Age of Invention: Square Dealers
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The question I keep coming back to in my research right now, and in this newsletter too, is why London expanded so extraordinarily over the course of the century 1550-1650. It is, to my mind, perhaps the most important piece in the puzzle of Britain’s unprecedented economic expansion — a crucial precursor to any acceleration of innovation, let alone an Industrial Revolution. Here was a city that grew tenfold, from a mere town of 50,000 to a globally distinguished capital of half a million, almost single-handedly starting the urbanisation of England, and restructuring its countryside too.
I am fairly convinced that this transformation was sparked by the changing nature of England’s trade, with its merchants taking near-total control of it themselves, whereas once they had relied on foreign merchants to bring many of their imports to them. And thanks to their adoption of celestial navigation techniques from the Iberians and Italians — learning to read the stars, to find their latitude at sea — the English gained the ability to discover new routes, noting details down for others to come back again and again and create more permanent new trades. In merchants’ parlance of the time, the English increasingly went in search of “the well head” — to buy things at source, where they were cheapest.
This sounds like the common-sense thing to do. But it was surprisingly rare. Very few countries’ merchants attempted to take advantage of such opportunities for arbitrage — to buy where things were cheapest and sell them where they were most expensive. Even the English themselves, despite their newfound search for well heads, rarely exploited arbitrage opportunities to the full. Although they bought at source, they tended, at first, to sell the goods they’d acquired back in London, to serve English consumers rather than taking them to wherever the goods would sell for the highest prices. This was instead the strategy of the Dutch, whose trading techniques were by 1600 said to surpass all others. Indeed, the Dutch were also some of the only merchants who discriminated on prices within markers, “not shaming to retail any commodity by small parts and parcels”, as one English merchant complained, charging a multitude of buyers according to what they thought they could get from them — something that “both English merchants and Italians disdain to do in any country whatsoever.” It was seemingly considered beneath them.
I’m not wholly clear why the English only sold wholesale when they knew that price discrimination was a Dutch advantage. It seems, at first, to be irrational. But I suspect it had something to do with the wider difficulties of trading abroad. For the English and Dutch were quite unusual in Europe in the early seventeenth century for being among the only merchants willing to risk sailing to shores where their own rulers held no sway.
The Hanseatic merchants of the North Sea and Baltic, who had once been dominant in London, had been stripped of their privileges there and displaced by the English, later confining themselves largely to the Baltic. German mercantile efforts were otherwise generally concentrated inland. And French merchants were apparently under-capitalised, or so the English suspected, because “gentlemen do not meddle with traffic, because they think such traffic ignoble and base”. French merchants did occasionally sail down the Atlantic coast to Spain, and into the Mediterranean to trade with Italy and the Ottoman Empire, but overall they were content to have third parties to come to them — there was always the attraction to foreign merchants of being able to buy French wines, salt, linens, and grain.
As for the once-great Italians, they had apparently been impoverished by the Portuguese discovery of a direct route around Africa to the Indian Ocean, and perhaps by the depredations of various Mediterranean predators too — Algerian corsairs, Ottoman galleys, and the like. Although their rulers could themselves be merchants — the Grand Duke of Tuscany, a Medici, was considered the greatest merchant of them all — by this stage the Italians only rarely ventured far abroad themselves, except over land. Indeed, the English considered them impious for not risking the seas, accusing them of blasphemy for not trusting their lives and livelihoods to God. Whereas the Venetian merchant-nobility had once been required to spend time aboard ship, English commentators by 1600 noticed that their mariners were now overwhelmingly Greek. “Their customs have decayed, their ships rotted and their mariners, the pride of their commonwealth all become poltrones” — that is, loafers or idlers — “and the worst accounted in all those seas”. A Tuscan exploration of the coast of South America in 1608, to look into founding a colony in what is now French Guiana, had to be captained and piloted by Englishmen. What reputation the Italians maintained was as financiers and money-exchangers — perhaps because the Genoese were the only merchants permitted to take the vast quantities of New World silver out of Spain.
Even the merchants of Spain and Portugal, who regularly travelled across oceans, were infamous for hardly ever trading outside of their emperor’s dominions (the two empires were united for much of the period, 1580-1640). To the Portuguese merchants, this meant trading only to the forts they had founded along the coastlines of Africa, Brazil, and on the Indian Ocean, with some traders straying only a little beyond them. To the Spanish, it meant trading only with the Spanish-ruled dominions in Europe — Flanders and Naples in particular — or to their possessions in the New World. Even their trans-Pacific shipments of Mexican silver, to sate the vast Chinese demand for the metal, went no further than the Spanish-ruled Philippines. The silver was exchanged in Manila for things like spices, porcelain, and silk, but the trade between Manila and the rest of Asia was conducted by Chinese merchants, particularly from Fujian. The Spanish, unlike, the Dutch, would not risk venturing further to the source. In the seventeenth century even the once-great merchants and navigators of Flanders, more closely subjected to Spain following the Dutch Revolt, would not “traffic or adventure their estates into any other prince’s dominions, but where their lord is sovereign.”
All of which make the English and Dutch approaches to international trade all the more unusual. It was risky, after all. Unloading one’s goods in a foreign port meant putting yourself and your fortune entirely at the mercy of a sometimes unpredictable ruler. It often ended badly, with little chance of redress. Early English expeditions into the Indian Ocean, despite landing in Ottoman-ruled places like Mocha, in present-day Yemen, could discover that the good relations they were used to with Ottoman governors in the Mediterranean did not extend elsewhere — they could be subject to imprisonment, murder, and even torture, before the governors eventually got the memo from the sultan in Istanbul.
And this, perhaps, explains why the English were unwilling to practise price discrimination, only selling wholesale. One thing that’s curious about English accounts of their trading practices, when compared to the Dutch, is that they prided themselves on fair dealing — they boasted that foreigners could find “the fairest and squarest trade with the English”. This may, of course, be an idle boast — a bit of puffed-up propaganda. But I suspect there’s something to the claim. So what the English lost by not discriminating on price, like the Dutch, they hoped to make up for in terms of reputation — a reputation that could result in more willingness to trade with them by locals, or perhaps even concessions from various tariffs too. And a reputation that, if lost, could lose them their wares and even their lives as well.
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