were primarily artisans and, over a number of years, Florence became the centre for European textile trade and manufacturing. With supplies of Tuscany wool becoming insufficient, Florentines soon had to turn to Flanders, France and even England, to import their requirements. In order to secure their exports across the Mediterranean, they entrusted the protection of their consignments to the Genoese. Later this rôle was assumed by the Pisans. When the latter attempted to extort more fees, Florence switched to the Sienese port of Talamone. Eventually, the Florentines bought the port of Leghorn and built their own fleet of warships to overlook their valuable trade.

Finance

As power moved away from the old landowning aristocracy to the new professional classes in the cities, the focus of trade switched away from agricultural produce and into manufacturing production. Florence and Ypres were the most notable workhorses of manufacturing. They relied on imported raw materials, steady output and exports, and required a certain degree of stability and security. Credit and finance were as vital to manufacturing and trade – and incidentally war, as well – as oil to a smoothly running engine. Textile manufacturers needed credit to purchase wool and cotton. They also needed an intermediary to undertake the opposite and equally dangerous flow of money for payments. This rôle was assumed by bankers. Assisted by recent developments in number crunching – accountancy was essentially invented by medieval Italians – they provided their services for an appropriate fee. Probably the single most important tool for financing international trade was the invention of the Bill of Exchange in 1408. This innovation not only removed most of the risk inherent in the movement of moneys between buyers and sellers, but also filled the gap created by the lack of precious metal for coinage. With such ‘weapons’ in their arsenal, bankers became an indispensable part of production and trade. Several families – like the Medici, Bardi, Villardi and Capponi – established their profitable business for generations to come.

The following centuries were dominated by merchants and bankers. They were often criticised for avarice, sought to gain social respect and acceptance through generous donations to the arts – like modern Maecenae –  and provided the lifeblood for business and trade. The tradition set by Italian merchants and bankers was upheld by new generations of German entrepreneurs that provided expertise and credit not only to private individuals, but also to kings and states. The dawn of a new era, which was to be dominated by the Hanse cities, was approaching fast.

“States ruled by merchants or by merchants and landowners arose in Italy very shortly after 1000 AD. Pisa, Genoa and Venice led the pack, but all up and down Central Europe, from Tuscany to Flanders, from Brabant to Livonia, merchants not only supplied warriors – as they did all over Europe – they sat in governments that made war and, sometimes, buckled on armour and went into battle themselves. Such places make a long list: not only Florence, Milan, Venice, and Genoa, but also Augsburg, Nuremberg, Strasbourg, and Zurich; not only Lübeck, Hamburg, Bremen, and Danzig, but also Bruges, Ghent, Leiden, and Cologne. Some of them – Florence, Nuremberg, Siena, Bern, and Ulm come to mind – built considerable territorial states; Genoa and Venice acquired Europe’s first merchant empires; and the German Hanse dominated the northern trade and stimulated the commercial rise of the Dutch. In very many respects, such as the organisation of slave labour, management of colonies, imperial administration, commercial institutions, maritime technology and navigation, and naval gunnery, the Italian city-states were the direct forerunners of the Portuguese and Spanish empires, to the shaping of which the Italians contributed so heavily, and in the profits of which they so largely shared.” (Tracy, 1991, p. 150)

The Hanse merchants

Exotic spices, silk and perfumes may have all been exciting commodities, transported over long distances and at great risk. They were fascinating and very profitable, but not intended for mass consumption. Instead, staple commodities for everyday consumption were the trade of the merchants that dominated the north and west European scene from the 13th century onwards. The cunning merchants of the Hanseatic cities of the Baltic – the so-called Wendish towns – soon managed to control the entire trade of herring  in the area. The merchants did not restrict themselves to fish. They soon found out that pickling the fish in salt made it last longer and easier to transport over long distances, and assumed control of the salt trade as well.

Success for merchants did not come about easily, however. Europe was dominated by powerful guilds. New members were vetted on very strict criteria and outsiders were barred from conducting any business that would undermine the guilds’ stronghold on production and trade. Sale and purchase of goods were organised in markets and town fairs. As productivity rose, however, surpluses were brought in the market and merchants became more accepted, for they found ways to dispose of these surpluses successfully. The privileges to trade in the local markets and fairs were not gratis, however. Kings and local rulers sold the rights and, when in need of credit, often sold those rights in advance.

Trade did not remain restricted to fish and salt. A flourishing textile industry in Italy required an ever increasing inflow of raw materials. German merchants took over the textile trade from Ypres, Ghent and Bruges, via the Rhone, to Italy, and from there through the Mediterranean and to the East. The Rhine Valley became the trade centre for the Baltic. It was split into two zones, quite distinctive, but also complementary. The industrial west had its centre in Flanders, with Cologne being the leader of the west Hanse cities. Lübeck, on the other hand, became the transhipment centre for trade with the east, in particular Russia. Before that, Visby on the island of Gothland was the hub of Russian trade. Wax, honey, tar, charcoal, potash and furs were brought in from the East, often from as far as Siberia.

Sea transport was central to the success of a trade that was based on regularity, large volumes, and safety. The Kogge and later the Holk were the first ships suitable for bulk cargoes. Timber for shipbuilding was sourced from Prussia, while merchants were also involved in the beer trade, which prospered with the mushrooming of the brewing industry in Hamburg and Wismar. Northwest European ports started buzzing with activity, but also reeked of brine, herring, resin, malt and dried skin. 

Merchants were initially viewed as a menace, by local people and their rulers. Nevertheless they tolerated them, because they needed them. Merchants realised that, all too well, and worked hard to build a reputable name and impeccable mercantile expertise on the basis of an austere, God-fearing life. They built a strong position in many European cities and came to be identified with these cities, which were eventually to be collectively known as the ‘Hanseatic League’. 

The Hanse merchants did not restrict themselves to the continent. They crossed the channel to England in search of wool for the textile trades. They provided an outlet for the booming wool production of monasteries, that used their vast estates for intensified sheep breeding. Henry II let the German merchants set up shop in London’s Steelyard, where they consolidated their position until they were ostracised by Elizabeth I. 

The Hanseatic league built its power not only on the trading skills of its merchants, but also on the much needed financial skills required to organise shipping expeditions and to create the soundness and reliability that the Hanse tradesmen were renown for. Probably the most well-known family of financiers were the Fuggers. Their enterprising history started in the textile industry and soon spread into wholesale trade of silk and spices. Banking, however, was the activity that earned the family a place in the history books; particularly their rôle in financing the Holy Roman emperors. In exchange for their services they obtained control over the Tyrolean silver and copper mines and the copper mines of Hungary.

The supremacy of the Hanse merchants and bankers rivalled that of the Italian cities, with the former dominating most of continental Europe and the British Isles. One often speaks of a ‘league’, but a better definition would be that of a loose ‘confederation’ of cities – some 200 of them eventually – which formally organised themselves only in the second half of the 14th century. This came as a response to the threat of the king of Denmark to restrict their activities. They were also able to strongly assert their power by imposing a trade embargo, when the English monarch attempted a similar coup.

The power of Hanse merchants, however, did not last for long after the end of the 15th century. The 14th and 15th centuries witnessed a number of social and economic changes that altered the balance of powers in Europe. The rise of Portuguese and Dutch merchants signalled the demise of the Hanse cities, although their financing activities –   ‘sovereign’ lending in particular – remained considerably vibrant well into the following century.

Age of reconnaissance

The rise and fall of the Hanse cities signalled a change of course for European history with the progressive transition from the Middle Ages to European domination. The period was not characterised by spectacular technological improvements. Progress was rather slow and inconspicuous. Agriculture enjoyed some small increases in yields, but the overall picture was rather patchy and disparate. The only clear trend was the slow disintegration of the feudal system – with the exception of Eastern Europe – which made land and labour available for sale and purchase in the open market.

In industry the new era was still characterised by a notable lack of machine power, with most of potentially successful inventions staying on paper due to lack of adequate engineering materials. Probably the most memorable invention of the period was that of typography. Although not an important invention in directly economic terms, it revolutionised the dissemination of ideas and, hence, facilitated immensely the subsequent ubiquity of European culture and civilisation, which also had indirect economic consequences. The three main economic activities remained agriculture, building and weaving and, as Cameron (1993) notes, “this is understandable when one remembers that in a poor, near-subsistence economy such as pre-industrial Europe, the basic necessities are food, shelter and clothing.”

Maritime technology did not leap ahead during this period; shipping and navigation did, however, benefit from several refinements on existing equipment and a continuous increase in size and cargo carrying space. Gradually, ships did not need oarsmen any more, as a sophisticated combination of sails and rigging made use of the wind much more efficiently.

It was sea that set the scene for the next two dominant powers in long-distance trade, for the discovery and control of the lands that lay beyond it consolidated the position of both Portuguese and Spanish in the first century of European overseas expansion and colonial conquest.

The Portuguese

Barred by mountains to the east, the Portuguese established themselves as a separate nation during the long reconquista of the Iberian Peninsula from the Arabs. Although an underendowed country in terms of land and labour, Portugal managed to gain self-sufficiency in agricultural production and even exported products such as oil, figs, raisins, fish, almonds and cork (Smith, 1991, p. 74).  Much of the Portuguese impetus for expansion is attributed to one man, Prince Henry ‘the Navigator’, the younger son of the King of Portugal. His vision led him to establish a pool of the finest minds of the era in astronomy, cartography, geography and navigation in his castle at Sagres, in the south of Portugal. The story still remains quite obscure, owing much to the thick veil of secrecy that enshrouded the whole operation. Nevertheless, its tangible results were the successive expeditions organised by the crown, which charted new territories and established new trade routes leading to the mythical – and lucrative – spice islands.

After a number of initial exploratory expeditions, the first Portuguese colony was established at Arguim in 1448, making it the first permanent European settlement south of the Sahara. By 1489, when Bartolomeo Diaz rounded the Cape of Good Hope, the Portuguese had reached the lucrative Gold Coast and the mouth of the River Congo. The whole effort culminated in the famous two-year long (1497-99) voyage of Vasco da Gama, who became the first ocean explorer to circumnavigate Africa and enter the Indian Ocean. Despite a voyage ridden with disease, storms, mutiny and unhappy encounters with Hindu hosts and Arab merchants – which cost him half his ships and two-thirds of his crew – da Gama still managed to return with a cargo of spices that paid the cost of the voyage many times over. (Cameron, 1993, p. 102)

This voyage marked the beginning of a massive expansion of the Portuguese, who made themselves masters of the Indian Ocean within the next 25 years. Their dominance was consolidated with a stunning naval victory over the Muslim fleet in 1509 and the establishment of a succession of trading posts, starting with Goa, continuing with Ormuz, Ceylon, the Malacca straits, and expanding as far as Macau off the south coast of China.

They brought gold from the west coast of Africa, pepper from the spice islands of the Moluccas, silk from China and also indigo and ebony. Their trade was particularly valuable for the royal vaults and it was kings rather than merchants who dictated trade and expansion. It was this involvement, however, that undermined the basis of Portuguese supremacy and eventually led to its demise.

The Portuguese were essentially traders, who did not have any goods of their own to offer in exchange. They used their naval power to impose their interests which, understandably, did not earn them any friends; but, more importantly, it meant that the comparatively small country was soon overstretched in terms of both human and financial capital. The new dependencies were several thousand miles away and the drain of labour force to the colonies in Brazil put an immense strain on resources. 

Moreover, the Portuguese never managed to establish a post in Aden, which would have facilitated their domination of the Red Sea. This meant that the route was still open to other Europeans who contested Portugal’s position in Asia. The first to benefit were the Venetians, whose fortunes took a severe blow when they lost the pepper trade. Briefly, but decisively, they reaffirmed their position and diversified into goods other than spices. But it was the Dutch who would annihilate Portuguese supremacy in Asia in the early 17th century, taking over all the trading posts and routes of their rivals.

The Spanish

The Spanish involvement in world trade was another ‘kettle of fish’ altogether. One can claim that it started accidentally, as no better explanation seems to be available. After a long and costly battle against the Moors, Ferdinand and Isabella eventually agreed to take on board the scheme proposed by the Genoese Cristoforo Colombo, who sought to reach the East by sailing west. The expedition would be ‘a sort of victory celebration’ (Cameron, 1993, p. 102) for the reinforced Spanish crown. On 12th October 1492 Columbus sighted the Caribbean islands later known as the West Indies. The success of the first voyage spurred another three voyages and put Spain’s colonisation of the new continent – although not yet known at the time – well under way.

That first discovery was followed by even more spectacular successes; like the one achieved by Hernán Cortés who conquered the Aztec Empire in Mexico with just over 500 men; and like the similar, if not more remarkable, success of Francisco Pizarro who challenged the Inca Empire with just 168 men. The conquistadores brought with them weaponry, iron and horses, overwhelming the natives who were soon reduced to slaves. The new lands proved to be a bonanza, as they filled the Spanish galleons with gold and silver on their journey to Europe. On the return leg, the ships were filled with new hopeful settlers, and their holds laden with wines, grains, oils, fruits and livestock.

The newcomers introduced a variety of plants, like coffee, sugar cane and citrus fruits, to the Western hemisphere, which prospered and were eventually produced in large enough quantities to be affordable for mass consumption and make their transatlantic movement economically viable. Alongside their products, both Spanish and Portuguese imposed their culture, language and religion on the native population.

Back home, the new discoveries overjoyed the Spanish King, who hastened to seek papal endorsement to his claim over the newly found lands. Silver flowed towards Spain, but was dissipated in the wars of the Habsburgs Charles V and Philip II. The abundance of precious metals, coupled with an apparent increase in Europe’s population, created a situation whereby too many people with too much money chased too few goods; or, put simply, a major inflationary shock. 

The false security created by the new riches, together with the unscrupulous abuse of treasury reserves, soon led the state to bankruptcy. The Habsburgs increasingly resorted to loans from prominent European bankers – like the Fuggers – pledging future flows of precious metals from the Americas. Successive failures of the Spanish treasury to pay its obligations soon undermined the ability of their own financiers to lend them any more.  The treasure of El Dorado turned out to be a menace rather than a boon and could not stop the disintegration of Spanish domination in international trade.

Dutch Mastery

Since the era of the powerful confederacy of the Hanse cities, the Low Countries attracted a considerable amount of European manufacturing and trade. The history of the local people has been one of continuous struggle against external threats; either human or natural. Compelled by the lack of land and the susceptibility to frequent flooding of the arable stretches that were available, the dwellers embarked upon a continuous battle to reclaim soil from the sea. Spanning over what is currently known as the north of France, Belgium, Luxembourg and the Netherlands, the region was divided by the river Meuse into a northern and a southern section.

Since the Middle Ages, the southern Low Countries progressed rapidly. Initially it was agriculture, where the Dutch applied advanced cultivation methods, achieving high production yields and making possible the extensive foddering of cattle. The second source of economic growth was industry, particularly textile manufacturing, which prospered in Brabant and Flanders.

Among the factors that shaped the future of the area was the great demographic change that occurred during the 12th and 13th centuries, leading to a profound urbanisation of the population, and the demise of the feudal system.

“By the thirteenth century, there were a large number of towns throughout the region. The process continued to the extent that [the area was] ‘par excellence a country of towns’. By and large, these were centres of craft production; in addition to textiles, they turned out furniture, chests, tapestries, enamel, jewellery, metals, copper, bronze, arms, and other crafts.” (Smith, 1991, p. 98)

The Dutch were principally producers and traders. Ghent and Ypres soon became centres of the European textile industry, while Bruges became the main entrepôt in northern Europe. Craftsmen and merchants were, however, vehement adversaries, the former not quite resigning to the fact that the latter had complete control over wholesale trade. In the end their squabble took second place to political, economic and technological developments that strengthened the country’s position in the international arena.

What we refer to as a ‘country’ was really a collection of cities. After the demise of Bruges, Antwerp took its position as the European entrepôt of trade generated by the Spanish and the Portuguese. The Dutch functioned as carriers of other people’s merchandise and the freedom of the seas was of paramount importance to them. When Spain imposed a blockade on Antwerp, the Dutch were quick to move to the north Low Countries – Holland and Zeeland in particular – and made Amsterdam their trade hub. The relocation brought together a large number of merchants and artisans, and the reaction to the Spanish challenge was the Union of Utrecht in 1579 that established the Dutch Republic.

Although the region took some time to ascertain its political identity, it already had a very strong economic presence, particularly in international trade. The breakthrough came with the invention and extensive use of the haringbuis  in fishing, which effectively handed over control of the European herring trade to the Dutch. The haringbuis was a large ocean going vessel, capable of remaining at sea for long periods of time, the haringbuis made possible the search for new fishing grounds. Together with the use of new techniques of curing and drying fish while still at sea, it boosted the Dutch to mastery of the herring trade.

From the end of the 16th century, the Dutch started accumulating the power that drove their ascend to world pre-eminence. They carried most of the trade in the North Sea, the Baltic, the Bay of Biscay, and the Mediterranean, including grains, wine, timber, salt, herring, textiles, wool, raw materials and semi-finished goods. The Dutch upheld the right to free trade with fervour.

“The Dutch jurist Hugo de Groot (Grotius) wrote his famous treatise, Mare Liberum, destined to become one of the foundations of international law, as a brief in the negotiations leading to truce with Spain in 1609. In the frequent, more or less continual wars of the seventeenth century, the Dutch insisted on their rights as neutrals to carry merchandise to all combatants and were prepared to make war themselves to protect those rights.” (Cameron, 1993, p. 155)

This claim reflected the increasing assertiveness of the Dutch as the ‘merchants of the world.’ Even when the Portuguese ruled West Africa and the Indian Ocean, and the Spanish ruled the Atlantic, most of their lucrative trade was channelled through Antwerp and, later, Amsterdam. Based on a strong domestic agro-industrial base and with total control over north European trade, the Dutch sallied forth to assume control of international merchandise trade.

The lucrative spice trade from the Moluccas was the first target of the Dutch. In 1602 the Dutch East India Company was incorporated, pooling together the various concerns that had ventured in eastern waters. The company rose to prominence and gained such momentum that it soon became ‘a state within a state’, with the power to wage its own wars against its enemies. The company went on to expand its reign in the Indian ocean and the Pacific after stripping Portugal of its bastions, one after another.

The success of the first company encouraged the establishment of a Dutch West India Company in 1621. Its aim was to control the Atlantic trade, particularly the very lucrative slave trade from West Africa to Brazil and the Caribbean islands. The Dutch entered on a head-on collision course with the Spanish, capturing several of their vessels and culminating in the 1628 seizure of the Spanish fleet which was carrying the year’s silver from the colonies to the mainland. Within the next decade, they ousted the Portuguese from the Gold Coast and embarked on a campaign to conquer north-eastern Brazil. This eventually precipitated the downfall of the West India Company, which was forced to declare bankruptcy in the middle of the century.

The Dutch mastery of world trade gained impressive impetus up until 1660, thenceforth appearing to slow down and eventually resigning to the advent of the English in the international trade arena. Their ascendancy during the best part of the 17th century resulted in a number of innovations and propagation of existing techniques in trade, finance and maritime technology. In the latter, the appearance of the haringbuis was coupled with the use of the fluyt ship, a slower but bigger vessel that could carry more goods using comparatively less crew, thus applying the concept of economies of scale in shipping some three centuries before it was so aptly demonstrated by the launching of the first super-tanker.

In finance, the widespread use of the Bill of Exchange for international payments of trade transactions increased both its importance and its sophistication; while the first Stock Exchange opened in Amsterdam in 1609. The Dutch were also the first to use marine insurance on a regular basis, to diversify their risks. Finally, the creation of the ‘trading company’ provided a model, on which trade expansion and supremacy would be based in the next two centuries.

Most of all, however, the Dutch era saw the creation of institutions that allowed and sustained the existence of trading empires. From the ‘freedom of the seas’ to contract law, those new institutions were tantamount to the prosperity of private enterprise. Contrary to the state-run empires of the Spanish and the Portuguese, the Dutch – and later the English – empire was based on individuals and companies, with the state occasionally jumping on the bandwagon. For modern neo-classical economists, this state of economic affairs meant the emergence of Adam Smith’s ‘invisible hand’ which could manage human activity, rendering state intervention needless, if not harmful. For transaction cost economists, on the other hand, this era brought about a substantial decrease in information costs; increased capital mobility; risk diversification; and a legal framework that formalised contracts and ensured their enforceability.

“What distinguished Western Europe from other places in the world, where persistent economic growth failed to occur, was that there gradually evolved a set of adaptively efficient institutions that persistently tended to lower costs of transacting, producing, and transporting in a way that produced a continuous evolution of productivity increases in these societies. We know all too little about this process, but clearly merchant empires were a step along the way. There were a step from autarky, localised trade, to larger trade and specialisation, which at least for some economies, notably the Netherlands and England, were steps along the route of a persistent evolution of more efficient forms of economic organisation.” (North in Tracy [ed.], 1991)

England did not show any early signs that might make one envisage or even suspect the success it was going to have. Primarily agricultural, with a rather small – and mainly rural – population, the country enjoyed a relatively prosperous land that was used for cultivating crops and later on for grazing. Indeed, sheep breeding proved to be a considerable source of income, since English wool was in demand on the Continent. Despite the success, however, England remained largely a raw material exporter, with little or no control over the subsequent stages of wool dyeing and further processing by the textile industry. All wool destined for export to continental Europe was channelled through the port of Bruges, later Antwerp and eventually Amsterdam. The trade was ruled – successively, but sometimes also jointly – by Venetian, Genoese, Florentine, German and Dutch merchants.

The study of the rise of the British Empire has been extensive and gone to great depths of analysis. A detailed account of the socio-economic evolution leading to this rise would be beyond the scope of an introductory chapter like this. It is impossible though to ignore the cornerstones of the ‘edifice’ of what was the British Empire. According to Smith (1991, p. 108):

“...what was different about England was neither its technology nor its economic base. Rather, its uniqueness stemmed from a conjuncture of forces that would bring about radical social change. And precisely these changes paved the way for its subsequent development.” 

Since the time King John signed the Magna Carta, the power of the English monarch continued to subside, giving way to the authority of the Parliament. Successive kings were more or less opposed to that development, but the fact remained that most of the fiscal decisions of the monarch, including his power to levy new taxes, were transferred and remained with the Parliament.

Agriculture also underwent a series of changes that led to the appearance of capitalist farmers who emerged from the landowning gentry. They had accumulated land and rented wage labour to work it and produce commodities for the marketplace. A similar aggregation of production took place in the textile industry. Clothiers came into prominence, managing to organise large scale production of wool cloth. They provided the raw material to hundreds of household producers, sometimes even the machinery needed to convert wool into cloth. They would then collect the finished product and channel it to the market, realising of course a healthy profit margin.

The most notable group to rise to prominence was that of merchants, however. The end of the 16th and the beginning of the 17th century saw the establishment of numerous trading companies, some small some much bigger, but all with the common objective of taking advantage of opportunities arising around the world. Merchants benefited from the monarch’s willingness to grant them monopolies for particular products or areas. As this practice became less and less popular with smaller merchants and the Parliament, however, the market became a lot more competitive and open to demand and supply forces.

In their ventures, both home and overseas, British merchants were decisively helped by the Navigation Acts passed by Parliament from the middle of the 17th century onwards. Such was the effect they were perceived to have, that the Dutch declared the first of the three wars they were to fight against the British. Although the Acts did not obliterate the Dutch Merchant Empire – far from so, indeed – they certainly laid the foundations for the rise and ascendancy of the British Empire.

In the next two centuries the English demonstrated formidable adroitness at expanding their sphere of influence both east and west of the British Isles. To achieve their prominence they had to fight against the Dutch in the Indian Ocean, the Spice Islands and across the Atlantic; and against the French in North America.

Transaction costs students point out the importance of the development of an increasingly efficient and cheaper payments system, which, coupled with the extensive use of insurance against trade and shipping risks, made possible the survival and prosperity of numerous small merchants. Such merchants depended on commodities far less lucrative than precious metals or spices; cheap and reliable transactions were tantamount to the sale and purchase of staple commodities – such as fish, furs, tea, sugar and tobacco –  which allowed only modest profit margins.

Initially, the organisation of the entire trading operation was very much dependent on a few ‘agents’, which the partners or stockholders of the company entrusted with their capital. In many cases the key to a successful venture was a capable captain, who was expected to navigate the ship, manage the crew, conduct business on behalf of the company, extend credit and, in many cases, be in charge of debt collection as well. Price (in Tracy [ed.], 1991) describes in detail how the French elaborated a system by which each venture was allocated two captains, one of which would conduct all transaction in Africa and America and then stay behind for as long as a year to collect debts, whereas the second captain would navigate the ship back home.  Although the English did not quite follow the same method, they devised a network of agents and correspondents who were transacting business on behalf of smaller merchant houses. The larger, chartered, joint-stock companies, on the other hand, relied on their own salaried employees, who were stationed in far outposts.

Asian Colonies

The English really turned their attention to the Pacific Rim after the second half of the 18th century, particularly after the loss of the American colonies. The struggle for supremacy in the eastern hemisphere was even more laborious, for they had to oust two powerful rivals from the area. The Portuguese, although largely in decline, were still a sizeable entity in the Indian Ocean. The first success for the English came as early as 1592 when they captured Madre de Dios, a Portuguese East Indiaman. The demise of their trading network, however, was due largely to the Dutch.

The fight against the Dutch was a lot more strenuous and long-winded. The Dutch were themselves an enterprising people, with their success owed to active involvement and perseverance by individuals and private companies, rather than the state itself. In this they were very similar to the English, for whom the driving forces were also companies and individuals, with the state merely setting a legal framework for business conduct. Although their conflict was resolved in the Atlantic – with the English eventually dominating over both the Dutch and the French – the situation in Asia remained largely unsettled, with the Dutch being strong rivals well into the 18th century.

In the meantime, the English had another fight on their hands; this time against the French for domination in India. The friction between the two adversaries was of global scale, culminating in the ‘Seven Years War’ which resulted in Britain’s domination in the Americas and in India, and the imposition of a world-wide pax Britannica which was based on its naval supremacy.

British control over India gave rise to a flourishing trade in commodities much less glamorous than spices, but in large enough quantities to secure substantial profits for the now powerful East India Company. Coffee and textiles were among the most popular exports to the metropolis, in quantities large enough and at prices low enough to make them accessible to the masses. The spread of a number of ‘coffee houses’ in London was a testimony for the success of the new trades. In a similar manner, the Company changed the tastes of an entire nation away from coffee and in favour of tea, when that commodity assumed foremost importance.

Asian ventures inevitably brought the English in touch with a number of peoples and cultures in the Pacific Rim. The contact with Japan did not prove as important as that with the Chinese. In the past Chinese emperors had a rather aloof attitude towards foreign traders. They were not terribly impressed by the goods offered by the merchants and knew that Chinese commodities, like silk, porcelain and tea, were in great demand. Trading opportunities were, therefore, scarce and merchants that were granted such privileges were considered lucky. The Chinese did, however, allow Portuguese and Dutch merchants to operate in certain designated areas.

British were also in desperate need of what China had to offer, but stumbled against the obstinence of the Chinese to purchase European goods in respectable quantities. British pressure to balance the trade deficit went so far as to push heavily opium, which was grown in Bengal, to the Chinese market, to the great chagrin of the Qing central government, who understandably opposed the idea of large parts of the population being addicted to drugs. The contention lead to a head-on collision between the Chinese and the British in what is known as the ‘Opium Wars’. British presence and influence in the Indian sub-continent and the Pacific Rim continued during the 19th century and into the 20th century; it was, however, overshadowed by the rising importance of the Americans and the Japanese for the region’s economic and cultural development.

Industrial Britain

The success of Britain as a global maritime and trading power was further consolidated by a parallel industrial development that gained momentum after the second half of the 18th century. The term ‘industrial revolution’ has been used extensively – and has also been widely denounced as a misnomer – to describe that period.

It was largely used to describe the introduction and large-scale use of mechanical power for production, particularly for textiles. The change that occurred spread across the economy and penetrated the socio-economic fabric of British society. The country witnessed a rapid expansion of mining and manufacturing – the so-called ‘secondary sector’ – and a simultaneous contraction of the agricultural – or ‘primary’ – sector, not so much in absolute as in relative terms.

In this new era, cheap and efficient transportation played a crucial rôle for the manufacturing sector that relied on it for the timely procurement of its raw materials.

“Britain owed much of its early prosperity and its head start in modern industry to its island location, which not only granted it virtually costless protection from the disruption and destruction of continental warfare, but also provided it with cheap transportation. The long coastline, excellent natural harbours, and many navigable streams eliminated much of the need for overland transportation, which hindered the growth of commerce and industry on the continent.” (Cameron, 1993, p. 172)

Industrialisation brought with it the need for raw materials, intensive use of fossil fuels, novel production techniques – particularly in the textile and steel industries – and an overwhelming growth of economic activity. It also boosted urbanisation and its concomitant social problems. Despite its shortcomings however, industrialisation set the pace for economic development in those parts of the world that were in close contact with the Europeans.

Commerce developed accordingly, catering for new needs for increased reliability, regularity and speed. Trading ventures became the prime vehicle for new investment, as it became increasingly possible to assume ‘calculated’ rather than ‘immeasurable’ risks. The banking and insurance industries, that had emerged in earlier centuries, developed further, spanning around the globe and complementing trade growth. The British domination went a long way in creating what Smith called a ‘world economy’, a term emphasising the inter-dependence between nations – particularly European ones – and their linkage through international trade. It was that very prominence of international commerce that set the scene at the dawn of the modern ‘global’ economic system.

The Beginning of Modern Economics

Although it would be difficult, and perhaps pointless, to put a time stamp on the beginning of modern global economics, the reader can approximately place it in the second half of the 19th century. Europe, the Americas and the Far East were all entangled in a global economic web, at the heart of which lay trade.

Trade grew almost uninterruptedly from 1885 to 1930 and the world economy experienced relatively steady growth, which inspired confidence in the clamours of the advocates of free trade. With the eloquent and elaborate arguments of Adam Smith and David Ricardo at the forefront of that new era of liberal economic thought, Britain adopted a decidedly less protectionist stance. The repeal of both the Corn Laws and the Navigation Acts marked the outset of the new policies, and were followed by the Cobden-Chevalier trade treaty in 1860, which reduced tariffs between England and France, featured the ‘most favoured nation’ clause and triggered off a number of similar agreements amongst other European nations.

Regrettably the period of liberal economic thought was short-lived and would soon be replaced by protectionist policies. The latter were sparked off by successive bouts of price instability and further promoted by the new emerging German Empire. The protectionist paradigm set by Chancellor Bismarck’s tariff law of 1879 was soon followed by a number of other European countries. Despite the new tendency however, Britain, together with the Netherlands, Denmark and Belgium, remained stout defenders of free trade.

The new century found Britain at the apogee of its world domination. At the centre of that success lay the British navy and merchant fleet. Steam power revolutionised both, but had an even more remarkable effect on the latter, reducing the risk element and increasing the reliability of commercial ventures. Steam power would also pave the way for the improvement of land transportation, with the phenomenal spread of railways across continental Europe and the United States.

Cheap and reliable transport opened the way to increased flows of commodities that were considered luxuries just a few years before. The emergence of ‘mass consumption’ was facilitated by the consolidation of a sophisticated banking and credit system, which had its epicentre in London but extended around the globe. The monetary system was built around the standards of precious metals; silver first and gold later. With Britain and the new German Empire being the two most prominent countries to adopt the new standard, other European countries had but little choice, other than adopting the standard themselves.

Finally, two more phenomena marked the new economic era: the international redistribution of labour and European imperialism or colonialism. The former was manifested through the massive migration of people within Europe and, mostly, overseas. This largely alleviated looming overpopulation problems and provided at the same time much needed human resources to the labour-hungry lands across the Atlantic.

The second phenomenon, that of imperialism or colonialism, was by no means peculiar to western European countries only. Both Japan and the United States exercised similar policies when it was feasible and suitable for them. The British, French and Germans were the prime imperialist/colonial powers, followed by the Dutch and Belgians. Their interests extended to Africa and Asia and established an economic and trading system, whereby the metropolis provided manufactured goods in exchange for the colonies much needed raw materials, often reducing the colony in question to total economic dependency on a very small number of commodities.

With industrialisation gaining momentum,  the increased competition for access to raw materials and outlets for manufactured goods, and friction between the main European colonial adversaries, it came as no surprise that military conflict could only resolve their economic contention. This is where we leave this brief review of economic and merchant history. Most of what happened after the two World Wars we shall discuss in the context of the various commodities covered in the following chapters.

Conclusion

The story of mankind has been an interminable struggle for power. Throughout the history of the human race, two opposite but coexisting forces have been driving human behaviour. One is the destructive compulsion to wage war against one another; the second is the constructive urge to transact and trade. The latter rebuilds the bridges and re-establishes the links that the former inevitably destroys.

I have briefly reviewed a long period of merchant activity, but the interested reader will find the study of one or more of the references at the end of this chapter invaluable for a fuller account of world economic history. This chapter serves, however, as a prelude to the discussion of the market economics of the three main groups of commodities: energy, metals and agriculture. For now, have a look at how important are these three groups in global commodity trade.

References

Borthwick, M. (1992), Pacific Century: The Emergence of Modern Pacific Asia, Allen & Unwin.

Braudel, F. (1984), Civilisation and Capitalism in the 15th-18th Century: The Wheels of Commerce, New York: Harper and Row.

Cameron, R. (1993), A Concise Economic History of the World: From Palaeolithic Times to the Present, Oxford University Press, 2nd edition.

Cipolla, C. M. (1976), The Fontana Economic History of Europe: Parts I & II, Collins/Fontana Books.

Jones, Eric, Frost, Lionel and White, Colin (1993), Coming Full Circle: An Economic History of the Pacific Rim, Westview Press: Essays in Economic History.

Marr, D.G. and Milner, A.C. (1986), Southeast Asia in the 9th to 14th Centuries, Singapore: Institute of Southeast Asian Studies. 

Reid, A. (1988), Southeast Asia in the Age of Commerce 1450-1680: The Lands below the Winds, Vol.1, New Haven: Yale University Press.

Roberts, J.M. (1990), The Penguin History of the World, Penguin Books.

Sahlins, M. (1974), Stone Age Economics, Tavistock

Samhaber, E. (1960), Merchants Make History, George Harrap.

Smith, A.K. (1991), Creating a World Economy: Merchant Capital, Colonialism and World Trade, 1400-1825, Westview Press.

Tracy, J. (ed.) (1991), The Political Economy of Merchant Empires, Cambridge University Press.

________ (1990), The Rise of Merchant Empires: Long Distance Trade in the Early Modern World, 1350-1750, Cambridge University Press.