‘This is an in-depth and comprehensive study of the nature and evolution of the close relationship between business and polity over the last two millenniums and a half. Ghosh’s lucid and fascinating account of this relation in different historical epochs and under diverse techno-economic and political set-ups, from Classical Greece to the modern-day United States, clearly brings out its crucial significance in making or marring fortunes of nations and provides an important perspective in understanding the ongoing interaction of business operations and government policies at both the national and the global level.’ — Mihir Rakshit Director, Monetary Research Project at ICRA, Calcutta Editor-in-Chief, Money and Finance
‘This book is a tour de force. In a lucid and engaging treatise, Dhruba Ghosh explores the nexus between business and politics, intertwined in history over a period that spans millenniums rather than centuries, to argue that the nature of this relationship shaped the rise and fall of civilisations and empires. The discussion is remarkable in its range and depth. And the story that it unfolds is fascinating. The glimpses of world history highlight how the evolution of business–politics dynamics exercised an enormous influence on outcomes in economy and society, from the past to the present. If anything, the essential hypothesis is even more relevant in our lives and times. This book should be of interest to people in the worlds of business and politics. It should also be of interest to readers in academia, media and civil society.’ —Deepak Nayyar Professor of Economics, Jawaharlal Nehru University, New Delhi Distinguished University Professor of Economics, New School for Social Research, New York
‘This book is unique in many ways. There is no shortage of books on India’s historical and political legacy, or its future prospects as the world’s largest democracy. Similarly, the socio-political and socio-economic order, as it has evolved over centuries, is well documented. However, I can think of no other book which brings all these together, and gives a new perspective on India and challenges that it faces in political as well as economic fields.
As the author puts it, “this book is an odyssey”, and an excursion to explore how the world has evolved through different epochs of history. I strongly recommend this book to all those who are interested in our country’s future. It is elegantly written and accessible to lay readers as well as academic researchers in different fields.’ —Bimal Jalan Former Member of Parliament (Rajya Sabha) Former Governor of the Reserve Bank of India
Business
and Polity
Business
and Polity
Dynamics of a Changing Relationship
D N Ghosh
Copyright © Dhruba Narayan Ghosh, 2011 All rights reserved. No part of this book may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval system, without permission in writing from the publisher. First published in 2011 by SAGE Publications India Pvt Ltd B1/I-1 Mohan Cooperative Industrial Area Mathura Road, New Delhi 110 044, India www.sagepub.in SAGE Publications Inc 2455 Teller Road Thousand Oaks, California 91320, USA SAGE Publications Ltd 1 Oliver’s Yard, 55 City Road London EC1Y 1SP, United Kingdom SAGE Publications Asia-Pacific Pte Ltd 33 Pekin Street #02-01 Far East Square Singapore 048763 Published by Vivek Mehra for Sage Publications India Pvt Ltd, typeset in 11/16 Garamond by Tantla Composition Pvt Ltd, Chandigarh and printed at Chaman Enterprises, New Delhi. Library of Congress Cataloging-in-Publication Data Ghosh, Dhruba Narayan, 1928– â•… Business and polity: dynamics of a changing relationship/D.N. Ghosh. ╅╅╇ p. cm. â•… Includes bibliographical references and index. â•… 1. Economic history.â•… 2. Economic policy—History.â•… 3. Business and politics—History.â•… 4. Commerce—History.â•… I. Title. HC21.G49â•…â•…â•…â•…â•… 322’.3--dc22â•…â•…â•…â•…â•… 2011â•…â•…â•…â•…â•… 2011001400 ISBN: 978-81-321-0531-2 (HB)
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Contents
Foreword by Y. Venugopal Reddy • xi Preface • xxi Prologue • xxv Introduction • xxxv
Part I. The Making and Unmaking of Empires: Domination of Political Power Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
Sagacity in Governance: The Greek Exemplar • 3 Governance Culture: Roman Mirror • 20 Tolerant Ambience: India • 39 Resource Raising: Uniqueness of China • 52 An Intimidating Colossus: The Arab Miracle • 68
Part II. The Medieval World: ad 1000–1500 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10
Trade and Politics in the Indian Ocean • 91 Business on Leash: Japan • 109 Emerging Out of the Shadows: Europe • 119 In the Limelight: Knights of Commerce • 132 Playing with Power: Merchant Republics • 148
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Part III. The Great Transition: Warfare Technology— The Catalytic Chapter 11 Sword and Purse: Beginnings of Collaboration • 175 Chapter 12 Fiscal Revolution: Grip of Financiers • 191 Chapter 13 Economic Nationalism: Fusion of the Sword and Purse • 208 Part IV. A Boiling Cauldron Chapter 14 Setting the Tone: The Portuguese • 225 Chapter 15 Weaving a Pattern: The Spanish Imperial Machine • 237 Chapter 16 Showing the Way: The Dutch Interlude • 254 Chapter 17 Not in a Fit of Absentmindedness: Britain’s Forays • 269 Part V. Towards Global Hegemony Chapter 18 Chinks in the Armour: Empires in the Eurasian Landmass • 295 Chapter 19 Pax Britannica: Rise and Fall of British Hegemony • 312 Chapter 20 Pillars of US Hegemony • 341 Epilogue • 364 Glossary • 378 Reference List and Select Bibliography • 384 Index • 414 About the Author • 423
Foreword
I have known Mr D. N. Ghosh for several years. As Governor of the Reserve Bank of India, I sought his counsel on several intricate issues, and he has been very generous with his time and attention. Mr Ghosh has been of great help to Reserve Bank of India, especially in the area of non-banking financial companies’ sector. Over the years, I have developed great respect for his intellect, insight, integrity and insistence on propriety while being pleasant, cheerful and firm. Mr Ghosh epitomises soft power. He is in many ways an innovator and an institution builder. I also heard of his work in the government, and read about his contributions to public policy during some of the turbulent times. His foray into academia may be news to the new generation, but both the compulsions that lead him there and his contributions are well known to us. His articles in the Economic and Political Weekly are constant reference materials. In this background, when Mr Ghosh suggested that I should write a foreword for this forthcoming book, I readily agreed in view of the honour involved. I read the manuscript that he sent for the purpose and reread it. Then I studied it carefully and was simply amazed at the scholarship, the depth of understanding and the breadth of his enquiry. The articulation is informative, impressive and convincing. On occasions, I wondered whether I was equal to the task of writing a foreword to such an erudite and unique piece of writing. However, I have benefited immensely from reading the manuscript carefully and being provoked to take up the xi
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complex challenge of writing a foreword. This process of careful reading helped me explore the contemporary relevance of this book, in addition to its lasting contribution to the literature on the history of political economy of the world. In India, political economy has been a relatively unexplored area. More important, the relationship between business and government, as it evolved over the centuries is a somewhat neglected area of scholarship. In the hierarchy of the caste systems, the trader comes below the ruling caste as well as the priestly caste, but above the rest, viz., the Shudras. But the ruling class always had a close relationship with business. During the Independence movement also, there were observable links between indigenous business and politics. Till recently, politicians and businessmen were separate entities for most part of their avocations. The position seems to be changing rapidly in the recent years. First, many of the businessmen have joined active political life, while many politicians turned to business as an additional occupation. Some people comment that the regimes of gentlemen-politicians has been replaced by businessmen-politicians or politician-businessmen. There is a second more important factor after the onset of the process of economic reform. While there have been large elements of deregulation and liberalisation, the role of the government continues to be dominant in a significant way in the process of reform, particularly in the area of privatisation of public enterprises or disinvestment and public–private participation in physical infrastructure like highways, and possibly social infrastructure like education. More important, the public policy in India under the reform period seems to have created an atmosphere conducive for rapid growth by being business-friendly, but not necessarily market-friendly. The latter would involve rules of the game which would enhance competitive efficiency
Forewordâ•… xiii
and level playing fields based on respect for contracts rather than contacts. What would be the way forward in India? This book may provide clues to appreciating the dynamics of relationship between business and politics in India also. In any case I agree with the author that this dynamic is critical in understanding the current global financial crisis and in shaping the future of global economic and financial order. It is quite evident that the global financial crisis, and indeed, the global economic crisis has clearly been a turning point in the history of the world. Till a mere 300 years ago, China and India accounted for about half of the world output. They suffered a decline in their fortunes during the colonial era. While the second half of the 20th century saw an end to colonalisation and brought about division of the world into developed and developing economies; the developments in 21st century indicate a more diversified world. Different countries are at different levels of economic development and sophistication in the markets which seem to not only challenge the dominance of the United States, Europe and to some extent Japan, but also provide a spectrum of nation-states with diverse levels of economic development. As a consequence, it is possible that we will no longer have corner solutions (either this or that, but nothing else) but will increasingly have intermediate solutions to issues of economic policy. Globally the corporate sector seems to have developed a larger-than-life identity of its own, and has become powerful, but the sector is not necessarily maintaining continuous individual identities as corporates. The mergers, amalgamations and takeovers of corporates have become common, and thus the corporate identities are fast changing. However, the corporate sector as a whole has developed a global domination and a global presence. Their influence over politics is now no longer
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necessarily through one national government, but cuts across several countries. The managements of corporates, in particular in the financial sector, seem to have developed their own spheres of influence and interests that may not necessarily result in equitable distribution of surpluses among the stakeholders, in particular workers, shareholders and the management. In brief, in recent years the balance within the corporates between shareholders, board and management seems to have undergone significant change. The technological developments are constraining the capacity of the individual nation-state to exercise their power of intervention in the economic activity of individuals or corporates as they were able to do in the 20th century. Technological developments have a tendency to make cross-border movements very economical and hence can undermine the instruments of intervention available for the nation-states. At the same time, the consequences of cross-border movements on a nation’s population have to be managed by the state. As Governor Mervyn King is reported to have said, ‘Banks are global in life and national in death’. Is it possible that globalisation of business, especially finance, was premature relative to globalisation of public policy or globalised governance? It is not clear whether history provides clues on this, though Mr Ghosh alludes to premature globalisation of finance relative to globalisation of its regulation. Within the corporate world, finance as a sector has emerged as a force by itself and has begun to acquire the character of ends than means. As it evolved in human history, finance was critical to both political matters and economic life, but it was viewed as a powerful ally of politics for most part, and often as a facilitator of wars and of promoting growth in output, whereby employment was created. In recent years, the financial sector has
Forewordâ•… xv
acquired a life of its own, with greater capacity to influence the politics not only at a national level but also in terms of relations between the nations. Further, finance increased its hold over real sector. A possible disconnect in the growth of real sector relative to that in the financial sector is emerging. This is illustrated by the fact that at the current stage of crisis management (March 2010), the financial markets seem to have rebounded globally and thrived, but employment and growth appear to be lagging behind, particularly in developed countries. It is not clear whether the booming financial markets are in anticipation of a definitive surge in real output and employment globally. In this regard, it is instructive to note from the book that, historically politics tended to have very diverse links with finance, its relationship ranging from antagonism to dependence, and from surrender to support; but for the most part collusive. Thus, finance had a dominant role in what Mr Ghosh calls the fiscalmilitary phase and in the more recent phase of US hegemony in the context of dollar as the global reserve currency. Recent debates on public policy consequent upon the global financial crisis focus on the relationship between the state and the market. It is often argued that the ongoing financial crisis reflects excessive belief in the efficiency and self-correcting mechanisms of markets. It is, therefore, argued that the state should be empowered so that the balance between the state and the market is restored with appropriate roles to each. Various initiatives are being considered for strengthening financial regulation and establishing a new global economic order as well as appropriate international financial institutions that could provide public goods, conducive to global growth, welfare and stability. These are essentially in the nature of creating a strengthened role for state, broadly defined to include intervention in the functioning of markets by the public policy.
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However, it is possible to argue that the recent financial crisis represents the failure of both the market and the state within and across nation-states. The apparatus of the state, in particular the independent central banks and regulators in the financial sector seem to have failed to discharge the duties assigned and deliver the outcomes that they had assured. There are sufficient grounds to believe that the crisis is a result of the capture of the government by the markets, especially by the financial institutions and financial markets. In other words, it can be argued that the crisis was not caused by a mere failure of regulators but a capture of the regulators and the governments by the financial markets. This plausible explanation of the crisis warrants an entirely different dimension to the traditional debate on state versus market. Consequently, the debate will have to concentrate a lot more on the relationship between the state and the market in each country on one hand, and the relationship between the nation-states, national markets and international markets, on the other. This book touches on this aspect while presenting the dynamics of economic change in different historical periods. It explains the interaction of two forces: the techno-economic structure in any society that is controlled by business, and the polity that is controlled by their ruling regime. It recognises that the two forces are distinct but coexist. The common elements in the narration of events that lead to the current financial crisis indicate that there has been close cooperation between the financial conglomerates and the ruling elite, that there has been competition for resources among these constituents within each country and that these forces ensured contagion in different degrees to different countries. Thus, as the world was led into the crisis, there have been different strategic elements of cooperation, competition and coordination
Forewordâ•… xvii
between state and market, nations and supranations, financial and non-financial corporates. As a reaction to the efforts made to reduce the big government which led to the crisis, there now appears to be an effort to reduce the big business, in the financial sector, namely in big banks. The outcome of the current thinking is not obvious as of now since both desirability and feasibility are being discussed. In my view, the critical issue is not merely the bigness of the state or a corporate or a bank, but the quality of governance in both the state and the market. These obviously are products of several factors: cultural, institutional, technological and social. Often, it is recognised that cultural factors influence the behaviour of economic agents in the markets, but the markets also tend to influence the cultural factors. While these are not explicitly addressed in the book, the description of the events and the analysis of structure and dynamics of relationships between business and polity in the book do provide valuable clues to a better understanding of the current dilemmas. In terms of dominant values, the recent decades represent the height of respectability to market forces to an extent that is perhaps unprecedented in history. Historically, trade and finance were viewed with suspicion in general, though their useful role and indeed their attractiveness were not in doubt in most cultures, particularly in societies that valued material success. The recent heightened respectability to markets which was followed by the crisis now, has also resulted in, among other things, two sets of realisations. The first realisation is that economists and policy-analysts had underestimated the greed in human character. The second realisation has been that there has been a fundamental change in the human values globally which elevated markets to the status of God replacing traditional religion.
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The chapter on Fiscal Revolution and Grip of Financiers referring to 16th and 17th centuries is of great contemporary relevance in the context of the crisis management. Mr Ghosh in reflecting on that period of history mentions: ‘The fiscal apparatus within the state became little more than a front behind which the financiers carried on their affairs with studied indifference towards the damage they did to the government and contempt for the suffering of the taxpaying elements of the population.’ My question in the context of the current debates on public debt incurred in managing the crisis is: Will the surging public debt of many countries place the sovereigns at the mercy of financial markets that were bailed out by the sovereign in the first place? The chapter on ‘Pillars of US hegemony’ explains with great clarity the centrality of Washington in the support of world liquidity. That this has to change is recognised, but there is no clarity or consensus on the path towards change and destination of change. Mr Ghosh makes a brilliant summary of the masterly exposition made in the earlier chapters of the book in the chapter titled ‘Epilogue’ and the sections titled ‘Recapitulating’ and ‘Five Revolutions’ in the Epilogue deserve special mention here. He describes the globalisation of recent years as the Fifth Revolution ‘driven primarily by American hegemonic power, which is an amalgam of state and business power’. His contention is that there are clear signs that the United States is no longer in a position to offer ‘public good’ to global economy as it used to, mainly ‘through its failure to manage the global financial centre as a stable and responsible distributor of global liquidity’. Mr Ghosh sees need for change and speculates on signs of change. For a successful journey towards global stability, and by implication the process of global rebalancing, according to Mr Ghosh
Forewordâ•… xix
certain prerequisites have to be met by the United States. These include increasing productivity, acceptance that the margin of economic advantage that it enjoyed before is shrinking and willingness to concede that its capacity to use military power for political advantage is getting smaller. We need to speculate: Will that meeting of prerequisites in the United States happen and how will it happen? The narration of links between business and politics in the book gives several clues but understandably no answers. However, personally I found that the most common reason for collapse of civilisations as explained in the book was intolerable inequalities in wealth and income. Hence, in my view, it is necessary, particularly for the United States to recognise the need to contain and curb high inequalities in income and wealth as the most critical step for overall rebalancing that the world is in need of. A pertinent issue is the responsibilities of the major economies in the world, in facilitating, incentivising and persuading the United States to adopt the prerequisites mentioned by Mr Ghosh. These economies include the Euro area, Japan, China and India. A relevant issue is the sharing of burdens among these in the transition to a possible new global economic order, and here those economies which contributed more to imbalances so far have a harder task ahead. The history of nexus between business and politics analysed brilliantly in this book and the more recent apparent capture of public policy by financial sector shows that the path towards a new global economic order is not only a political process but one in which business, big business, especially the financial sector, will play a major role. I am afraid the ongoing public debates on new global financial architecture are yet to focus on the criticality of national and global businesses in this process.
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I thank Mr D. N. Ghosh for giving me the opportunity to write the foreword to this monumental work. Y. Venugopal Reddy Emeritus Professor, University of Hyderabad Former Governor—Reserve Bank of India Hyderabad, India
Preface
Time present and time past Are both perhaps present in time future, And time future contained in time past. If all time is eternally present All time is unredeemable (T.S. Eliot in Four Quartets) During the last two decades of the 20th century the world went through tumultuous changes. The global landscape was changing dramatically: the Berlin Wall was torn down, the mighty Soviet Union collapsed, China was taking the capitalist road to economic growth…It was, to all appearances, a victory for market capitalism and for the policies and institutions that the world’s most prosperous and powerful country stood for. Transnational corporations became the most visible instruments for the propagation of the capitalist message all across the globe. Market spirit came to be universally idealised and globalisation came to acquire a kind of quasi-religious sanctity. The tempest travelled over nations to sweep across our country as well, stirring in its wake spirited debates over how our policies and institutions could be restructured so that the maximum benefits could be drawn from the changing global environment. It was a theme that came to possess universities, think tanks, international seminars, business federations and various other forums. And underlying this theme was the unwritten premise that if an open and liberal market economy and ‘good policies and good institutions’ associated with it xxi
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were to be adopted and developed, politics must learn to keep its hands off business, restricting its role to ensuring the rule of law, providing basic regulation and putting in place a social safety net. It is my participation in many of these debates and discussions that this book has grown out of. There were some who argued for caution in adopting the policies and institutions of the developed countries, emphasizing, in particular, that the context in which these policies and institutions had evolved over time be studied and understood first. But this view had few takers in our country, the idea being dubbed a hangover from the decades past. The overwhelming majority appeared to have been persuaded by Henry Ford’s snappy verdict: ‘History is more or less bunk’. Listening to these debates and occasionally participating in them, I began to have the feeling that a kind of historical amnesia had gripped the elite of our society. It is this feeling that brought about the idea of exploring the ever-entwined relationship between business and politics. This relationship is always in a flux, being impacted by the continuous interaction between the two vital interest groups that create and redistribute wealth in society. The way historical circumstances have converged during different eras to deliver the next push to this evolving relationship should be a matter of interest to those who are involved in the political and economic affairs of today. Of course, that is not to say such a study would necessarily throw up lessons for emulation. As the Greek philosopher Heraclitus put it, ‘Everything flows, and you cannot bathe twice in the same river.’ Nevertheless, time does weed out the non-essentials and what remains can serve as a pathfinder for the current generation. I tossed the idea first with Amit Bhaduri. He encouraged me to explore the relationship between business and politics
Prefaceâ•… xxiii
and trace the behavioural patterns of these two interest groups through different epochs in history. Deepak Nayyar came to my aid and worked out a kind of periodisation that would be relevant to the subject. He volunteered, despite his multifarious commitments, to go through the first draft of this book, and pointed out many unnecessary departures and glaring gaps. I remain immensely grateful to him. I am also indebted to Bimal Jalan for readily agreeing to take a quick look at the draft in the final stages, and for offering many insightful comments on the epilogue. My gratitude to Mihir Rakshit for spotting areas that called for greater clarity of exposition. The deficiencies that remain are of course mine. It was so kind of Y. Venugopal Reddy to write the foreword. The piece is a masterly exposition of the political economy of the recent financial crisis, and of the contemporary relevance of the dynamics of the business–polity relationship—the theme of this book. For the completion of this book, I owe debts of gratitude to many. Two organisations, ICRA and Peerless, have been generous in providing logistical support whenever I needed it. I give my thanks to Patricia Sharpe and Promod Upadhya. Udayan Majumdar cheerfully bore the burden of giving some shape to the initial drafts of some of the chapters. I never felt I was working in isolation, that is, away from the University libraries, thanks to Akhtar Parvez, the librarian, who was always there to help me out in tracing reference material, books and journals. Without him and his excellent connections, I could not have dreamt of completing this project, as it involved extensive research into the works of specialists: economic historians, political scientists and sociologists. Somnath Dasgupta carefully and meticulously edited the final version: his sharp eye rescued me from many bloomers. Last, but
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not the least, the persuasive persistence of Elina Majumdar, the commissioning editor of Sage, in completing the book within a time schedule; but for her, I would possibly have dragged on and on.
Prologue
Heritage of Antiquity: Roots of Political and Economic Power
Human society, in its evolution from hunter-gatherers to agriculture and domestication of animals and permanent settlements, gradually became stable, bounded and complex, giving rise to division of labour, social inequality and political centrality. This transition is a story of continuous cultural evolution, with local groups, spurred by their environmental needs, striking out on their own paths and transiting progressively to larger systems, shaping themselves through interaction and learning. The researches of anthropologists and sociologists bring out a wide array of factors and circumstances that influence the process of local evolution and diffusion of culture and the process of transition. Between the beginning of settled agriculture and the peak of the Roman Empire was a span of approximately eight thousand years. Archaeological findings allied with anthropological research tell a story of continuity in all known forms of human society: from relatively egalitarian, stateless societies to rank societies with political authority and eventually stratified civilised societies with states (Fried, 1967). The state is the final stage in the evolutionary process, the culmination of a slow, prolonged and connected growth process, precipitated at several stages by the somewhat random forces of population pressure xxv
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and technological change.1 What gave it character was essentially the activities of loose associations transforming themselves into permanent centralised settlements and organising through political means their command over surpluses that accrue from economic activities within their territorial command. That this has been the general occurrence is confidently asserted by the sociologist Nisbet: ‘There is no historical instance of a political state not founded in circumstances of war, not rooted in the distinctive discipline of war’, though it subsequently diversified in peaceful activities or functions acceptable to the family or religious activities (Nisbet, 1976). There is little disagreement that these social and political complexes arose in river valleys where alluvial agriculture came to be practised. Agriculture had been the primary life-giving force driving these civilisations and its development was associated with property differentials and social stratification. In the small city-states that emerged in these complexes, propertied elites assumed political and associated control. In defining the civilisational complexes in terms of an extensive list of characteristics, Gordon Childe laid special emphasis on two: emergence of a ruling class and the means it deploys to have a say in the control and management of economic surplus that is generated through different forms, namely through agriculture and associated activities and through trade (Childe, 1951).
Emergence of Property Forms: Ceremonial Temples Permanent possession of land by a settled family group conferred fixed economic resource, and those who could control strategic positions at river junctions, river fords or crossroads
Prologueâ•… xxvii
could mobilise a disproportionate amount of collective social power to turn it to their own use if needed. Such stratification emerged throughout the late fourth millennium. Sumerian records after 3000 bc show that, unlike the situation in most prehistoric villages, irrigated land was in much larger parcels than could be worked by individual families. With such permanent inequalities in property distribution, the strategic owners of core land with or without unusual alluvial or irrigational potential could command a greater economic surplus than the peripheral alluvial-irrigating neighbours. Also, they could have additional advantages accruing from trade through control along particular trade and communication routes, especially navigable rivers, and location of market places and store houses. Apart from the surplus that came to be generated through a combination of fixed property rights in land, other kinds of surplusgenerating activities such as access to trade opportunities, came to be available to them. There were several alternative sources of creating wealth other than from land through a range of services from free persons, semi-free dependent labour and a few slaves. With the solidification of economic stratification embedded in wealth differentials, evident in all forms of social and economic activities, it was but inevitable that the dominant groups would come to acquire territorially centralised authority. This transition, as scholars have surmised on the basis of archaeological records, passed through a particular type of ceremonial centre, the temple, something that was fairly general among the earlier civilisations. Extensive social cooperation in irrigation agriculture was associated with a strong priesthood virtually everywhere (Steward, 1963). The main purposes of the temples were essentially mundane: to serve as an inter-village diplomatic service and to redistribute economic produce and encode public duties and private property rights. The priests
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in earlier civilisations were more secular, more administrative and political, as a diplomatic corps, irrigation managers and redistributors. The temple was a kind of redistributive state à la the economist Karl Polanyi. With these religious institutions emerged a form of collective power that offered genuine diplomatic solutions to real social needs, in the regulation of trade, diffusion and exchange of tools and techniques, marriage regulation, migration and settlement and definition of just and unjust violence (Mann, 1986). Ceremonial temple complexes had also developed a role for themselves. Greek and Asian temples had been offering various kinds of services that must have been of great help to the traders; they would deposit gold and treasures in temples with the priests acting as caretakers and sometimes as judges. The Babylonian Shamash was one of the market gods; originally, Jehovah was the market god of the tribe of Levi, at whose yearly festivals men of all tribes gathered to barter; the temple of Jerusalem was the centre of a financial network in the east, somewhat similar to that controlled by the later Christian Church over Western Europe.
State and Property Rights: Intermixture State and private property rights were connected to and mutually supportive of one another. From the excavated tablets of the early city of Lagash, it is surmised that there was a complicated mixture of three property forms in land administered by the temple. There were fields owned by the city’s gods and administered by the temple officials, fields rented out by the temple to individual families on an annual basis and fields granted to individual families in perpetuity without rent. The first and third
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forms were sizeable, denoting large-scale collective and private property, both employing dependent labour and a few slaves. The records show that collective and private property steadily merged, as stratification and state developed more extensively; a unified elite controlled the temples and large estates and held priestly, civil and military offices. The earliest urban civilisation appeared in Sumer, in the far southeast of Mesopotamia bordering the Persian Gulf, and Sumerians continued as the main dominant cultural force in southern Mesopotamia from before 3000 to about 2000 bc. The fundamental political unit was the city-state, with Ur, on the Gulf, being the most important of the Sumerian cities most of the time. From time to time, one city or another would establish a kind of hegemony over all or most of the river valleys nurturing the civilisational complexes. A clear hierarchy of social order seemed to have emerged and established itself in the cities.2 One of the earliest records discovered at Ashur, a city-state in the 20th century bc, brings out clearly the kind of social and economic functions in these early states. The ruler, also the principal judge, ruled with the concurrence of three distinct bodies of citizens: the elders, the ‘town’ and the karum, interpreted to mean the people of the market, that is, the body of merchants who administered the commercial centre of the city. The karum acted as the bank of deposit, a centre for export and import, a clearinghouse and a chamber of commerce all rolled into one (Curtin, 1984: 68). During the old Babylonian period, the most significant piece of evidence attributed to Hammurabi, lawgiver of Babylon from about 1792 to 1750 bc, points to the existence of a class of independent merchants, known as Tamkaru, dominant in trade, brokerage and money lending, replacing the role
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of temples and royal monopolies as the source of capital. The House of Elgi, as recorded in inscriptions, carried out a wide variety of business activities combined with banking; they gave loans against securities and accepted a wide range of deposits. After having flourished for hundreds of years, this bank seemed to have faded from the scene some time during the 5th century bc. A similar but younger banking firm is that of the sons of Maraschu, which operated from the town of Nippur. Apart from the banking functions of the kind practiced by the House of Elgi, they specialised in what we would call renting and leasing arrangements. They administered—as agents of tax-farmers— the royal and larger private estates, they rented out fish ponds, financed and constructed irrigation canals and charged fees to farmers within their water networks, and they enjoyed partial monopoly on the sale and distribution of beer.3
Trade as a Source of Wealth The development and expansion of trade, internal and external, started creating an alternative source of wealth other than from land. The existence of illuminating patterns of long-distance trade in preliterate societies points to the possibility of a wide range of relationships subsisting between the trade community and the host polity and society. Trade communities of merchants living among aliens in associated networks, as are found today in every continent, can be traced back through time to the very beginning of urban life. Familiar examples that come to mind are the chains of Phoenician and Greek trading towns that spread westward from the Levant or the Aegean coasts. Or some two thousands later, the Hanseatic League of independent trading towns, where merchants from Cologne on the Rhine
Prologueâ•… xxxi
settled along the trade routes down the Rhine and then eastward along the coast of North Sea and the Baltic. The relationship between the trading community and the host society, taking on a complex variety of forms, has been an interesting field of study for sociologists, political scientists and economic historians. It was a kind of mixed economy in today’s parlance. Trade was carried out as a private enterprise with some form of commercial control by the government (Curtin, 1984: 67). While government participated directly in trade in food, it used primarily the independent merchants as its agents. From the rich collection of clay tablets discovered in Kultepe in Turkey, the site of Kamesh, a settlement of Assyrian merchants, and the settlement of at least 20 other Assyrian commercial settlements in central and western Anatolia, there is adequate evidence to show that while the merchants were free to do their trade, they had to pay protection costs as the inescapable price for doing business. The authorities who have studied the Kultepe tablets portray an economic order where political authorities interfered in trade as much as they could to suit their particular interests, but they were careful not to suppress the underlying play of supply and demand, though the traders had to pay protection money for doing business. The Assyrian commercial documents refer to local authorities as the ‘palace’, where the Assyrian traders were welcome guests. The ultimate authority of the palace was undisputed. The visiting merchants had their own corporate organisation to act for the group. It took the form of a network of Karu; at the head was karum, in Ashur itself, below that Karum in Kamesh, and still further down the line a number of other karu in other Anatolian towns. The kind of relationship interpreted from Egyptian records is substantively no different. Traders had to carry on their operations under
xxxiiâ•… Business and Polity
strict government control, though they were welcome to bring the special articles they needed (Curtin, 1984: 68–70). In the palace-centred economies, trading merchants were recognised as communities that rendered useful service, but they were never accepted as part of the ruling power complex. It was somewhat like how the Jewish merchants came to be treated in medieval Europe. In oral traditions embodied in literary sources from the Aegean age, we often find a clear distinction between fighting men and the cautious, anaemic businessmen worn down with the care of cargoes. According to the predominance of one type or other, there developed trader-communities and warriorcommunities and the hostility between them seemed to have been a fundamental fact of ancient history.
City-states The sack of Troy in about 1200 bc, symbolising the end of Aegean prosperity and of the Minoan–Mycenaean age, was the beginning of what is generally talked of as the Dark Ages in the Mediterranean world. Lasting down to about 750 bc this saw the end of the palace-centred state and the emergence of citystates in the Mediterranean, from the archaic period (8th to 6th centuries bc) to the classical period (5th to 4th centuries bc). Two decentralised civilisations around the Mediterranean dominated the first millennium bc—Phoenica and Greece. The Phoenician states of the Levant coast, entering a power vacuum along the eastern shores of the Mediterranean left by the collapse of the Hittites and the Mycenaeans and the retreat of Egypt to the Nile, emerged as a dominant power for about five centuries. It was exclusively a naval and trading power,
Prologueâ•… xxxiii
the ‘bride of the sea’, united by a loose federal, geopolitical alliance of city-states. In the 10th and 9th centuries, Tyre probably enjoyed some primacy over other cities of Phoenician and was ruled by kings whose power was limited by the merchant oligarchy. Phoenicians, as a rule, did not fight unless they had to. In Tyre and Sidon, they paid tribute to oriental monarchs instead of striking for independence. The Phoenicians, unlike the Greeks, were not looking for lands to settle but for anchorages and staging points on the trade route from Phoenicia to Spain, a source of silver and tin. The Phoenician coastal towns eventually lost their naval supremacy to the Greeks and their political independence first to Nebuchadnezzar II, and then to the Persians, all in the 6th century bc.
Emergence of Empires Though the multi-city structure in early civilisations continued for several centuries, the autonomy of city-states began to weaken as regional confederations emerged. Gradually, they were conquered by extensive empires, with large and hierarchical organisation of power. From the rise of the great world empire of Sargaon of Akkad (2500–2350 bc) to the fall of the Roman Empire in the West (ad 476), the historical record is filled with a bewildering profusion of empires and their rulers. How were the ruling regimes relating to the enterprisers of resource generating economic activities to realise their political objectives? We explore these relationships in five civilisations: Greek, Roman, Indian, Chinese and Arab, roughly covering about 15 centuries, from the five centuries before Christ to the end of the first millennium.
xxxivâ•… Business and Polity
Notes 1. The state forms—in embryo in the stratified society and the transition to the final form, as Oppenheimer argues in his classic sociological study of The State—are marked by six stages. The first stage, of continuous raiding and killing between groups, was followed by one in which a dominant group extended a protective cover to others for carrying out agricultural and connected economic activities, a critically important step ‘where the bear becomes the beekeeper’. The third stage arrives when the peasants regularly bring the surplus as tribute to the ruler. This tribute is found in many well-known instances in history: Huns, Magyars, Tartars and Turks have derived their largest income from this source. What follows is the union of warring groups in command of specific territories. Gradually, the territorial rulers acquire the right to arbitrate and the means to enforce it, marking the near completion of the evolution of the primitive state. 2. For a good summary based on archaeological evidence, see Philip D. Curtin, Cross-Cultural Trade in World History, Chapter 4. 3. See Heichelheim, 1958, as quoted in A History of Money, Glyn Davies, 1994, 50.
Introduction
Oh, do not ask, “What is it?” Let us go and make our visit. —T.S. Eliot1 This book is an odyssey undertaken to explore and understand the relationship between business and politics as it has evolved through different epochs in history to stand at where it does today. This intersection of politics, business/economics and sociology has always interested scholars from a range of disciplines with different perspectives. Pluralists like Robert A. Dahl and Erik Olson debate the impact of competing interest groups on policy processes. Sociologists like Charles Wright Mills and Michael Useem dissect the nature of influence exercised by large business corporations on political decision-makers and the channels that are used for this purpose. Then, Vernon, Caves and Dunning, among others, made the corporation itself an important subject of enquiry in international relations in the 1970s and 1980s, particularly because of the influence of the marketdriven global compass of corporate operations. Next to the pluralist and neo-corporatist perspectives, there is a clutch of methodological approaches (Buchanan and Tullock, 1962) that apply economic models to political processes. These studies characterise the political market as one in which interest groups invest resources to obtain favourable decisions or nondecisions from politicians, who in turn pursue their self-interest by gathering resources and support (Fuchs, 2008). xxxv
xxxviâ•… Business and Polity
Business corporations operating across geographies face complex operational issues involving the sovereign governments with which they have to interact. The host and the home states have large, though often conflicting, stakes in the ways the global business corporations function. These are not technical or legal issues that the corporations can resolve on their own; these can be sensitive issues that make the involvement of the home government critical. Global business corporations, located mostly in the developed countries, have their own equations with their home governments. The functional and geographical dispersion of these corporations over the past three centuries and the economic power that they have come to wield are linked inextricably with the gradual rise to the hegemony of these advanced countries. Little wonder that these hegemonies and the global business corporations, between themselves, have set the policies that govern the structure of geo-political and economic relations in today’s world. The journey on which we embark seeks to unravel how and why we have come to inherit the present configuration of power and thereby enhance our ability to make informed decisions to shape the future. A hegemonic power is a product of history. Joseph Schumpeter had once remarked that the compulsion of the insistent present makes us oblivious of the truth of the past sanctified by centuries. Human decisions taken at crucial stages have changed the course of history; these decisions, taken individually or collectively, may have been influenced by ideology or by technology or by a mere instinct of power or wealth grabbing. We are now at a turning point in global history. As we try to understand more of the past, we begin to make some sense of our times. We begin to see our times not as an everlasting present, but as a historical period. The contemporary world has come into existence through a very tortuous route. It has very
Introductionâ•… xxxvii
little in common with the road maps of history on which ideologues of every description draw their straight lines.
Dissecting the Dynamics The potential energy inherent in any society often expresses itself in changing profiles of material output, patterns of employment and class distribution of income. The single most important element residing deep within the system is the driving need to extract wealth through activities that a particular socioeconomic configuration may permit. This is, in a sense, the logic of a system that ‘expresses the potential energy created by its nature… What is logical about these movements is that they express the outcome of the system’s nature, as a released spring expresses the energy stored up within it’ (Heilbroner, 1985: 25). How does the inner nature express itself? In an abstract philosophical vein, each society in each period of history, as Hegel elaborates, is a structurally interrelated whole, unified by some inner principle. For Hegel, it is the Geist, or the inner spirit, the style of a period. For Marx, it is the mode of production that determines all other social relations; historical change occurs through a dialectical process, with the new mode negating the previous one while also preparing the way for the next to come. Many sociologists are not comfortable with the HegelianMarxist conception of society as an integral entity defined by its web of interconnectedness and one whose movement may be explained through the dialectical approach. The Marxist theory is perceived as having failed to predict the direction of historical development, let alone its timing. Politically, many see the culmination of Marxist dialectic not in universal freedom and prosperity with the withering away of the coercive state as predicted by Marx, but in an oppressive and grossly inefficient state capitalism.
xxxviiiâ•… Business and Polity
As against the holistic view of society, it may be more useful if we are to understand the dynamics of economic change through the interaction of two forces: the techno-economic structure in any society that is controlled by business in its own interest and the polity that is controlled by the ruling regime for purposes it considers to be for the collective good. The two forces are distinct, but co-exist in an unordered manner, each with a different axial principle. Each has, in a sense, its own realm and the two realms are not congruent with one another. They have different rhythms of change and follow different norms that legitimise different and even contrasting types of behaviour. But the way these two realms function and interact may create a dynamic that may become decisive in changing or even destroying societies. In any society—primitive, imperial or capitalist—the dynamic expresses itself through a continuous creative process that extracts wealth to generate a surplus over what is required for maintenance or reproduction. The way that surplus is generated, accumulated and redistributed holds the key to the relationship between business and polity. In a broad sense, business generates and accumulates surplus while it is polity that redistributes the surplus—and also has the responsibility to create conditions that facilitate the production of this surplus.
Two Realms: Business and Politics Business is imbued with a ‘restless Faustian spirit’ that takes as its motto ‘the endless frontier’, and as its goal ‘the complete transformation of nature’ (Bell, 1978). This acquisitive spirit, which is the central theme in Werner Sombart’s exposition of capitalism,2 respects no absolute limit.
Profits, no matter how large, can never reach a level sufficiently
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Introductionâ•… xxxix
high to satisfy the economic agent.… Acquisition... becomes unconditional, absolute. Not only does it seize upon all phenomena within the economic realm, but it reaches over into other cultural fields and develops a tendency to proclaim (Sombart as quoted in Bell, 1978: 192)
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the supremacy of business interests over all other values.
Acquisitive orientation is, however, not confined only to the Age of Capital; it was manifest in pre-capitalist formations as well. In Classical Greece, Medieval Europe and Japan, or in China during the course of its dynastic cycles, business as a calling did not enjoy the kind of social recognition that it does today, given the cultural and religious milieu then prevailing, but, nonetheless, its march continued unabated. Essentially, business signifies the single-minded pursuit of all those activities that contribute to the generation of surplus and its accumulation, in agriculture, industry, trade, finance or any associated ancillary and supportive services. It is the opportunity for generating more surplus that drives business forward; ‘the pursuit of profit, and forever renewed profit’, as Max Weber puts it (Weber, 1981: 17). The critical source of surplus is derived from the different kinds of activities undertaken by business, from a money sum to a larger money sum through commodities, as Marx’s M-C-M’ formula so brilliantly schematises the repetitive, expansive metamorphosis through which accumulated surplus manifests itself. M stands for money, C for commodity, and M’ for money plus an increment, equating surplus value. Surplus expands through the very logic of the process, one that Wallerstein describes as ‘network of commodity chains’ of commodities that link together more and more of the
xlâ•… Business and Polity
separate steps involved in the production of goods, beginning with the extraction of raw materials and ending with the sale of finished items. These commodity chains combine small, discrete M-C-M’ steps into longer strides, converting many small profits into fewer larger ones (Wallerstein, 1979). Marx’s M-C-M’ formula is a powerful tool that can be extended to the pre-capitalist circuit (C-M-C) where the commodity is the object and money merely the intermediary, or the new world of globalised finance where there can be a straight route from M to M’. Owners of business generate a surplus through various modes such as agriculture and related activities, trade, crafts, mechanised production or any other innovative combination of factors of production for meeting the needs of the society. Harvey captures the essence when he defines business in generic terms as ‘the molecular processes of capital accumulation in space and time’ that flows ‘through continuous space, towards or away from territorial entities, through the daily practices of production, trade, commerce, capital flows, money transfers, labour migration, technology transfer, currency speculation, flows of information, cultural impulses and the like’ (Harvey, 2003: 26–27). We use the term ‘business’ in this all-inclusive sense here.3 The opportunities for the generation of surplus from the pursuit of any of the activities that Harvey lists keep changing as an economy evolves and diversifies and depending on the context, this book uses the term trade, industry, plantation or any other species of productive activity as a proxy for business. Politics in a general sense is the activity to pursue and attain goals through the exercise of regulatory and coercive power, centrally administered and territorially bounded— that is, state power. A political regime may be motivated by a diverse range of interests beyond self-preservation, by objectives
Introductionâ•… xli
such as acquisition of territory, enhancement of coercive reach, acquisition of wealth through military exploits or spread of cultural, religious and ideological beliefs. Territorial boundaries— in a world never yet dominated by a single state—also give rise to regulated interstate relations where geo-political diplomacy assumes importance. A polity will require different kinds and orders of resources; through successive civilisations, political power holders had to necessarily turn to business, to actors who operate in the resource generating activities.
Structure of Relationships Business and polity have been closely interlinked at any given time—whether economic growth, stagnation or decline—since polity needs resources. While the focus of interest of the two power networks is different, they have come together for many common objectives. Through history, these objectives have been found to have been associated almost invariably with war or war-like activities such as conquest or plunder or with their direct fallout or unintended consequences. Polity may rightfully appropriate a part of the surplus that business generates, as the price for extending a protective umbrella over business, but ruling political regimes may be driven on occasion to adopt coercive measures for raising resources, for self-preservation or for greater glory and power and even try to expropriate the accumulated surplus or wealth of business communities. This imposes an unsustainable burden on business, stifling its incentives to grow; it also creates a fundamental dilemma for the polity. The polity has to be strong enough to enforce private property rights but wise enough to refrain from using its strength to expropriate private property. If business
xliiâ•… Business and Polity
does not get protective cover from the polity, it may be forced to move out and seek protection from other regimes, as happened, for example, during the religious persecution in Europe in the 16th century. Business has also been found to have demonstrated its capability to assert its bargaining power in relation to polities through capture of strategic functions such as financing of rulers (Heilbroner, 1985: 42). When the major European powers were venturing out in the Atlantic, they were prepared to share part of their sovereign powers in several areas with the companies set up by merchant communities to explore new trading opportunities. The two classes of actors have been accommodating when their interests have converged and even, on occasion, when they had nursed antagonistic opinions; we have also seen a fusion of two interests, when, for example, the wealth-creating business class takes upon itself the role and responsibilities of the ruling class or vice versa. This has been particularly visible at many turning points in history: the collapse of the Roman Empire; the withering away of the Islamic hegemony; the breakdown of the feudal system; maritime exploration into the Atlantic or the onset of the industrial revolution. When this happens, we may talk of a crisis or a revolution meaning a turning point so decisive that the system comes to an end and is replaced by one or more alternative successor systems or is changed completely beyond recognition. Such were the turning points at the time of the fall of the Western Roman Empire or of the Abbasid Arab Empire. This may not be a quick event but a ‘transition’, a long period lasting a few generations. This book presents a historical overview of the relationships between business and polity as they have come to evolve via numerous twists and turns at different periods in the past,
Introductionâ•… xliii
beginning from the ancient economy to the global capitalist economy of today. We will follow a chronological pattern, but as the canvas is broad, we will be selective. Outlining the heritage of our antiquity in the prologue, we start with the early civilisational complexes—Graeco-Roman, Chinese, Indian and Arab—and continue to the end of the 1st millennium ad. Then we deal with the explosion of maritime trade in the first five centuries of the 2nd millennium ad; trade that linked regions and polities from the Muslim Mediterranean in the west to China in the extreme east and anchored by India in the middle. During the same period, two feudal regions, Japan and Europe, were lying in obscurity; they were to flower later, but theirs is an exciting story during the incubation period. Our focus here will be on critical events and circumstances that brought about this change: the emergence of strong and independent business communities within medieval Europe, the rise of cities, guilds, communes and merchant republics, the establishment of powerful fiscal-military and mercantilist states, the age of the trading empires, the imperial phase of the 19th century and the post-World War II developments that led up to the current phase of a globalised world dominated by a super-power. As we go along, we will analyse the conjuncture of events and circumstances that had a significant influence on the business– polity dynamics, how these dynamics evolved within the political, economic and technological framework of each period. We will also focus on some core elements of this relationship—for instance, attitude towards property rights, the rule of law, business innovations, mobility of capital and such other aspects—the purpose being to gain a perspective on the origin and evolution of the capitalist ethic and culture that we find today.
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Notes 1. ‘The Love Song of J. Alfred Prufrock’, T.S. Eliot, 1917. 2. Sombart identified greed and gold as the drivers of capitalism, as of all humans endeavour. Though his own exposition of the development of capitalism was unsystematic and contradictory (See New Palgrave Dictionary of Economics Vol. 4), his emphasis on money making as the driver, is relevant. ‘The love of money is one of the founders of human society… no less than Columbus found out’ (Bell, 1978: 292). 3. The term the businessman was first used in the US in the 1830s to denote a type of merchant who traded not only in goods but also in land and whatever else could result in a profit (Swedberg, 2005: 16).
Part I
The Making and Unmaking of Empires: Domination of Political Power
In the empires of antiquity of the first millennium bc with which our story begins, political regimes were constantly preoccupied with war and organising resources for its conduct and prosecution. Rulers wanted power, and power came from territorial acquisition, so their primary objective was to concentrate fighting power and build a strong war-making apparatus. Empire building thus hinged on the logistics of resource management, and the resources— whether men or materials—were drawn occasionally from military booty but mostly from the wealth-generating activities within the empire. The surplus available from land and other activities fed the requirement of not only the military aspect but also the civic machinery of the empire. The ordinary peasant farmers formed the bulk of the fighting force, while those with larger land holdings brought with them the expensive equipment and other resources needed for military campaigns. Polities that looked after the interest of this class survived. Those that did not, failed. We begin with the Athenian world and its famed land reforms, followed by Rome and its fall, the Mauryan Empire and its benevolence towards trade, China’s land-based structure and its parallels with Rome, and end with the story of how the Arabs created a colossal empire in a very short time, essentially by taking a pragmatic attitude towards trade. Land was the main source of wealth, and farmers were the generators of wealth for the political superstructure. Polities that failed to look after land and farmers and balance their resource needs against the surplus generated collapsed. As trade became an important source of wealth, vistas widened. 2
Chapter 1
Sagacity in Governance: The Greek Exemplar
T
â•… The polity and economy of ancient Greece over the centuries throws up a fascinating interplay of relationships among the different interest groups in society. When the great administrative centres of the Mycenaean world began to collapse around 1200 bc, the repercussions were felt throughout the mainland and the Aegean Islands. Agamemnon’s Mycenae, Menelaus’ Sparta, Nestor’s Pylos, Oedipus’ Thebes, Theseus’ Athens— all great centres of material prosperity for hundreds of years— went into a rapid decline1 and a Dark Age followed for several hundred years. Greek society’s evolution from the Archaic Period, covering roughly the 8th–6th centuries bc, to the Classical Period, the 5th–4th centuries bc, offers interesting insights into the process of economic change. For centuries, the economies of antiquity had remained ‘embedded’ in society. In the Dark Age, the Greeks kept to themselves; the little trade that did go on was performed by outsiders entering their communities. In the latter part of the 9th century bc, the population began to grow rather suddenly, transforming the way people lived and produced their livelihood (Tandy, 1997: Chapter 2). The first Greek settlements and new trade activities started assuming importance during the 8th century bc. Till the early 5th century bc, the basic 3
4â•… Part Iâ•… The Making and Unmaking of Empires
building block of Athenian society was the okios or household, which produced for its own consumption: production and consumption was governed not by other people’s money but by societal and familial relationships and motivations. By the 4th century bc, unrelated individuals, often in the city only transiently, sometimes operating from abroad, engaged themselves extensively in commercial exchange and profit-making activities. Propertied citizens started supporting market-oriented activities, agricultural produce began looking for cash sales and workshops began churning out consumer items. The conservative commentator Xenophon (430–354 bc) has noted this shift from an embedded to a market economy. Aristotle saw it as ‘the moneyed mode of acquisition’ or ‘making money from one another’. The emergence of wealth as a monetary asset began to adversely affect traditional values and methods, and Aristotle rued the replacement of the earlier system by impersonal coined money. The 5th and 4th centuries bc were the watershed between the Dark Ages and the flourishing Mediterranean Civilisation in the late first millennium bc. Development of maritime trade and extensive monetisation in the Classical Period, leading to the growth of banking and commercial enterprises, spurred the evolution from a household economy to a money economy. In this evolution, the inter-relationships between the polity and economy were guided by cultural beliefs and traditions, but underlying it all was a streak of pragmatism. The economy and polity evolved hand in hand, marked by power struggles among landed aristocrats and a reform of the Constitution. The basic institutions of the polity combined with the pragmatic attitude of the ruling regimes enabled business to flourish and laid the foundation of Greek prosperity, despite the cultural and ideological inhibitions against business.
Chapter 1â•…Sagacity in Governanceâ•… 5
Political Reforms and Constitutional Structure The Athenian economy would not have flourished without the support of a stable polity and the development of a collective consciousness among citizens. As it evolved over nearly two centuries, the Athenian polity struck a workable balance among the different interest groups involved in economic activities. The polity had evolved from the basileus that was the centre of institutionalised paramountcy during the Mycenaean Civilisation. When the Mycenaean Civilisation collapsed, power became decentralised and leaders of independent communities— charismatic leaders, as Max Weber would characterise them— assumed control. With land ownership being the foundation of the power structure in agrarian economies, the degree of access to land resources became the key. The wealthier elite separated themselves from the rest of the community to maintain their economic advantage (Fried, 1967). Though little is known of the formal Constitution of the Greek cities in the Archaic Age, unlike that of Rome at a comparable stage of development, it is clear that the land-owning hereditary nobility enjoyed a privileged rule over the urban population. This class consolidated its power through an institutionalised legal structure in the form of an aristocratic council. When the Greek communities reached this extent of organisation, leadership in Weberian terms became legal and a mature polis appeared on the scene (Tandy, 1997: 93). Those with large landed property came to rule the polis that originated during the Dark Age. In the second half of the 7th century, indebted farmers who had mortgaged their land to rich landlords became legally enslaved when they defaulted in paying the mandatory one-sixth of their produce to these landlords.
6â•… Part Iâ•… The Making and Unmaking of Empires
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This led to the rise of ‘tyrants’ or unconstitutional rulers who secured control over the polity (Anderson, 1974: 30). It was through the celebrated reform programme of Solon, supplemented by Peisistratus (546–527 bc) and Cleisthenes (570–507 bc), that Athens found a way out of political chaos. Solon commanded the confidence of all classes for his fairmindedness and integrity; he was a person who claimed descent from the ancient kings, was only moderately rich, had seen the world as a merchant and was the author of patriotic verse as well as some outspoken poems condemning the rich for their greed. Installed in office towards the end of the 6th century bc, Solon reformed agrarian law as well as the Athenian Constitution comprehensively, stabilizing the polity and encouraging business. With his zeal for social justice, Solon set out to solve landrelated problems and bringing relief to the poor peasants. There would be no ‘unfree’ labour——labour that was in any way compulsory, involuntary, dependent, forced or coerced by non-economic factors. Solon sought to ensure that Athenian citizens did not have to suffer from any of the three kinds of bondages: debt-bondage and a fortiori, serfdom and chattel slavery. For, I gave to the people as much privilege as was sufficient, neither removing nor increasing what was their right. I made sure that those who had power and were admitted for their wealth suffered nothing unfair. I stood holding my mighty unjustly. (Buckley, 1996: 96)
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shield over both parties, and allowed neither side to triumph
While Solon did enough to ensure that the poor enjoyed freedom as unburdened landowners, he was careful to strike a
Chapter 1â•…Sagacity in Governanceâ•… 7
balance between conflicting interests and did not attempt to redistribute privately-held land. Peisistratus gave further relief to the poor, making arrangements for lending to needy farmers and helping them in a number of practical ways. These reforms checked the growth of the estates of the nobility and stabilized the small and medium farms. Solon’s reform of the constitutional structure created an equitable balance between different interest groups, thus laying the foundation for a feeling of collective consciousness among the citizens. No longer would nobility of birth be the criterion for holding political power. This diminished the political dominance of the Eupatridai or the well-born. The old class divisions were based on military capabilities——the knights or those who could afford to keep horses, the zeugitae or those who could equip themselves to fight in the hoplite phalanx and the thetes or labourers. Solon proposed landholding criteria.2 So magistrates were drawn only from the wealthiest classes, while other offices were open to second and third classes but not to the thetes. A property census was established, not unlike that in China in the early empire days and what would happen much later in England, the United States of America (USA) and other Western countries in the 18th and 19th centuries. Though the thetes were denied participation in the executive running of the government, they were given full membership of the assemblies, with full freedom of discussion. Round about 507 bc, Athens instituted a form of government that would become known as democratia—a council chosen by lot from among citizens with some property. Cleisthenes’ reforms included a rural voice by creating regional units called demes, based on existing villages. The demes governed themselves and also sent representatives to the council, counterbalancing the power of the aristocratic class in policy-making.
8â•… Part Iâ•… The Making and Unmaking of Empires
The result was a participative democracy based on a free, selfsufficient peasantry. Several institutions that are today recognised as the foundations of economic growth were born in that era: the rule of law, land distribution, debtor-creditor relations based on sanctity of property and integrity of currency. The right to property was fundamental to the development of trade and private economic enterprise. We should note here that the ruling polity was not influenced in any way with the anti-property sentiments of the political philosophers of the Golden Age of Greece. Plato, in his Republic, regarded property and virtue incompatible, though later, in The Laws, he allowed private property but wanted the state to ensure that it did not lead to extremes of wealth and poverty. Aristotle, in his Politics, challenged Plato’s vision of the ideal society. Though Aristotle shared his teacher’s belief that extreme inequalities in the distribution of wealth led to social strife, he regarded the institution of property as indispensable and ultimately a positive force. A unique feature of the Greek polity was its stability. There were sharp inequalities generated by factors such as size and profitability of landholding, opportunities for trade, aristocratic birth, marriage fortunes and military and political opportunities, not dissimilar to what prevails in our capitalist democracies. In the 7th century and earlier, before the emergence of democracy, there was probably a great deal of the kind of exploitation of the poor that we find in Solon’s Attica. In a Greek democracy, however, decision-making was by majority vote——probably for the first time in human history——so the poor, because they were the majority, could protect themselves to a certain extent. At Athens and some other cities in the 5th and 4th centuries bc,
Chapter 1â•…Sagacity in Governanceâ•… 9
there was an astonishing development of real democracy, extending to some extent right down to the poorest citizens; this was a good example of exceptional political factors operating in such a way as to counter-balance economic forces (Ste Croix, 1981: 97). This did not appear to have created any significant tensions within the economy, for they were all active participants in the assembly of the polis. It was participatory democracy that provided the safety valve.3
From Agriculture to Trade The Greek settlements, unlike the Phoenician ones, were founded mainly for agriculture rather than commerce, but the Greek polity actively encouraged traders and other economic agents associated with food grain imports, simply to pre-empt any rural unrest. This trade in food grain, and the fact that agriculture was not very profitable, prompted the large land owners to turn to cash crops like olives. As their incomes grew, this class wanted metals, slaves and other luxuries that had to be imported from all over the world. The aristocratic class that controlled the Athenian polity came to depend on foreign traders to maintain their lifestyle.4 The foreigners or metics were excluded from agriculture and from credit relations based on land, but they developed their own way of dealing with money and credit. It was out of this part of the society of foreign merchants that cities like Athens developed the commercial tradition that made it possible for her to enter the broader world of Mediterranean commerce (Curtin, 1984: 75–76). Fernand Braudel compares this development with what took place in Holland in the 17th century:
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10â•… Part Iâ•… The Making and Unmaking of Empires
(Holland) embarked on a golden age only when it started to
import Baltic grain in large quantities. This is why grain trade was revolutionary: it modified the structures of the Greek economy and subsequently those of society. Even a great ‘feudal lord’, as Louis Gernet would say, would become a markets. (Braudel, 2001: 232)
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♦
‘gentleman farmer’, watching commodity prices on foreign
Pragmatic Attitude towards Trade How is it that there was a radical transformation in the outlook towards trade, given the cultural antipathy against any kind of commercial calling? In Plato’s ‘Ideal State’, the merchant stood degraded in status, with property qualifications so fixed that he could never rise in influence within the Greek political hierarchy. Trade was kept at a distance from the citizen community and the propertied class, but it had to be allowed to be carried on by alien professional merchants and traders. The richer landowners played a crucial role in changing the outlook of the polity towards trade and in ensuring that there were no disruptions in trade routes and the economic agents, despite being foreigners, could run their business smoothly. A hard-core pragmatic attitude came to govern the policy towards traders. Most of the historical evidence in this regard comes from Athens, where foreigners were the mainstay of trade and industry; they were the source of what Marx would call ‘merchant capital’. Though politically degraded, these metics were given several institutional safeguards——their private contracts were honoured, they were immune from reprisal in the case of unpaid debts or unsettled disputes and their persons and goods were protected. It may not be unrealistic to conclude that
Chapter 1â•…Sagacity in Governanceâ•… 11
the merchants who conducted foreign trade belonged to an ‘international merchant class’—trading from place to place wherever they saw an opening, without concerning themselves entirely or even mainly, with the trade of the state in which they had citizenship or domicile (Reed, 2003: 33). The Greeks also pampered the foreign traders—with prominent seats at the theatre, meals at the public cost, priority in the business of law courts—so that they should come ‘not for gain but for honours, and as to friends’. In the 4th century bc, Athens developed facilities such as lodging houses, hotels and market places for foreign traders (Finley, 1966: 161). Plutarch (ad 46–120) says that, even as early as in the 6th century, Solon offered foreigners’ full citizenship rights if they came to Athens to ply their craft. Diodorus, a Greek historian of the 1st century bc, tells us that Themistocles (524–459 bc), the Athenian politician and general, prevailed upon the Athenians to abolish the tax on metics in order that they may immigrate in larger numbers from all parts and increase and extend Athenian manufacture. There was very little trace of xenophobia (CAH V: 298). State intervention in economic affairs was directed at steps to facilitate trade and ensure efficiency and integrity of transactions— enforcing the laws of contract, establishing standard weights and measures and building roads and harbours. The foreign policy was also oriented towards sustaining trade and economic prosperity. A network of nearly a thousand Greek settlements came up along the Mediterranean Coast, politically emancipated from their mother city but forming a loose confederation. The polity’s outlook towards these settlements was guided by the need to ensure steady supplies of grain. These settlements, usually established in thinly-populated territory, were controlled by agriculturists, with a few notable exceptions. In 477 bc, Athens masterminded the setting-up of a league of
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states, the so-called Delian League, as a defensive and offensive alliance against Persia. Although the members had equal voice in the league’s council, none could possibly match the power of Athens, which used the league to further her own interests. Since Athens controlled the sea, she could not only secure her own supplies of food and other necessities but also those of the weaker powers to enforce her imperial supremacy. In later periods of European history, war has been the means of fostering trade; in ancient Greece it served to bring in tribute for distribution among its citizens, who were thus enabled to approach their ideal of economic independence. The Athenian Empire was a conservative and even defensive one with its main purpose being the control over trade routes. Despite the seizure of territories, there was no ruthless exploitation of resources on the scale shown by later trading states such as Venice. Athens never built up sizeable reserves and a single siege could soak up three years’ worth of tribute (Freeman, 1999: 213).
Monetisation and Banking One of the major factors responsible for the rapid growth of trade and business was the progressive monetisation of the economy and development of banking which gave the Greek economy a sophisticated financial infrastructure as it emerged out of the Dark Ages from the 7th to 5th centuries bc (Mitchell, 1957: 313). This happened throughout the Mediterranean, and expanded with the military conquests of Alexander during the Macedonian Period (Davies, 1994: 81–86). Many regard this development as one of the most durable contributions of the Greek polity (Peacock, 2006). Coins as means of exchange came into universal use during the Classical Period in Greece.5 The ‘owls’ first coined by
Chapter 1â•…Sagacity in Governanceâ•… 13
Peisistratus in 546 bc and stamped with the Athenian Emblem became famous throughout the ancient world. This acquired a ‘fiduciary character’—as a means of payment, coins were not weighed but counted. Also, like today’s money, its issuer, the state, stamped it; the stamp served as a sign of the coin’s redeemability. Acceptability came to be enshrined in law mandatorily; not only would the state accept payment in coin, such payments had to be made in coin. The availability of silver from the Laurian mines led to the striking of coinage throughout the Greek lands. The accelerated use of fiduciary coins had important social, economic and political consequences. The fact that various things could be exchanged with and measured with money created a pervasive psychology for its unlimited accumulation, a psychology that one does not find in the Homeric Period. Aristotle attributes to money-making the notion that wealth and prosperity have no limit. In a marked contrast to the Homeric Period, several literary works of the Classical Period are replete with references to the role of money in political power struggles and military exploits. The Athenian banks were proficient in the use of credit, (Cohen, 1992: 14) with bankers enjoying high esteem and credibility. They had wide networks of relationships and handled considerable sums of money. As in modern times, banks went out to help political leaders, to ransom friends and to aid military operations. Even foreign bankers found their place among the Athenian elite and established households of their own. As the borrowers were of high political and social status, routinely seeking and obtaining substantial loans, sometimes even without pledging assets, it is clear that the banks were not pawn shops, as many economic historians seem to think, but were a social and economic force.
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All this would not have been possible without the polity’s positive but non-interfering role. Financial arrangements were subject to no control other than that of market conditions: commerce in Athens was never an affair of the state. Unregulated by oligopolistic or governmental controls, Athenian bankers were free to vary the conduct of their operations, to commingle bank and individual funds and to engage in speculative investments. The government did not proscribe or mandate any activity; nor were there any government charters permitting specific activities or limiting competition. Athenian law seems to have mandated the primacy of the contractual arrangements.
Economic Surplus from Slavery Athens’ economic prosperity was based on a unique socioeconomic structure: a class divide between citizen and slave or serf, in which the labour power of the slaves powered the polity’s prosperity. There is no escaping the sheer scale and the degree to which the Greek society was dependent on slavery; free labour was almost unknown. The idea of exploiting slave labour was an integral part of the classical Greek mindset and management of slave labour was the key to economic prosperity. Slaves accounted for nearly a third of the population of Athens. Slaves were found in every area of society, from the police force and workshops to estates and individual households (Ponting, 2000). But while Athens had nearly a 100,000 slaves, they enjoyed a status quite different from the common sense of the term. In banking, economic considerations provided the slave with a stature comparable with his business obligations. The Greek legal system was very accommodative to business needs,
Chapter 1â•…Sagacity in Governanceâ•… 15
including recognition of slaves’ responsibility for their own business debts, court appearance of slaves and so on. Like ordinary male citizens, many slaves could work in the public world of community and commerce without affronting social values. By contrast, even wealthy female citizens were restricted to the private sphere of the household. Slaves could even live and work away from the family residence. At Athens, slave craftsmen employed in the construction trades are known to have received wages in money; a group of nine or 10 slave leather workers are reported to have operated a workshop. The slave in charge paid their master a fixed sum of their obols per day, and the other slaves paid two obols.6 Milyas, who was responsible for the manufacturing businesses left by Demosthenes’ (384–322 bc) father, is said to have been entitled to keep the profits while paying the heirs a fixed sum. Meidas and his two sons ran a perfumery; their master received an accounting only monthly. The Laurian silver mines, on the strength of which Athens built her naval fleet and her monetised economy, were operated by large teams of slaves (Davies, 1994: 71–72). Mining underpinned the prosperity of Athens, making it partly a slave economy. In 431 bc, when the Peloponnesian War broke out, Sparta struck at this underpinning with a clever strategy: it set up a fortified base at Decelea, near Athens, to which slaves could flee. About 20,000 did so and this was considered by Thucydides to be a major blow to Athens’ economy. Demosthenes’ speeches give an insight into how the affluence of the trading class got built up. Many slaves though totally cut-off from the land and living in a rootless world, emerged as the ‘organisation men’ of the Athenian world. Phormion, Demosthenes’ client, had been a banker and a slave of Pasion, the former owner of the firm, who again had been the slave of two former owners (Burn, 1963: 323). Pasion began as a slave
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of a banking firm but rose to eclipse his former masters and became the most famous and wealthy of Greek bankers, whom the Athenian polity rewarded with citizenship. Pasion directed the largest shield factory in Greece, at Athens, and owned ships, farms and a number of houses in Africa. He also conducted an embryonic hire-purchase business, lending domestic articles such as clothes, blankets, silver bowls, and so forth, for a lucrative fee. Some bankers such as Pythius were also foreigners. Pythius operated throughout western Asia Minor at the beginning of the 5th century bc and was said to have become a multi-millionaire. The earliest banker in Greece proper was Philostephanus of Corinth, who prospered in the first half of the 5th century. Among his many important customers was Themistocles (Davies, 1994: 70–73). Most slaves came from the well-organised slave-trade rather than from defeated enemies.7 They were from diverse areas and spoke diverse languages. In relation to slaves, citizens did not have to defend their position against any organised class consciousness. Citizen-slave dimension of class was not symmetrical: citizens were organised, slaves were not.8 Struggle was presumably continuous, but covert. It does not enter the historical record, despite its significance for life (Mann, 1986: 219). Sagacity and foresight were the hallmarks of the Athenian polity during the Classical Period. Solon’s reforms helped to crystallize a political community of free men based upon fairly diffused land ownership and access to political rights by the whole citizen body (Ste. Croix, 1981: 260). At the same time, her wise approach towards trade and other commercial activities laid the foundation of her economic prosperity and military efficiency. It was the free and fairly substantial peasantry in Greece that produced the armies of hoplites, the heavily-armed foot soldiers who frustrated the might of the Persian Empire
Chapter 1â•…Sagacity in Governanceâ•… 17
at Marathon and Plataea (490 and 479 bc). The Greeks could defeat the Persian fleets in a few decisive engagements because of the indomitable fighting spirit of their sailors and marines; this spirit was inseparably bound up with the polis. As we discuss in the next chapter, the irresistible military power of Rome in her great days was similarly founded upon a free peasantry, at first conscripted, then, especially during the Principate, furnishing recruits in large measures voluntarily to a standing army. Ironically, the democratic institutions that helped the Athenian polity support her economic development failed to help her retain her hegemony. It was Philip, King of Macedon, who coordinated and combined mercenaries and Macedonians, rewarded them with booty and entered into a pan-Hellenic upper-class alliance (Ellis, 1976). Macedonians turned the Constitution of Athens into an oligarchy, limiting the exercise of political rights by its citizens. The Greek cities were never again fully autonomous. The spirit of democracy had been partly broken before the end of the 4th century bc, and its institutions had been gradually stamped out by the combined efforts of the Greek propertied class. The Greek propertied class, with the assistance of their Macedonian overlords, gradually undermined Greek democracy. In Byzantium, writers from at least the early 5th century onwards, use the word demokratia to denote ‘mob violence’, ‘riot’ and ‘insurrection’. The democracy which revived in the moderneworld was something new, and owes little direct y to the Greek demokratia. But by the very name it bears, it pays a silent but well deserved tribute to its ancient predecessor.
Notes 1. While there is no agreement on the cause of collapse, there are a variety of theories ranging from invasion by the Dorians (the descendants of Heracles in the later Greek myth) to a climate change of catastrophic proportions.
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2. Solon divided the citizen body into four classes according to the amount of produce that their land would yield. There were the producers of 500 bushels, of 300 bushels and 200 bushels, and the remainder called the thetes. Status was defined according to the contribution to community. 3. The thetes were not entitled to hold office, but they could speak in the assembly. Thetes at first formed the basis of the Athenian galley, with their influence in the Assembly growing as a result of their naval contribution. Aristotle noticed how the development of large galleys had led to rule by a ‘mob of oarsmen’. 4. ‘From Cyrene sylphium stalks and oxhides, from the Hellespont tunny and salt-fish, from Italy salt and ribs of beef… Syracuse offers port and cheese… from Egypt sailcloth and raw materials for ropes, from Syria frankincense. Fair Crete sends cypress wood for the gods, Libya plentiful ivory to buy, and Rhodes raisins and figs sweet as dreams; from Euboea come pears and big apples; slaves from Phrygia, mercenaries from Arcadia. Pagasae provides slaves with or without tattoos, and the Paphlagonians dates that come from Zeus and shiny almonds… Phoenicia supplies the fruit of datepalm and fine wheat-flour, Carthage rugs and cushions of many colours.’ (Mock-heroic dactyls from a comedy produced by the Hermippus in the 420s, quoted by M. Ostwald in his essay). 5. Though coins made of electrum, a mixture of gold and silver, appeared for the first time in about 685
bc
in Lydia, extensive use of coins started
in Athens, with silver mined from the Laurian ores. In the 6th century, Peisistratus used silver to hire troops to install himself and consolidate his regime. He also may have paid in coinage the workers on the building programme he had undertaken. 6. In ancient Greece, one silver obol was equivalent to 12 copper chalkoi (this was the smallest monetary unit), six obols were equivalent to one silver drachma (the main central standard monetary unit) and three drachmae could be exchanged for one silver slater. 7. Historians differ on this issue. Finley downplays internal wars and piracy as sources of supply and argues that after 600 bc most slaves in Greece were non-Greeks from the Danube Basin, the Black Sea region and Asia Minor. A large persistent demand for slaves used to provide steady work for slavetraders, some of whom combine slave-trade with other trades such as grain and timber. For the outlines of this controversy, see (Reed, 2003: 20–23).
Chapter 1â•…Sagacity in Governanceâ•… 19
8. There is an exception to this: the territorial imperialism of the Spartans who enslaved the adjacent population of Messenia and Laconia and had to face perpetual rebellion from them as they were capable of unity. This seems to have been also true of another serf people, the Penessati, who were enslaved by the Thessalians. The counter-strategy by many city-states was to recruit slave from diverse people to prevent any kind of organisation among them. This was also the strategy adopted by the Romans.
Chapter 2
Governance Culture: Roman Mirror
T
â•… The history of the Roman Republic and Empire, west and east, spans over 22 centuries, from 753 bc to ad 1453. A part of that immense period, from around 300 bc to the early 5th century bc, covers the rise and fall of the Western Roman Republic. Rome developed around 500 bc in Etruria as a small city-state and emerged as a Republic displacing the Etruscan Republic. It fought battles every year over the immediate area around the city and established its hegemony south of the Po Valley after her victory at the Battle of Sentinum in 295 bc. Having gained full control of southern Italy, she stepped out to involve herself with the outside world, ousting Carthage from her control of Sicily, and later conquering Sardinia and Corsica. Then followed a series of wars with Macedonia and later on with Carthage; by the middle of the 2nd century bc, Rome had gained full control of almost the whole of the Mediterranean. The Republic presided over the city’s growth from provincial obscurity to mastery of the whole Mediterranean. The process began with the election of the ruling consuls in 509 bc, ending 478 years later when Octavius established the first imperial dynasty. Territorial expansion reached its peak during the early stages of the imperial rule. The Age of Antonines (ad 86–161) 20
Chapter 2â•… Governance Cultureâ•… 21
described by Gibbon as the Golden Age of the Roman Empire, stretching from the Baltic Sea to the Euphrates and from the Carpathians to the Sahara, and was one of universal peace and widespread well-being. Peace, security and order provided the ideal conditions for economic growth. Peace and security was ensured by a disciplined army that owed its dominance as much to its training as to a strong and sophisticated economy, an impressive infrastructure of roads and harbours, access to sea routes across the Mediterranean and good logistics. Yet this empire, built on seemingly unshakeable foundations, started disintegrating within two centuries of reaching its peak. The Western Roman regime lasted for several centuries mainly because of its legions—the legion was not merely a military organisation, but a core institution around which the political regime could mobilize economic, political and for a time, ideological commitments. The Roman state could not keep the army large and disciplined enough to engage with the Germanic tribes and drive them away. This failure of the Western Roman regime was prima facie a crisis in resource raising, with deep historical roots. During the rise and fall of the Western Roman Empire, there were shifts in the relationship between the polity (the user of resources) and the resource providers (agriculture, trade and commerce). The early Republic’s growth was based on the resources raised from the farming community. The polity established its legitimacy and credibility by looking after the resource providers. But the equitable resource-raising policy had completely disintegrated by the late imperial phase. The crisis of resources that Rome experienced was fundamentally a crisis in political governance: the polity failed to keep an equitable balance between the different sections of resource providers within the citizen community.1
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Early Republican Phase Conventional accounts attribute the early Roman success to the greater cohesion and commitment of its farmer-soldiers as compared with the oligarchical traders and mercenaries of Carthage—a kind of partial replay of Greece versus Persia and Phoenicia. The army was formed with peasant farmers and reflected its social structure. Every soldier provided his own arms and equipment, which meant that every soldier had a farm or other property enabling him to acquire his outfit. The landless poor did not fight. The citizenry’s contribution to the army, graded according to wealth of the citizen, was equitable.2 There was thus a shared sense of ethnic involvement in the early years of the Republic (Hopkins, 1978: 30).3 Though there is scrappy evidence, the lower orders must have been largely satisfied with the leadership of the nobility and the rewards to be won under their command. Land acquired by conquest was used to satisfy the economic aspirations of the lower orders; they stood behind the patricians, as was evident from the fact that the Gallic sack of Rome in 390 bc had little effect either on the internal development of Rome or on the process of conquest. When the land acquired as a result of the capture of Veii (just across the Tiber) was distributed to Rome’s poor, an enormous new reserve of peasant soldiers was formed (Crawford, 1978: 26). In the early Roman Period, there was some commitment towards providing farmers with enough land for their sustenance. Pliny (ad 23–79) tells us all the people were given a plot of land of seven iugera each (the Roman measure of area equivalent to about 1.75 hectares or the area that could be circumscribed by two oxen in one day). The leadership emerging from the struggle of the orders gave Rome the strength and stability that enabled her to direct her energies towards military expansion.
Chapter 2â•… Governance Cultureâ•… 23
But increased militarism with its longer wars started creating serious distortions. As the senators became richer, the peasant class was becoming more impoverished. The historian Livy (bc 59–ad 17) tells us that, about 400 bc, when the soldiers were kept under arms throughout the year for the war with Veii, they returned to lands that had lain uncultivated. The same plight must have befallen the farmer-soldiers who spent six weary years in Spain in the 2nd century, those who fought in the Hannibalic War and those caught up in the civil wars later (Brunt, 1971: 16–17). The progressive impoverishment of the peasantry enabled the wealthier people to acquire agricultural land in a massive way. Outright land grabbing by the powerful, whether as a result of direct appropriation or of foreclosure, is a process that must have gone on throughout antiquity, except in Greek democracies, where the poor man could obtain effective protection from the courts of law (Croix, 1981: 225). On some occasions, when soldiers without land were finally disbanded, as when Sulla in 82 bc disbanded 23 of his legions, the problem was enormous: Sulla had to resettle nearly 100,000 troops. By about 25 bc, nearly 250,000 soldiers had been given land but most of them lost their land to the elite through sale or use of force (Ponting, 2000: 244). As society’s stratification widened, so did differentials in the army. About the 2nd century bc, centurions got twice as much booty as ordinary soldiers, but in the 1st century bc, under Pompey, they were getting 20 times as much and senior officers 500 times as much. Regular pay disparities widened, centurions receiving five times as much as soldiers, 19 by the end of the Republic and 16–60 times as much during the reign of Augustus (Mann, 1986: 255). The governing senatorial class was not affected: its pre-eminence was in fact enhanced by the changes taking place in the political structure of the Roman Empire.
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Rome at Her Peak: Deteriorating Governance Culture Territorial expansion through incessant military exploits brought out a radical transformation in the outlook and character of the governing class and its relationship with the masses. First, the ruling patrician class, which derived its power primarily from private property in land holdings, gained enormously from the fruits of the state’s conquests. The wealth of the Mediterranean that was pouring into Italy was in the hands of the generals, themselves drawn from members of the senatorial order who held magistracies. While some of the wealth was distributed among lower orders, much ended up in the hands of the governing elite. The administration of conquered provinces generated even more liquid wealth that flowed into the hands of the elite: the governors, quaestors and other magistrates, all drawn from the senatorial order and the tax farmers and army contractors, usually from the equestrian order.4 Second, despite the enormous wealth which poured into the treasury in the 2nd century, enabling the Senate to suspend the tributum for the propertied classes in 167 bc, nothing was done for the lower classes. Under the leadership of a few public spirited senators, Roman politics started polarising around two factions in the Senate: the Optimates, the people whose only interest lay in wealth and the senatorial class and the Populares, the champions of the depressed members, the citizenry. The Populares demanded the redistribution of land to dispossessed peasants who now flooded into Rome, as well as a reform of the voting procedure. Tiberius Gracchus, elected Tribune in 133 bc, proposed a land bill that would effectively divide the land, with individual limits, but this was far too revolutionary for the Senate. The factional struggle erupted into a Civil
Chapter 2â•… Governance Cultureâ•… 25
War and the Senate had Tiberius assassinated and 300 of his followers killed. The programme of Tiberius was taken up by his brother Gaius Tiberius. In 122 bc, much against the will of the Senate, he introduced subsidised grains for sections of the urban plebs. He also built storehouses and kept citizens at work with a road-building programme. The Senate would have nothing of it, and it declared martial law. In the riots that followed, 3,000 of the Populares were killed, and Gaius himself was beheaded (Crawford, 1978). Later, the Christian Church would play a big role in accentuating the rich-poor divide. From the time of Constantine (ad 274–337), the Christian Church had begun accumulating endowments in land and had to maintain an ever-increasing number of full-time stipendiary clergy to look after these properties. By the 6th century, the bishops and clergy had become far more numerous than the administrative officers and civil servants of the empire. Some rich senators and bishops had vast revenues. Even the humblest common soldiers, lower civil servants, the lesser clergy and the monks were often substantially better off than the peasantry. Third, the wealth acquired by the senatorial oligarchy was enormous by any standards.5 The rich oligarchy—thanks to the armature of influence, patterns of dependence, network of family connections and structure of obligations that it had been assiduously cultivating over decades—developed an autonomous structure of power, in many ways, a rival to the authority of the state itself. To a great extent, this was facilitated by the fact that officialdom occupied a very minor place in life. The state had just a handful of agents so it was not possible for it to reach out to all people and the rich oligarchy was able to extend its influence among the lower classes. Private power came to be joined with the public power. While the power originated in
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the palace, the ruling oligarchy helped maintain it throughout the empire, but the concentration of power in its hands proved dysfunctional and led to the disintegration of the state authority itself (MacMullen, 1988: 120). Fourth, the parallel authority entrenched itself through a web of venality and the spread of venality isolated the emperor; a substantial part of his authority was being sold independently by his servants. It was an utterly different world in which Marcus Aurelius (ad 161–80) had made himself accessible to his subjects, receiving those who approached him and preventing any guardsman around him from frightening away anyone whom they encountered. Fifth, emperor’s edicts aimed at forcing the rich oligarchy to attend to the affairs of civil society went unheeded. Senators rolling in wealth could spare little time for governance. During the late empire, the quality of governance became despicably low. The Greek historian Olympiodorus6 declared that ‘each of the great houses of Rome had in itself everything that a moderatesized town would be likely to possess—a hippodrome, forums, temples, fountains and numerous baths’. Sunk in leisure and frivolity, they were unworthy of their great traditions. The laws enforced by Valentinian I (ad 364–75), one of the most rigorous of emperors, had little impact on their behaviour. The law of ad 364 required the governors to pay more attention to the serious business of his office than to the pursuit of popularity by attending shows and entertainment. This had to be followed by another law in ad 369 reminding the governors of their duty to live in their official residences rather than pleasant retreats elsewhere; citizens who entertained governors on their private estates faced the prospect of confiscation (Matthews, 1990). A consul of the late imperial times enjoyed, as Gibbon remarked, ‘the undisturbed contemplation of his own dignity’.
Chapter 2â•… Governance Cultureâ•… 27
Sixth, the senators allied themselves with the business class in search of more wealth. It did not take long for the senators to set aside the traditional distaste for business. This traditional attitude in the early Roman Age is spelt out by Cicero7 in one of his best-known books, On Duty. In it, he condemned all incomes that could only be earned at the cost of public revulsion and dislike, mentioning tax gathering and money lending as examples. He shared with Plato and Aristotle, the opinion that labourers working for money are disreputable. ‘We are likewise to despise’, he goes on, ‘all who retail goods from merchants for prompt sale, for they would make no profits unless they lie abominably’. This aversion went back to the early republican days. Way back in 218 bc, the Roman people had agreed by a plebiscite to prohibit senators and their sons from owning cargo ships that allowed them to engage in foreign trade, and to take government contracts. Later, they were also barred from taking up contracts to collect taxes. As wealth opportunities grew, over the 1st century bc and the 2nd century ad, the Roman economy started becoming more sophisticated. This was particularly marked in the exchange of luxury goods and slaves, with which the state was little involved after the initial conquest. Seaborne trade continued to grow, leveling-off around 200 bc.8 This is also the period when there was a rapid monetisation. As the empire became a single monetary economy, enormous opportunities for generating wealth business and trade were thrown up and the senators, as the governing class, began adding to their riches. While the merchant class living within the margins of the Mediterranean urban society—‘obscure men of limited means’ as Cicero described them—evoked nothing but scorn, the ruling political class had little hesitation in cementing close ties with it.
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The non-senatorial members of the aristocratic families specialised in managing the business of the empire whereas the senatorial class saw risk purely in terms of the capital they invested in buying cargos, building ships and hiring crews. With the growth of business partnerships on the lines of joint stock companies, the activities of this oligarchy spread to many branches of economic life unconnected with public administration, such as foreign trade and house building (Andreau, 1991). The fact that the Republic possessed many income earning assets such as public forests, public aqueducts, a salt monopoly, public fisheries and metal mines but did not have a bureaucracy to operate these assets directly, made the oligarchy a dominating force in economic life as well. The careers of these men were in many ways as public as those of the senators. When their interests were at stake, they could be counted on to browbeat the senators at the voting assemblies. They first began to emerge as a separate force in around the middle of the 2nd century bc, and a number of them founded families from which the political or senatorial class was later recruited. Cicero’s father was one of them. While they stood outside politics, their prominence in society assured them of access to those in whose hands political power reposed.
Reining in the Governing Class: Failure How could the senators acquire this kind of culture when Rome boasted of a strong institutional back up for her republican tradition? Despite the republican origin, Rome evolved during that period into an aristocratic society, where the propertied elite monopolised public offices, as well as political, military and religious ones. A group of families known as patricians, who had
Chapter 2â•… Governance Cultureâ•… 29
existed under the monarchy, succeeded in the early years of the Republic in acquiring both a monopoly of secular and sacred office and almost complete control of the economic resources of the community (Crawford, 1986). During the five centuries of the Republic, the political centre of gravity was more often in the Senate than any where else, especially during the central period from about 300 bc to 130 bc. The consulate did not merely confer power upon its holder and dignity for life; it ennobled a family forever. Within the Senate, the descendants of consular houses, whether patrician or plebeian in origin, regarded the supreme magistracy as their birth right. The Roman voter could seldom be induced to elect any person to the supreme magistracy unless his family’s name was a part of the Republic’s history. By the end of the 2nd century bc, these noble families came to monopolise all the high offices, determining the history of the Republic and giving their names to its epochs (Syme, 1939: 18). They inter-married and shared the competitive ideals to enjoy abundant wealth and control the business of the state. As in its beginning, so in its last generation, the Roman Commonwealth was a name; it was the aristocratic oligarchy that governed the empire, using the family, money and political alliances. Not until the principate was there a separate central bureaucracy, and even then, its capacity to control the upper class administrators was extremely limited. Wealth looted and taxed by the state from conquered peoples was acquired by a decentralised class. Their rights over the surplus were derived from the private property rights guaranteed by the state and administered by a quasi-group of aristocratic jurists. The political structure was ineffective in controlling the activities of the rich oligarchy. With the growth of Rome, there developed a huge gap between the size of the citizen body and the capacity of political institutions for ensuring effective
30â•… Part Iâ•… The Making and Unmaking of Empires
participation. Only a tiny proportion of the citizens ever took part in politics, either in voting on legislation or in electing the lower magistrates. The contrast between Rome and in classical Athens is interesting: the popular institution in Athens existed on a different scale, even physically, with the assembly hall being considerably larger than the Roman Comitia Centuriata. In the Roman assembly, citizens voted in 193 ‘centuries’, with power loaded in favour of wealth and age. Although the citizen body increased dramatically, the people had little power to set the agenda and their involvement became almost entirely symbolic. There was thus a stark contradiction between the formal powers of the assembly and the structural framework, which discouraged mass participation. In Rome, the people’s institutions may have been powerful but that does not mean that the people as a whole were also powerful (Mouritsen, 2001: 32–43).
In the Declining Phase As an Empire of conquest,9 the Roman state had been used to meeting public expenses with the spoils won in the wars, apart from the acquisition of treasure, there had been a steady flow of tributes from the different regions. The Roman state achieved success by decentralising power to the provincial aristocracy. This had played, as in many other ancient economies, a strategic role in ensuring flow of treasures to the metropolis; this inflow is comparable in a way to what modern Europe absorbed from the New World. In the absence of forcible extraction of surplus through military exploits, political governance was not oriented in any way to explore the possibilities of economic surplus from wealth generating activities from within its own borders.
Chapter 2â•… Governance Cultureâ•… 31
The normal fiscal revenue consisted of the tributes of the provinces, the 5 per cent tax levied on inheritance and manumission of slaves, the 1 per cent or half per cent tax on commercial transactions, the internal and external customs, the income derived from the working of the mines and the rents on the public lands. While the availability of war booty became restricted, the cost of security went up substantially. The 4th century Roman army contained perhaps as many as 600,000 soldiers, all of whom had to be paid, equipped and supplied. What the state could spend was limited by the amount of cash that was available. The Emperor Hadrian’s attempt (ad 117–38) to consolidate the empire brought this inherent contradiction into sharp focus. Augustus (63 bc–ad 14) had managed to establish three new taxes10 that were quite low as a proportion of the gross product,11 but, together with the tributes from different regions, were adequate for more than two centuries. This state of affairs could have continued had the ruling regime developed a base of willing taxpayers. But it failed to do so, instead giving in to pressure from the rich aristocrats for several exemptions. Since the 1st century bc, inequalities of wealth had increased sharply, and the richer landowning classes, who were also allied with the traders and financiers, wielded considerable influence on the ruling emperors and warded-off attempts to raise resources from them. As a result, the tax base of the western empire shrank just when extra funds were urgently needed; the four-fifth’s tax relief that the imperial government was forced to grant to the provinces of central and southern Italy in 413 ad gives a clear indication of the scale of the loss (Ward-Perkins, 2005: 42). By ad 444, when Valentinian III instituted a new sales tax, matters had reached a parlous state as was evident from the preamble to the law; the emperor acknowledged here the urgent need to boost the strength of the
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army through extra spending, but lamented the current position, where ‘neither for newly recruited troops, nor for the old army, can sufficient supplies be raised from the exhausted taxpayers, to provide food and clothing’ (Ward–Perkins, 2005: 41). The land tax on the poor reached over a third of his gross product by Justinian’s reign and the rent paid by the tenant farmer was, in Egypt, at least half. Poor parents were often driven to infanticide. The sale of new-born infants had become so common that, contrary to the principles of Roman law, it was officially permitted by Diocletian’s day (ad 284–305) and the poor, despite the law, commonly sold or pledged their older children. Cassiodorus12 states that there was a regular market for peasants’ children at a great fair in southern Italy. So ruthless and efficient was the collection of rents and taxes that, however poor the crop, the quantity due to the state and the landlords was carried off to town, and the peasants might be left with little or nothing for their own needs. The condition of the urban poor, though they were much more lightly taxed, was no better (Jones, A.H.M, 1964: 1043–44). The tax raising powers were seriously constrained by the obstructive stance of the aristocratic class, leading many historians to conclude that in the later empire rich landowners’ capacity to resist the central government’s attempts to raise taxes was the rock on which the western empire foundered (Hopkins, 1978). The ruling regime had thus no option but to resort to desperate measures to raise resources and the instrument that came to be deployed with increasing frequency was debasement of coinage leading to severe inflationary pressures, associated with intense social and economic misery. The debasement consisting in the gradual reduction of the silver denarius,13 started under Commodus (ad 180–192), and was practiced to a greater extent under Septimius Severus (ad 193–211) and
Chapter 2â•… Governance Cultureâ•… 33
Caracalla (ad 211–17), reaching its peak on the eve of Diocletian’s coming to power, when the silver content was no more than 5 per cent of the weight. Thereafter, despite a few desperate attempts to restore Augustan standards, debasement became gradually the accepted method by which emperors sought to make ends meet. Occasional reforms were doomed to failure.14 We can now recapitulate the essentials of governance culture as they evolved during the different phases of the rise and fall of the Western Roman Civilisation. The ruling oligarchic regime in the republican era could achieve spectacular military success because the instrument for its territorial expansion was an army of voluntary peasant citizens. In subsequent centuries, the increase of militarism disrupted this delicate governance balance even as the ruling class appropriated substantially the spoils of war. The checks and balances failed to rein in the governing oligarchy. With a possessive and self-centered rich ruling oligarchy, an autonomous power centre emerged, virtually undermining the authority of the state itself. Surplus from military exploits started declining with consolidation of the empire from Hadrian’s time, and extraction of surplus from the impoverished peasant community had reached its limit. The unconcern of the governing class with the grievances of the citizens made the citizens themselves indifferent to any call for public service and collective sacrifice in crises. The tradition of public service among senators and members of the equestrian order that was a remarkable feature in the early republican period became virtually extinct later; rank and wealth associated with office became their obsession. The preoccupation with self-interest had become so pervasive that the only way to secure honest provincial governors, as Marcian cynically declared, was to appoint men who did not wish to serve (Jones, 1964). While the upper classes were proud of being
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Romans and valued Roman Civilisation, their loyalty was of a very passive character. In the face of the barbarian invasions, the propertied class took measures to protect their large estates that they had acquired over centuries and offered protection to tenant cultivators and the slave labour associated with their land. Gradually the church and the monasteries, with their immense possessions worked by tenant farmers and slaves, strengthened an autarchic system. This opened up the move towards selfsufficiency among large estates. Thus was born the main structure of the manorial economy of the Middle Ages, with the large estate-owner emerging as lord and patron, offering protection to those connected with his land, with bondage of loyalty that came to be characterised as serfdom.
Notes 1. Every generation has approached the Roman world differently and has found different things interesting. Shakespeare explored the dilemmas of power in his Roman tragedies. Kipling saw the Roman Empire as a paradigm of the British Raj. The trial of Warren Hastings was, to many, a replay of the celebrated trial of Verres (a notoriously rapacious Roman governor of Sicily) denounced by Cicero. As one surveys the rise and fall of Rome, one cannot but be struck by many uncanny similarities that arise from universality of basic human nature and motives. Today, in the globalising world, as we are confronted with several live issues of political governance and ruling class culture, the Roman past may as well be a mirror to us. The decline and fall of the Roman polity has been the subject of extensive research by historians and sociologists. Edward Gibbon, for example, inspired by the secularist thinking of the 18th century enlightenment, blamed it on the 4th century triumph of Christianity and the spread of monasticism —‘a large portion of public and private wealth was consecrated to the specious demands of charity and devotion; and the soldier’s pay was lavished on the useless multitudes of both sexes, who could only plead the merits of abstinence and chastity’. The evolutionist criteria,
Chapter 2â•… Governance Cultureâ•… 35
strengthened through Darwinism, the great fashion at the end of the 19th century, linked themselves with the ancients’ belief in periodic cycles; for them, civilisations come into being, grow and mature, but when the life cycle is completed, must decline and vanish. In the early 20th century, the fall of Rome tended to be explained in terms of the grand theories of racial degeneration or class conflict. The Marxist version, from Marx himself to Perry Anderson and Ste. Croix, has blamed slavery and the undermining of free peasantry. The ‘bourgeois-democratic’ version represented by M. Rostovtzeff has blamed the state for preventing the emergence of the middle class whereas the ‘bourgeois-industrial’ version has stressed the absence of technical inventiveness. The relative emphasis on the different factors has varied in response to shifts in the dominant intellectual fashions of the day (Bernardi, 1970). 2. The richest class (eventually the equestrian order) provided 18 centuries (a 100 men each) of cavalry; the next class, a 100 centuries of hoplites; the next, 20 centuries of infantry without coats of mail or shields; the next, 20 centuries without greaves; the next, 20 centuries equipped only with spear and javelin; the next, 30 centuries carrying slings were called assidui, because they provided financial assistance to the state. Each century had equal voting rights in the principal popular assembly, the comitia centuriata. 3. The Roman ability to sacrifice was displayed during the prolonged battle of attrition with Carthage. For nearly 200 years, about 13 per cent of citizens were under arms at any one time, and about half served for at least one period of seven years. Rome succeeded in consistently putting greater numbers into the field, replacing her dead and wounded more rapidly than did the Carthagians (Hopkins, 1978: 30 ff). 4. Concerning their activities, we have abundant cynical sources. For example, in the second half of the 2nd century bc, we have this lament: ‘As for me, I need a quaestor or supplier, who will supply me with gold from the state money-bags’. In the 1st century bc came the oft repeated saying that a provincial governor needed to make three fortunes: one to recoup his election expenses, another to bribe the jury at his expected trial for misgovernance and a third, to live off thereafter. Cicero summed it up: ‘one realises finally that everything is for sale’ (Mann, 1986: 268). 5. By any standards, the wealth owned by the senators was enormous. In 160 bc,
Senator Lucius Aemilius Paullus, who had conquered Macedonia, died
worth only 370,000 denarii. Polybus, the Greek historian, reckoned him
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poor for a senator, yet his capital was 900 times that would be required of a legionary (Brunt, 1971: 17). In the next century, the lands of Marcus Crassus, a general and assassin of Caesar, alone were valued at 50,000 denarii; he used to say that no one could be counted rich unless he could maintain an army from his income. Pompey and Caesar were richer still (Ibid.). The income of Pliny (an equestrian administrator, historian and writer on natural phenomena, known as the Elder, to distinguish him from his nephew,
ad
23–79) was about 1,000 times higher than a reasonable es-
timate of income that would provide a decent standard of living, about 1,000 sesterces, a fifth of which is an absolute subsistence level with enough food to live on. His estates generated enough income to support about the fifth of a legion: he could maintain about 2,400 people at the subsistence level. Pliny was not one of the richest senators, but if we take his income as average of the senatorial elite, then the income of the senatorial elite could support about 1.2 million people at subsistence levels or 600,000 soldiers. By the middle of the 2nd century
bc,
the existence of only two classes in
Rome had come to be clearly differentiated—the senatorial class and the mass of the people (Alston, 1998: 217–19). One can do no better that quote from the classic study on Roman Republic by Ronald Syme: The fortunes of the great politicians were gross and scandalous. When the older Balbus died, he was able to bequeath to the populace of Rome a sum as large as Caesar had, 25 denarii a head. But Balbus began as a millionaire in his own right. Agrippa rose out of nothing: he came to own the whole of the peninsula of Gallipoli. Statilius Taurus possessed a variety of properties in Istria, whole armies of slaves at Rome. The successful military man of parsimonious tastes, L. Tarius Rufus, acquired a huge fortune from the bounty of Augustus, which he proceeded to dilapidate by grandiose land speculation in Picenum … Lollius, officially commended for integrity, left millions to his family, not the blameless possession of inherited wealth, but the spoil of the provinces. His grand-daughter, the beautiful Lollia Paulina, paraded like a princess. It was her habit to appear, not merely at state banquets, but on less exacting occasions, draped in all her pearls and little else: her attire was valued at a mere 40 million sesterces. (Syme, 1939: 381)
Chapter 2â•… Governance Cultureâ•… 37
╇ 6. Born at Thebes (Luxor, Egypt). Wrote history of memoirs from 407 to 425. ╇ 7. Cicero (430–106 bc), Roman jurist, orator and philosopher, wrote treatises on law, politics—the best known being On Duty—and rhetoric, and a large number of speeches which he delivered to the Roman Senate. Cicero was a staunch republican and was executed in 43 bc. ╇ 8. Taxes and Trade in the Roman Empire, in Journal of Roman Studies, 70, Quoted in (Mann, 1986: 271). ╇ 9. Seventy per cent of public treasury was spent on the army, for, as militarism was key to the prosperity of the Roman empire, it had to be properly maintained and kept satisfied. The second objective was pacification of people: about 15 per cent of treasury was utilised on corn distribution (bread and circuses). The remaining budget was spent on the maintenance of bureaucracy and senatorial and equestrian administrators. 10. First, a 1 per cent general sales tax; second, the tributum soli, a 1 per cent tax on the assessed value of land, and third, the tributum capitis, a flat rate of poll tax on adults, aged from 14 to 65. 11. Per capita taxes amounted to only 13 HS per person/year, or 28 kg wheat equivalent per person/year (11 per cent of the minimum subsistence level). Since many inhabitants of the empire produced and consumed significantly more than minimum subsistence, the actual rate of taxation was significantly less than 5 per cent. Of course the tax burden was not evenly distributed, and taxes transmitted to the central government were probably less than the total of taxes exacted by greedy and corrupt tax collectors. Peasants however did not see the taxes as low; there is significant evidence that many Egyptian peasants struggled to pay their poll tax in cash by splitting into several instalments (Hopkins, 1978). 12. Cassiodorus (ad 485–585) was a Roman statesman and writer, serving in the administration of Theodoric the Great, king of Ostrogoths. He kept copious records and letterbooks concerning public affairs. 13. For more than half a millennium, from the 3rd century 3rd century
ad,
bc
to the
the Roman monetary system was based on the silver de-
narius, with its fractions quinarius equivalent to half denarius and sestertius equivalent to one-fourth denarius. It became in imperial times the official monetary unit, numus. The state had also a gold coin, aureus, originally 8 g, gradually reduced to 7 g; this coin was equal to 25 denarii. Copper money had only a fractional function. See the section on Roman Finance, from Augustus to Aurelian, 14 bc–ad 275 in (Davies, 1994).
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14. Note the following observation of Ste. Croix: Given that the Roman Empire was to be stabilised and strengthened, without any fundamental change in its nature, it was fortunate indeed in most of its rulers from Diocletian to Theodosius I (284–395). What men could do, within their rights they did. Sometimes they appear in quite a heroic role. But, ironically enough, the very measures they took, necessary as they were if the system was to be maintained, helped to break up the empire, for the increases in the army and civil service involved the extraction of an increased surplus from the already overburdened peasantry. (Croix, 1981)
Chapter 3
Tolerant Ambience: India
S
â•… South Asia is topographically diverse, containing a range of economies which produce an astonishing variety of raw materials and manufactured items. During the 1st millennium bc, there was an increase in traffic and maritime trade across the Indian Ocean. Peninsular India, Sri Lanka and the Maldives were linked into an extensive coastal trading network that used ports along India’s west coast from Gujarat to the Malabar Coast.
Early Trade Contacts This trade led to a dramatic increase1 in the range of contacts among peoples across the ocean between the Middle East, South Asia and South East Asia from at least the 7th century bc. In part, this was due to the establishment of new states and empires, underpinned by large-scale agricultural systems in India and the Mesopotamian heartland of the Middle East. In the 6th century bc, under the Achaemenid Dynasty, the Persians extended the boundaries of the earlier Assyrian Period to incorporate new trade frontiers in Thrace on the eastern fringe of Europe, Anatolia, central Asia and the Indus Valley. During this period, the market places of the Indo-Gangetic plain and Sri Lanka were linked to those of the Middle East by merchants from the Persian heartland and from the Mediterranean. 39
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A complex network of overland and maritime trade routes linked previously isolated parts of India into a greater subcontinental economy, in which the agricultural wealth of the Indo-Gangetic plain and the tropical South and Sri Lanka were linked via the mineral-rich Deccan. In the Indo-Gangetic plain, urban life and long distance trade had flourished during the centuries of Persian power and Greek influence in the west, even as the centre of population and economic activity moved from the Indus Valley to the Ganges Valley. Trade links with the Persian Empire and central Asia were also consolidated during these centuries, as were maritime links with insular South East Asia. Political consolidation in South Asia and the Middle East went hand-in-hand with increasing economic activity and technological innovation (McPherson, 1993: 37). There is a consensus from archaeological findings that the period from the 7th to 5th century bc was a very decisive phase in the development of Indian trade and economy (Kulke and Rothermund, 1998: 49).
Urbanisation With the establishment of republics and kingdoms in northern India by about 600 bc, the details of Indian history began to emerge with greater certainty. From the numerous small tribal kingdoms ( janapada), 16 major ones (mahajanapada) emerged in the 5th century bc (Majumdar, 1951: Chapter 1). The rise of the mahajanapadas was directly connected with the emergence of the early urban centres of the Gangetic plains in the period after 600 bc. These urban centres grew around what had been villages specialising in particular crafts such as pottery, carpentry and cloth-weaving. Among the important indicators of the urban economy’s importance are the punch-marked coins
Chapter 3â•…Tolerant Ambienceâ•… 41
found in the Gangetic cities and the existence of standardised weights from the 5th century bc. Five of the six major cities in the central Gangetic plains were capitals of mahajanapadas: Rajagriha, (Maghada), Varanasi (Kasi), Kausambi (Vatsa) and Champa (Anga) (Kulke and Rothermund, 1998: 50). Growing urbanisation threw up new groups such as merchants and artisans who organised themselves into guilds, with each guild occupying a particular section of the town. The guilds at this stage were not the highly developed mercantile system that they were to become in the early centuries of the Christian Era (Thapar, 1966: Chapter 3). The services they provided were important to the ruling groups, whose aim was to gain access to the profits of trade and to the marketplace as a means of converting the agricultural produce that they gathered as taxes into luxury commodities and precious metals.
The Mauryas With the coming of the Mauryas at the end of the 4th century bc, the political complexity was simplified. Within the first 90 years of the dynasty, by the 3rd century bc, the largely diverse elements of the subcontinent were welded into an empire with an imperial vision that was to dominate the succeeding centuries of Indian political life. Land revenue was organised as the accepted source of revenue whose predictability through efficient collection created a feeling of fiscal security. Kautilya, who may be regarded as the theorist of the system, refers at length to the methods of tax collection and related problems. As in China during the later Han Dynasty (ad 25–220), the state attached great importance to irrigation, making arrangements for measuring and distributing it. Commercial enterprises, particularly in the coastal regions, came under government
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supervision and taxes were collected regularly. But economic activities other than agriculture were never discouraged. Arthasastra, Kautilya’s treatise on statecraft, describes in general terms the trade transacted in the international markets found on the coasts during these times and makes a distinction between internal and external commerce. For external commerce, a focal point was the Pattana, an emporium designated by local rulers as a legal centre for the exchange of goods that arrived by boat or caravan. It was administered by royal officials, coordinated by a supervisor whose chief function was to keep an eye on merchants and artisans so that they did not cheat their customers. The supervisor, who also set a fair price, was subordinate to a ‘commissioner of ports’, who framed regulations for the port town (Hall, 1985: 33). A Chinese record, a Han history text dating from ad 125, describes that profit from trade with the north-west coast of India was tenfold of what could be earned elsewhere, but honest (Ibid.: 36). The Mauryan economy came under considerable stress because of the need for vast revenues to maintain the army and pay the salaries of officials and settlements on newly cleared land. Although it was a flourishing and expanding economy in its early stages, its revenue stream soon became insufficient to sustain the empire. There is evidence that the later Mauryan kings debased the silver coinage, indicating the pressure on normal channels of revenue that was required for the maintenance of the empire (Thapar, 1996: 89). The bureaucracy was organised on the basis of personal loyalty to the king and a change of king meant a realignment of loyalty or a change of officials. This was completely different from what had come to prevail in China. A well organised and formal bureaucratic structure that came to be established there possibly explains the longer survival of the Chinese dynasties during the same period (Ibid.).
Chapter 3â•…Tolerant Ambienceâ•… 43
By 180 bc, the first experiment in imperial government had ended. The future patterns of imperial governments were different. In later periods, officials and landowners became intermediaries between the king and his subjects, with much of the power of the kings delegated to them, making it increasingly difficult to collect revenue to support a vast administrative apparatus.
Extension of Maritime Links Underlying the complex political events, there was one factor that gave continuity and consistency to this period, and that was trade. There was life beyond politics and powerful economic forces created an expanding economic trade network of the Indian Ocean. Indian merchants and seafarers responded to the rise in domestic and foreign interest by establishing communities in the Middle East and Southeast Asia. Westward from India, they provided an economic link between great sophisticated civilisations, whereas, eastward from India they provided a link for both economic and cultural interaction between an established civilisation and a range of societies undergoing rapid economic and social change. Throughout South East Asia, societies moving towards the formation of their first urban centers and states were continuously exposed to merchants drawn from the sophisticated civilisation of India. Such merchants were not the vanguard of a great Indian migration into Southeast Asia, but were the precursors of a movement of literate and skilled Indians to ports and royal cities in Southeast Asia in search of profit and employment. In this period, the seas of South East Asia became an extension of the maritime world of the Indian Ocean and not a half
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way house to China.2 (Chinese maritime contact with South East Asia, as distinct from Chinese maritime exploration, was relatively limited until the 10th century ad, and the first substantial external contacts the peoples of South East Asia had, were with India.3) Maritime trade was a significant factor in political life in central and southern India and Sri Lanka. While agriculture was the main prop underpinning all states in South Asia, in parts of the subcontinent and Sri Lanka, maritime trade generated revenue through levies and duties on markets and harbours. New coastal urban centers such as Broach (Barugaza), Cragnanore (Mouziris) and Arikamedu (Podouke) developed during the last centuries of the first millennium bc. The fortunes of these towns depended on maritime trade, not on agricultural and craft activities (McPherson, 1993: 54). The sea links were a stimulus to trade, with local chiefs in South India and South East Asia developing their coastal ports to serve the needs of the international trading community. They generated income from various port cesses and were able to transform this income into political advantage. For instance, a local leader with an income sufficiently higher than that of his fellow chiefs could expand his base by enlisting the support of rival chiefs and their followers. This support could then be used to protect or provision of the port, to police the sea channels against piracy, stabilise the hinterland, guarantee the flow of food to visiting merchants or assure the delivery of local products desired by traders. Followers thus became the facilitators of international trade through direct redistribution of profits (Hall, 1985: 47). In this way, access to the sea and the creation of coastal markets and harbours was one of the determining factors in the formation of many coastal states in India, most particularly along the Malabar, Coromandel and Orissa coasts
Chapter 3â•…Tolerant Ambienceâ•… 45
and in Sri Lanka, where the prosperity of the great state of Anuradhapura was dependent upon trade through the port at Mantai and control of irrigation systems across northern Sri Lanka.
Trade Unifies the Sub-continental Economy Following the decline of the Mauryan Empire in the 2nd century bc, several powerful states emerged in the Deccan, the most notable being that ruled by the Satavahana Dynasty (50 bc–ad 225), which took a keen interest in maritime trade via the Arabian Sea and the Bay of Bengal from ports in the east and west coast of India. (These ports were listed in The Periplus4 and were visited by ships from Egypt and the Persian Gulf). During this period, the early Chola kings (1st to 4th centuries ad) gained access to both the east and the west coasts of the Southern tip of the peninsula. This proved to be remarkably useful, connecting ports on both coasts, the overland route and the sea coasts as well from the east and west, as was the case with Roman trade (Thapar, 1966: 104). The discovery and excavation of the Arikamedu site near Pondicherry on the South Eastern coast of India gives proof of the existence of an expanding maritime trade network connecting east and west. Reaching its zenith during ad 23–96, Arikamedu was an entrepoint, complete with harbour, warehouses and merchant residences (Hall, 1985: 28). For the Tamils, this was the period of evolution from tribal chieftainships to kingdoms and to a more complex politico-economic structure, impacted significantly by the Aryan culture, which brought with it the familiar pattern of hereditary kings, taxation systems and an administrative culture.
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The emergence of Satavahana power, straddling the north-
♦
♦
This absorption of South India into the commercial development of the subcontinent has been recognised by historians as a very significant development towards the formation and functioning of the subcontinent as a single economic unity.
ern Deccan, provided lines of communication between the north and the South, and trade within the subcontinent increased. Roman trade with the east and the west coasts and its concentration in the South helped in ending the isolation of the Southern kingdoms. The word used in the Tamil records for a citizen of the Roman empire is yavana, the iden(Thapar, 1966: 105)
♦
♦
tical world which early Sanskrit sources use for the Greeks.
The whole of India was by now criss-crossed by trade routes, some of which continued further into central Asia and western Asia. Indian traders were establishing trading stations and merchant colonies in places like Kashgar, Yarkand, Khotan, Miran, Kuchi, Qara-shahr and Turfan, remote regions that were opened up not only by Indian merchants but also by Buddhist missionaries (Thapar, 1966: 107). Across the seas also, it was the merchant communities from the South Indian coastal towns who explored the Golden Islands (Java, Sumatra and Bali) to make profits on spices sold to the Romans. Through all the political vicissitudes of the different political dynasties—the Sungas, Satavahanas, Indo-Greeks, Sakas, Kushans, Cheras and Cholas—the merchant continued to grow from strength to strength. We can do no better than give the following quote from the historian Romila Thapar (p. 109) capturing the extensive trading activities that marked this period of Indian civilisation:
The Mauryan empire had opened up the sub-continent by
♦
♦
Chapter 3â•…Tolerant Ambienceâ•… 47
building roads and attempting to develop a uniform system of administration. The occupation of northwest India by nonIndian peoples was advantageous to the merchant, since it led to trade with regions which had as yet been untapped. The Indo-Greek kings encouraged contact with western Asia and the Mediterranean world. The Sakas, Parthians and the Kushans brought central Asia into the orbit of the Indian merchant and this in turn led to trade with China. The Roman demand for spices and similar luxuries took Indian traders to South East Asia and brought Roman traders to Southern and western India. Through all India, the merchant community prospered, as is evident from inscriptions, from their donations and charities, and from the literature of the time. Not surprisingly, the religions supported by the merchants, Buddhism and Jainism, saw their heyday during these centuries. However this is not to suggest that economic activity was limited to trade, or that agriculture had decreased; the latter continbrought those associated with commerce to the fore.
♦
♦
ued to yield revenue. But the boom in mercantile activity had
Religion and Trade Buddhism and Jainism evolved in a period of tremendous economic and intellectual ferment in India. In the Ganges valley, the emergence of cities and the first states, challenges to old forms of religion and social organisation by new elites and newly emerging social groups such as merchants, led to a questioning of traditional beliefs and social organisation. In response to the perceived shortcomings of early Hinduism, new
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philosophies proposed new ideas and means for sustaining intellectual, spiritual and social life, particularly in the urban areas. Within Hinduism there were movements to develop traditional beliefs and practices, but for many the answer was to seek new forms of salvation. The 1st century ad or bc marked a great age of Buddhism in South Asia. Buddhism did not view commercial activity as negatively, as did Hindu tradition. Its spread during this time was tied to the evolution of the new Mahayana Buddhist School, which can be viewed as a response to a dynamic and expanding world—a world intimately connected to commerce. Under the patronage of rich Indian merchants, Buddhist monks who instructed the lay community split with the monks of the Teravada School, who practised religion in the seclusion of monasteries (Hall, 1985: 37). In Buddhist tales ( Jatakas), the pursuit of wealth, as long as it was not accomplished at the expense of others, was not seen as evil but was considered natural to man. Indian Ocean seamen were particularly devoted to Buddha Dipankara, the Calmer of the Waters. Jainism spread rapidly among the trading community. The emphasis on non-violence prevented Jains from becoming farmers, since cultivation involved killing of insects and pests; it also excluded crafts endangering the life of other creatures. Trade and commerce were possible occupations and the encouragement of frugality in Jainism coincided with a similar sentiment in commercial activity. The strict limitation of private property enforced by the Jains was interpreted to mean landed property. The Jains specialised in conducting the exchange of manufactured goods and acting as middlemen, confining themselves to financial transactions. Thus, Jainism came to be associated with the spread of urban culture. The west coast provided maritime commerce, with the Jains playing money-lenders while others voyaged overseas with the merchandise.
Chapter 3â•…Tolerant Ambienceâ•… 49
Gupta Dynasty After the collapse of the Mauryan Empire and throughout the period from 200 bc to ad 200, India was politically fragmented till the rise of the Gupta Empire which dominated northern India between about ad 320 and ad 550. This was always a powerful state because of its control over important mineral resources, especially iron, and its ability to dominate the key trade routes along the valley, especially those to northwest India and thereafter into central Asia. Indian ships were now regularly traversing the Arabian Sea, the Indian Ocean and China Seas. Guilds continued as the major institution in the manufacture of goods and in commercial enterprise. They remained almost autonomous in their internal organisation, the government respecting their laws (Thapar, 1966: 147). The laws were generally drafted by a larger body, the corporation of guilds, of which each guild was a member. The Buddhist Church or the Sangha was by now rich enough to participate in commercial activities. The close association of Buddhism with the mercantile community must have encouraged the Sangha to invest in commerce. In certain cases, the Sangha acted as a banker and loaned money on interest (Ibid.). Jainism remained unchanged and continued to be supported by the merchant communities of western India. The Guptas faced a similar crisis in resources as the Mauryas. The maintenance of an imperial façade must have resulted in a pressure on the economy. The later Gupta coinage indicates an economic crisis. Revenue came mainly from the land, commercial activities no longer providing as large an income as they had done earlier. Roman trade declined after the 3rd century ad and with the Hun Invasion of the Roman Empire, it came to an end. Indian merchants meanwhile had begun to rely more heavily on the South East Asian trade. The commercial prosperity of the
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Gupta era was the concluding phase of the economic momentum which began in the preceding period (Thapar, 1966: 147). With the passing of the power and influence of the Guptas and their immediate successors in northern India, the centre of interest shifts Southwards again to the western Deccan and even further South to Tamilnadu. The Pallava Period in South India saw the culmination of what had been a gradual process of assimilation of Aryan institutions. Since there were no large areas under cultivation on a scale as vast as in the Ganges plain, the Pallavas and the Chalukyas had a limited income from land. Mercantile activity had not developed sufficiently to make a substantial contribution to the economy. Nonetheless, the Pallavas maintained a navy to assist in the maritime trade with South East Asia, where by now there were three major kingdoms: Kambuja (Cambodia), Champa (Annam) and Shrivijay (the Southern Malay Peninsula and Sumatra) which were in close contact with India, with South Indian merchants in particular travelling out in search of trade. On the west coast, the initiative in the trade with the Occident was gradually passing into the hands of the foreign traders settled along the coast, mainly the Arabs. Indian traders were becoming suppliers of goods to foreign countries, and communication with the West became indirect, via the Arabs and limited to trade alone. With South East Asia, the continuity of cultural contacts increased, with Pallava architectural styles and Tamil script extensively used among the local royalty (Thapar, 1966: 179–80).
A Tradition Set During the centuries immediately preceding and following the beginning of the Christian Era, India set a tradition of unique relationships between polity and the different actors involved in
Chapter 3â•…Tolerant Ambienceâ•… 51
the creation of wealth. Being mainly a land-based region with a long coastal line, the different polities, empires or local rulers, had been always pragmatic in tapping both these sources for their revenue needs. Principles and methods of land revenue collection were clearly set out and institutionalised. The traditions set in this regard by the Mauryan and Gupta dynasties were followed by the polities in the successive centuries. Autonomy of trade was respected and foreign merchants given safeguards. Trade expanded through a culture of tolerance but never by means of warfare.
Notes 1. It was round about this time that the secrets of the monsoon winds were unravelled in the Indian Ocean. The cycles of the monsoons provided the basic rhythms of long distance voyaging across the Indian Ocean. 2. Once trade along the Silk Road became more dangerous and expensive in the 5th and 6th centuries
ad,
then the sea route to China via South
East Asia became an attraction in itself and the seas of the South East Asia assumed the role of linkage point between the Indian and Pacific Oceans. 3. It was not until the 6th century, under the Sui Dynasty (581–618 ad) that the Chinese began to explore the South China Sea systematically, and not until three centuries later that they became a major maritime mercantile force in the area. 4. The Periplus of the Erythraean Sea is an Egyptian Romano-Greek merchants’ guide to the western Indian Ocean compiled between
ad
40 and 75 by an
anonymous sailor who had actually made the voyage from Rome to the ports of western India.
Chapter 4
Resource Raising: Uniqueness of China
I
â•… Imperial dynasts through history have been generally skilled in the use of war in state formation and maintenance. Empires were not created by the cultivation of virtue, any cultural orientation to political order or ideological pleas for ethnic unity; they were created by decades of war and political strife.1 Chinese history was, among other things, a long struggle to attain—and recurring to regain—political unity; the classic cycle as for a strong man to win control of all China by military means and to pass his leadership on to his eldest son. The vigour of the founding emperor and often the consolidating successes of his son, established a pattern of dynastic institutions that stabilised the nation and perpetuated peace and prosperity for generations after them. In setting up new institutions and strengthening the existing ones, Chinese rulers had to address two basic issues of governance. One—and this was a recurrent issue—the tension between the centralisation of authority and the forces of regional autonomy. There was nothing like the feudal European nobility, who, at least originally, owed their king military service (Lorge, 2005: 2). What Chinese dynasts did better than any south Asian, Middle Eastern or (would be) European conquerors was to 52
Chapter 4â•…Resource Raisingâ•… 53
centralise the control of military means under a single ruler, shutting out local strongmen. To do this, the dynasts had to have, at their command instruments of organised violence that could be applied towards political goals. The targets of violence were almost exclusively the power elite. Second, the logistics of resource-raising for supporting military ambitions demanded a high order of governance. The main wealth-generating sector that the empire could draw upon was agriculture. Commerce as a powerful wealth-generating sector was left virtually untapped because of a mix of cultural inhibition and a fear that it could develop into an autonomous power centre. However, successive dynasties remained far too pre-occupied with their military ventures to ensure that their bureaucratic institutions were delivering what was expected of them and a series of disastrous socio-economic events affecting the peasant community would invariably weaken the central authority towards the end of each cycle. Domestic rebels or invaders from the north fragmented the state and sparked chaotic civil wars. Eventually one contender would put down all others and establish a successor dynasty. This chapter discusses how two dynasties, stretching for about 1,200 years beginning with the rise of the first empire in 221 bc (roughly from the later phase of Republican Rome to the fall of the Roman Empire and the rise and decline of the Arab Empire) struggled to extract surplus from agriculture and commerce. Though they failed to keep a balance between the resources required for their military ventures and the resources that could be raised from agriculture and commerce, their policies brought about certain fundamental institutional changes that had a permanent impact.
54â•… Part Iâ•… The Making and Unmaking of Empires
Society and Economy The first empire came to be formally proclaimed in 221 bc, with King Zeng unifying the former Zhou kingdoms (giving it the name of Qin) and embarking on a series of changes that were to set the character of the Chinese society. Early agricultural villages and communities of the central plain of China, around the Wei and Yellow rivers, had by then evolved into a complex civilisation. The process of evolution over the previous millennium or so was remarkably similar to that elsewhere in the world—growing appropriation of agricultural surplus by a religious, military and power elite that was capable of mobilising and directing the rest of society. In the regions brought under control, the first empire broke the power of indigenous aristocracies by removing the peasants from their communities and setting them up as individual farmers. A free peasantry that owed taxes and military service to the state became the foundation of the empire, the source of the state’s money and manpower.2 Although large estates and landlords survived, China developed in a completely different way from south-west Asia, the Mediterranean and Europe. Most land was privately owned and could be freely transferred. By the 2nd century bc, property rights were firmly established (Ponting, 2000: 19). China became a country of free peasants working independently on their own land and with a high degree of mobility. At no time did the Chinese peasants become serfs bound to the land and to their owners who could sell them as happened in Europe. China had also emerged as a highly dynamic society and economy. The first great Chinese historian, Ssu-ma-Ch’en, gives this picture of the Chinese state and economy:
There must be farmers to produce food, men to extract the
♦
♦
Chapter 4â•…Resource Raisingâ•… 55
wealth of mountains and marshes, artisans to produce these things, and merchants to circulate them. There is no need to wait for government orders; each man will play his part, doing his best to get what he desires. So cheap goods will go where they fetch more, expensive goods will make men search for cheap ones. When all work willingly at their trades, just as water flows ceaselessly down hill day and night, things will appear unsought and people will produce them without being with nature. (Quoted by Ponting, 2000: 199)
♦
♦
asked. For clearly this accords with the way and is in keeping
Written about 2,000 years before Adam Smith, it is a description of a market economy: the metaphor of water flowing is like Smith’s ‘invisible hand’. Amid a multitude of prevailing views and ideas, the first ruler, to rid the country of all alternative viewpoints, came down firmly on the side of the legalists, who believed that a society had to be governed by strong laws and a clear system of rewards and punishment. The ruler had to be absolute and his subordinates and officials must have their functions defined through objectives and binding rules. Other intellectual pursuits were of no value to him. Confucius (551–479 bc) and other scholars of his day, living in a period of dynastic decline and disorder, were concerned primarily with the means by which societal stability and order could be restored; the ideas of Confucius collected by his disciples called for a return to past structures and practices of ideal governance: ethical behaviour and a strict observance of traditional rules and ceremonies. Another school of Taoism (whose philosophy is derived from statements ascribed to Lao Tzu, an older contemporary of Confucius) asserted that the key
56â•… Part Iâ•… The Making and Unmaking of Empires
to all meaning was to be found in the workings of the natural world; its aim was simplicity, a closeness to the rhythm of natural life and a concentration of direct experience rather than thought or the written word. These intellectual duels of the time form an important philosophical base for the next 2,000 years of Chinese ideas about society and nature.
Surplus from Land The state was proactive in the creation of facilities like irrigation that would improve farm productivity. From the later Han times, (ad 25–220) large valley-irrigation schemes were brought under the control of state officials. The canal network, especially the Great Canal linking the Yangtze and Hwang Ho Rivers, was built and administered by the state. Flood defense systems were often extensive, and were built and maintained by the state. These state interventions, managed by a bureaucracy concerned with tolls and taxes, enlarged the resource raising capacity of the state from land and waterways (Mann, 1986: 95). But exclusive reliance on land had its limitations. Improvements in military techniques, particularly the introduction of the crossbow and mounted archery, increased the cost of warfare substantially (Elvin, 1973: 27). The conscription of peasants for training and service for establishing military colonies for dealing with frontier defenses and the financing of the imperial administration could not go on indefinitely: they were left exhausted and this affected farming. Food production was becoming inadequate for the subsistence needs of the population. The pressure of taxation on the independent peasants became extremely heavy following the expansionary policy adopted during the reign of Emperor Wu of the Han (140–85 bc).3 They were driven to seek the protection of patrons, the owners of
Chapter 4â•…Resource Raisingâ•… 57
huge properties, as they were able to resist most of the demands made on them by local government authority. (The phenomenon of latifundia or landed estates arose in Rome under more or less similar circumstances.) These problems faced by the empire in extracting surplus from the land without affecting the morale of the peasantry forced it to look for surplus from other wealth-generating activities. From a remarkably early time, the Chinese traded on some basis with the other developing peoples of continental east Asia. Money became a significant factor in the expanding Chinese economy. By the late Zhou years (770–256 bc), money was the basis on which large-scale interregional commerce developed. During the Han Period, China had developed increasing maritime and overland trade with India and Roman Orient. The caravan route across central Asia came to be known as the ‘Silk Route’.
Surplus from Commerce Commerce flourished in these times in spite of, not because of, government policies. The combination of Confucian and Legalistic attitudes that served as the dominant state ideology throughout the early imperial age was overwhelmingly anticommercial. To Confucians, the profit motive of merchant life corroded personal morality and impeded social harmony. To Legalists, mercantile activities were basically non-productive, if not counter-productive, did not increase state wealth and power and drained into private hands the economic surpluses that the state should rightfully control. Governments of the early imperial age therefore considered private commerce something to be watched with care, discouraged and suppressed, if it thrived too flagrantly (Hucker, 1975: 187). The Han rulers were distrustful
58â•… Part Iâ•… The Making and Unmaking of Empires
of independent merchants. Although a unified polity existed in the rhetorical sense, the ruler was always concerned about the fragmentation of the empire. Commercial networks operated independently; they did not get involved with any political ties in their dealings with other kingdoms and states in South Asia, Europe or the Middle East. They associated themselves with dynasties and concepts of transcendent ‘Chineseness’, but this did not prevent the majority of them from abandoning one dynasty for another and placing their own interests above their government’s (Lorge, 2005: 182). From the beginning of the early imperial age, merchants came to be subjected to heavy direct and indirect taxes. New taxes were imposed on business and on the strings of copper cash held by the merchants. Violators were thrown into prison or had their property impounded. In this way merchants of the middle grade and above were ruined. By the end of the 2nd century bc, the state had itself become the largest landowner (Elvin). (Something similar had happened in Rome with the confiscation of the Julio-Claudian emperors in the 1st century ad.) On many special occasions, wealthy merchants were called upon to make large contributions to the state coffers. During the 2nd century bc, in the reign of Han Wu-ti, the laws were enforced so stringently that the imperial treasury was enriched and the merchant class all but ruined (Hucker, 1975: 189). Second, in a more fundamental manifestation of antimercantile attitudes, merchants were barred from certain money-making ventures including shipyards, armories and armament works, military equipment and weapons. Salt, iron and wine became state monopolies to shut out the merchant class from some of the main avenues of wealth. Third, the empire imposed controls on trade. One was a granary system intended to stabilise supplies and prices of market
Chapter 4â•…Resource Raisingâ•… 59
commodities, particularly grain, by buying up surplus whenever available and releasing them when market supply was inadequate, making private speculation unprofitable. The public outrage against flagrant profiteering in these products happened to coincide with the state’s need for revenues. The emperor’s fiscal administrators—themselves recruited from the mercantile class despite the dynasty’s prohibitions against merchants holding official positions—brought together isolated precedents from pre-Han experiments into a sophisticated complex of market controls that had no counterparts outside China until state socialism and welfare state practices developed in recent times (Hucker, 1975: 188).
Reliance on Local Oligarchies for War Resources Resource-raising from the commercial class had nearly reached its limit. But while the empire did all it could to help raise agricultural productivity, it had no proactive policy to encourage commerce. On the contrary, the empire did all it could to stifle commerce within the empire. With the peasantry drying up as a source of troops, the later Hans had to rely more or less on voluntary troops recruited locally by the magnate through personal influence. Public land was redistributed among peasants with the aim of creating support bases among small peasants and loyal officials, but a series of famines and a change in the course of Yellow River upset this strategy. At the same time, tax revenues became increasingly difficult to exact from the powerful land holding families. With the connivance of the agricultural officials, they kept evading their obligations to the state. But it is to these magnates that the Han Dynasty had to turn; a coalition
60â•… Part Iâ•… The Making and Unmaking of Empires
The houses of the powerful are compounds where several
♦
♦
of magnates under a collateral member of the imperial house (who had formerly been a landowner) rescued the regime. The debt which the Han Dynasty owed to the proprietors of the great estates made it all but impossible for the state to assert its will. These internal developments had a disastrous effect on the defense of the empire, starved as it was of money and manpower. Most of the free peasantry gradually fell into a state of dependency and a quasi-feudal system emerged in which local strongmen controlled most of the economic and military power (Elvin, 1973: 32–33). The classic description of the new social order, at the beginning of the 3rd century ad, as given by Ghung- ch’ang Tung, has been quoted by Mark Elvin (1973: 33):
hundreds of ridgebeams are linked together. Their fertile fields fill the countryside. Their slaves throng in thousands and their military dependents can be counted in tens of thousands. Their boats, carts, and merchants are spread throughout the four quarters. Their stocks of goods held back for speculation fill up the principal cities. Their great mansions cannot contain their precious stones and treasures. The upland valleys cannot hold their horses, cattle, sheep and swine. Their elegant Singing girls and courtesans are lined up in their deep halls.
♦
♦
apartments are full of seductive lads and lovely concubines.
An obvious and important parallel with the roughly contemporary appearance of a similar class in Rome. From these independent economic bases, emerged generals who became virtual war-lords. Eventually a power sharing arrangement emerged among three generals who commanded the north, Sichuan and south, with each region becoming a common
Chapter 4â•…Resource Raisingâ•… 61
focus of power throughout China’s history. This era, known as the Three Kingdoms, among whom there was constant warfare, was followed by another called the Six Dynasties (ad 222–589). During this time not only was China seriously divided internally, but it also faced an increased military threat from northern nomadic peoples whom it had earlier conquered. Defeated and incorporated at times into the Chinese military system, these tribes were quick to perceive the weaknesses of the Northern Kingdom, and by ad 316 they over-ran it. In response, the south became more militarised under local defense family groups, the most powerful of which attempted to rule a ‘Southern Kingdom’ from Nanjing. The great Han Dynasty, representing the early flowering of Chinese civilisation, proved unable to adjust to the structural changes and emergent centers of power that its own development had fostered (Borthwick, 1992: 29).
Rise of the Tang Dynasty Unlike what happened in the Imperial Rome where decay of the empire began to accelerate, China began to reconstitute itself as a resurgent and unified society. The ‘barbarians’ who had invaded the northern region were gradually absorbed into Chinese culture and little was left to distinguish them from it. By ad 589, during the reign of Emperor Wen of the Sui, a general of mixed ‘barbarian’ and Chinese blood, China had become re-unified under a single administration, the process taking almost two-and-a-half centuries. Wen made a remarkable contribution to social cohesiveness and started building a fortification system, providing the successor Tangs with most of the institutional foundation for their supremely successful dynasty.
62â•… Part Iâ•… The Making and Unmaking of Empires
…long period of Sino-barbarian synthesis [that brought with
♦
♦
The Tang Dynasty (ad 618–907) was to last for nearly three centuries, marking the beginning, as Mark Elvin observes:
it] institutions in the equitable field system and the divisional militia which were designed to de-feudalise society, in the sense of ending the fragmentation of authority, controlling the of free peasant small holders. (Elvin, 1973: 54)
♦
♦
aristocracy and replacing the great estates with communities
The period from ad 626 to 683 marks the greatest period of military expansion in Chinese history; the regime was successful in the conduct and prosecution of war as the free peasantry was the backbone of the army. The Tang modelled their system on that of the Northern Zhou (who had militia units defending the frontier) and extended it to the whole empire, mobilising the peasants as required. In the first Tang Period, the tenure system was the equalfield system that was continued down from the Sui Period. Big estates were divided into plots and linked to the tax systems, which was assessed not on land via the landlord but on the individual peasant, again reinforcing the cause of a free peasantry. The exact area given to each peasant varied according to intensity of agriculture. This was possible because a highly efficient bureaucracy was in place4 to carry out an exact census of population and survey the productivity of land. The peasant had to pay three taxes—tsu on cereals, tiao on silk and hemp and yung or labour for the state. The problem with this taxation system was that the property rights of the gentry and officials were less restricted than that of the peasantry. The gentry acquired its property either as a gift from an emperor (in which case it was hereditary and tax-free) or as a benefice, tax-free as well together
Chapter 4â•…Resource Raisingâ•… 63
with the office (Eisenstadt, 1969: 37). Also, the equal holdings system broke down because of administrative faults and the rapacity of officials who wanted to extend their own ownership and privileges and so were lukewarm to enforce laws limiting their own privileges. The level of exemptions for the aristocracy, bureaucracy and religious institutions meant that the bulk of the burden fell on the peasantry (Ponting, 2000: 318). In consequence, in the 8th century, peasants started leaving their land and migrating from province to province. The government made several attempts to restore their control over population registration and disposal of lands, but the process of migration was irreversible (Smith, 1976: 9). The breakdown of the household registration system and equitable field arrangements led to the disappearance of the divisional militia that was drawn from the peasantry. Sometime around ad 674, the militia-men lost their immunity from taxation and the creation of new forces of palace guards reduced their social status. In consequence, important persons who were liable for enrolment acquired forged ordination certificates and passed themselves off as Buddhist monks or Taoist priests. Sometimes they paid heavily for substitutes to take their places. The militia lost elite character, and most militia-men came to be listed as mercenaries. With the formal winding up of the whole system in ad 749, there was a rapid growth of frontier armies under personal commanders, putting the central government in a vulnerable position.5 China entered into a resource raising crisis as the state struggled with its more powerful subjects over the revenues required for the conduct and prosecution of war. Many of the poor peasants who had managed to cling on to their lands were now forced, either by economic pressures or by the desire for the protection of a powerful patron, to accept a subordinate
64â•… Part Iâ•… The Making and Unmaking of Empires
Our institutions have now become ineffective and confused.
♦
♦
position as a tenant of a local landlord. Thus anyone with money or power could build up estates for himself; great landholdings became a normal feature of rural society (Smith, 1976: 8–12). Towards the end of the 8th century ad, the famous statesman Lu Chih wrote:
The drawing of boundaries between landholdings has fallen into decay. ... There are no longer limits placed on the holdings of land. ...The poor do not have enough land to stand dependents. (Elvin, 1973: 67)
♦
♦
on, but depend on the powerful, serving them as their private
The weakening of the central authority had an unintended impact: commerce grew and became progressively acceptable to the government. With the fragmentation and dispersal of political authority among the Tang provinces, their capitals grew into regional metropolises, with a great concentration of officials and with a high level of commercial activity. Chinese settlements in the south, which had gone on steadily during the Hun Period, were now accelerated by a great number of refugees, both dispossessed peasants looking for land and members of the official classes and wealthy members of great families who fled to the south with their retainers and clients in search of a new territorial base. The great city of Yangchow, where the canal joined the Yangtze, became the commercial metropolis of the South and other cities also boomed. Unlike the vast capital cities of the former times, they were not predominantly administrative centers, although each was in fact a provincial capital. They were primarily commercial cities at the centre of a network of trade and commerce that spread out through the country towns, with their official markets, to the ever-increasing number of small
Chapter 4â•…Resource Raisingâ•… 65
rural market centers and periodical markets into which China was broken up. Until Tang times, there had been very few urban settlements, but now they grew up great numbers. While villages were dependent on local administrative centers, they also became a part of an economic district centered on a local market town. These units proved remarkably long lived. The repressive measures on commercial community by which the successive earlier regimes had attempted to control the merchants now broke down. In the capital cities, old enclosed markets and walls could no longer be maintained. The government’s attitude that merchants were a potential source of mischief changed to a realisation that they were a source of revenue (Twitchett, 1973: 14). In the years following An Lu-shan’s rebellion (ad 755), the government had adopted the monopoly of salt production as a major source of revenue. By strictly controlling salt production and selling salt to merchant distributors with the addition of a high surcharge on the costs of production, the government was able to collect tax indirectly, through merchants, even from the provinces, where its authority was at best nominal. The policy led on to attempts by government to monopolise or control directly a wide variety of profitable trades and industries. Salt, wine, tea, alum and building timber were all at one time or other subject to such government intervention. In later times, mining was also placed frequently under government monopoly or control. The government also began to devise taxes for deriving revenue from the wealthy commercial community, which under the old tax and labour service system had escaped very lightly. Ad valorem taxes on sales, transit taxes and percentage levies on all transactions became important sources of revenue. At the same time, the merchant community began to develop institutions and an identity of its own. The existing associations
66â•… Part Iâ•… The Making and Unmaking of Empires
of merchants dealing in the same trade and interacting with the local authorities had little power. But these associations gradually became more and more powerful. Although they came to play an important part in the organisation of urban life, they remained politically powerless. No Chinese government ever granted the guild any charter or freedom. It was used as an agent of government, to collect taxes and help regulate trade. But it was accorded no privileges in return. A new sophisticated urban class grew up, without any sense of egalitarianism that made it blind to the rot that had set in. Wealth and political privilege remained the monopolies of a small group of estate-owning lineages or clans. The Tang Empire split up in ad 906. North of the Yangtze, five dynasties came and went. To its south, separate states were formed. China seemed to be taking a direction taken by western Europe after the fall of the Rome— but there was a difference. By this point in China’s history, its preceding achievements in culture, governance and technology stood like a mountain absorbing the force of a storm. Within a few short decades, chaos subsided, and the Chinese Empire was largely reunited under the stable, relatively gentle, centralised authority of the Sung Dynasty (ad 960–1280).
Notes 1. Chronology of the major dynasties in Chinese history: Zhou, 1122–256 bc;
Han, 202
bc–ad
220–280; Chin, Sui
ad
ad
9; Later Han,
ad
25–220; Three Kingdoms Era,
226–316; Era of North-South Division,
518–618; T’ang
ad
960–1127; Southern Sung
618–907; Five Dynasties ad
1368–1644; Ch’ing (Manchu)
1127–1279; Yüan ad
ad
ad
ad
316–589;
907–979; Sung
ad
1264–1368; Ming
ad
ad
1644–1912; Republic of Chiba,
ad
1912–
1949; People’s Republic of China 1949–(Hucker, Appendix A, 434–35). 2. Every peasant family had to pay four taxes. A land tax paid at a very low level of one-thirtieth of the notional crop, a poll tax paid by men and
Chapter 4â•…Resource Raisingâ•… 67
women, a property tax (instituted in 142
bc)
levied at 1.2 per cent of all
property and all trading profits and a tax for exemption from military duty (Ponting, 2000: 234). All taxes had to be paid in cash. 3. In the north and north east, Manchuria came under occupation in 128 bc, in three years thereafter, most of the Korean Peninsula was conquered and the north, together with the eastern coast, was controlled for the next 400 years. To settle in these regions, the Han operated a system of state sponsored colonisation (Borthwick, 1992). 4. The Sui had already established, though on a limited scale, a system of state examination based on a curriculum consisting largely of Confucian learning. The Tang greatly expanded the system and began increasingly to use the examinations as a means of recruiting an elite within the bureaucracy. One of the major aims of this system of recruitment was to offset the dominance that aristocratic families exercised in the imperial court (Twitchett, 1973: 7). 5. From the beginning of the Tang dynasty there were cases of Turkish chieftains surrendering to the Tang and becoming generals in its armies. With the formal abolition in ad 737 of the practice of sending militiamen on tours of duty and the enlistment of permanent frontier armies in the Chinese defence forces, the frontier armies became very numerous. At first the overall command of these armies was kept in Chinese hands, but in ad
742 An Lu-shan was given an independent command in southern
Manchuria and in ad 747 the emperor was persuaded to adopt a deliberate policy of using non-Chinese as Military Governors on grounds that they were better soldiers and had no political ambitions or factional connections at court. It was this disastrous policy more than anything else that set the stage for rebellion by An Lu-shan. This was the beginning of chronic militarism in late Tang China (Pulleyblank et al. 1976: 33–60; Smith, 1976).
Chapter 5
An Intimidating Colossus: The Arab Miracle
I
â•… If the ancient world was dominated by the Greeks, Romans, Indians and the Chinese, the Middle Ages were dominated by the Arabs. They made a part of the world map—most of the Middle East and the whole of north Africa—indelibly their own. Most of the people living in this region today speak Arabic and call themselves Arab in one sense or another. At its peak in the second half of the first millennium, the Arab Empire stretched from Spain to China and was twice as large as the Roman Empire had been; through trade and cultural expansion, the Arabs carried their Muslim faith far beyond their borders, into the heart of Asia, down into the South Eastern tip of Malaysia and into the islands of Indonesia. If we look at the sweep of history covering the great civilisations of the world, the Arab Empire served as the bridge between classical antiquity and the European Renaissance. What made it all happen? How could a group of Arabs with no skills, experience or tradition of institutional governance succeed in creating an empire in just over a hundred years? Was it the messianic vision to spread the new religion beyond the homeland, or was it an odyssey to search for material opportunities beyond their desert? Whatever may have motivated them, they displayed a pragmatic grasp of ground realities as conquerors. 68
Chapter 5â•…An Intimidating Colossusâ•… 69
Beginnings At the time when the Arab Muslims were appearing on the scene, the Middle East was divided between the two great empires of Byzantium and Persia, which had been at odds with each other for three centuries. The series of wars in the first quarter of the 7th century ended in a Byzantine victory, with both parties exhausted and weakened: the Persians by feudal disintegration and the Byzantine Empire by strife between the Eastern churches. The Arabs, setting their sights on the countries of the Fertile Crescent—Mesopotamia, Syria and Egypt—embarked on their great campaign of conquest, a new stage in a series of migratory movements by Arab tribes.1 The leaders of the first group of invaders, the Qurayshites from Mecca, were not out to propagate the new religion. By profession, they were traders of the southern ports of Yemen and Oman as well as the masters of the caravan trade. Expansion of trade was their primary interest; the new religion came in handy as a great unifying and psychological force welding a group of temperamental tribes into a disciplined force. The new religion became the symbol of unity and victory, though the driving force of conquest was worldly rather than religious, the leaders of the troops were men with a perfunctory and utilitarian interest in religion. The armies of Islam started with the Arab element but, over a century from mid-7th to mid-8th, with contingents raised by them from subject peoples, they swept across central Asia, north Africa, Spain and Sicily. Running from the middle of the 7th to the middle of the 11th century was the Golden Age of the Muslim World. Over this span of 300 years (ad 642–969), two political regimes held sway successively over the vast empire. The political governance structure under both was a kind of loose federation
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of disparate regimes held together by religion and economic interests. The Arab Umayyad tribe quickly consolidated their territorial gains and established their legitimacy as the ruling class among alien peoples with diverse cultures. But, after about a century, the Umayyads succumbed to mis-governance (ad 661–750), and were displaced by another Arab tribe, the Abbasids, under whose governance Muslim civilisation reached its pinnacle.
Process of Consolidation Umayyad rule was a kind of military occupation by Arab tribal kings superimposed upon the Byzantine and the Persian administration. The Umayyads behaved ‘like the barbarian kings of the western Roman Empire, uneasy settlers in an alien world whose life continued beneath the protection of their power’ (Hourani, 1991: 27). The process of acquiring legitimacy and establishing itself in a completely alien territory, so different culturally, socially and economically, was a remarkable display of political foresight and administrative acumen. An invading force would normally leave behind a trail of destruction with disruptive consequences on civil, political and economic life of the occupied territories. The initial Arab invasion was somewhat of an exception. The conquest did not leave any trail of destruction nor were cities burned down or sacked as a measure of revenge.2 The Arab invaders came to be accepted as liberators for their message of peace and stability and the democratic, egalitarian and the cosmopolitan outlook of the new religion (Ashtor, 1976: 10). There was not much disruption in the lives of the subject peoples. The Armenians, Persians and Egyptians maintained their
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identities throughout the Arab invasion. Things were allowed to go on as they had before in every sphere and the peoples won over—the Christians, Jews or Persian converts—provided the administrative framework. The first Caliphs felt no need to define principles of governance and the nearest they came to this was indicated by Umar (ad 640): ‘the whole empire was put in trust for the Muslim community, with the Caliph as the trustee’ (Lewis, 1950: 57). In this phase of conquest, the Arabs created an empire and a state and not yet a civilisation. The cities and commercial networks were left unchanged, as were the two main currencies, the dirhem of Sassanid silver and the denarius of Byzantine gold, till the entire currency system was improved and reformed towards the end of the 7th century. The system of financial administration continued as before, run by people drawn from the same groups that had served the previous rulers. In the countryside, the new rulers maintained the systems of irrigation and cultivation which they found there.
The Fall of the Umayyads What brought about the downfall of the Umayyad Dynasty was not its failure to govern the vast territories, but its inability to grapple with the social tensions that sowed the seeds of revolt. The business of running an empire led to the emergence of a new class, the Mawali, who were non-Arab converts to Islam. From the Mawali came the workmen, shopkeepers, merchants and others required to serve the Arab rulers. The division between the dominant caste and the Mawali was more economic and social than racial (Lewis, 1950: 71). The Mawali settlements in the garrison towns very soon outnumbered the Arabs, and developed into a discontented population that understood its
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political and military significance. Their economic grievances found religious expression in a movement known as Shia’ism, defined as opposition to the established Order, the Sunni or orthodox Islamic doctrine. It was a social revolt against the Arab aristocracy and their state. The replacement of the Umayyads by the Abbasids in the leadership of the Islamic community was more than a mere change of dynasty, not the result of any palace conspiracy but the action of successful revolutionary propaganda and organisation. Fundamentally, it was a revolutionary turning point in the history of Islam. With the Abbasids, we enter a more structured form of governance, with legitimacy of the ruling class enunciated, and the hierarchy of power and authority clearly defined. Under the Umayyads the various countries run over by the Arabs had continued to be diverse cultural and economic regions; the Abbasids welded them into a great Muslim Empire. Their tool was a bureaucracy consisting of a hierarchy designed to connect each of the tiny communities of the Middle East to some provincial, regional and ultimately imperial centre. To create this organisation, the Caliphs drew upon the socially powerful and technically skilled families of the realm—the landowning families, the secretarial and administrative dynasties of both the Byzantian and Sassanian ancestor empires, Arab tribal chieftains and Muslim religious leaders (Lapidus, 1984). Abbasid polity and society were vertically organised. Its communities had no ties to each other, but were bound directly to some higher centre of co-ordination. Even when the power of the Caliphate was at its height, its effective role was confined mainly to the cities and the productive areas around them. Ultimately, the Caliphate administration was caught—as the later Chinese were—in the contradictions of centralised bureaucratic systems of government. To rule over his far-flung empires,
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the caliph had to give his governors the power to collect taxes and use part of the proceeds to maintain a local force. The local governments started building up their own power base, though they remained in principle loyal to the major interests of their suzerain.3 Economically, however, it was a strong and cohesive Muslim Empire, and, by the 9th century, a gigantic economic unit came into being, a unit never before equalled in the old world. The economic ascendancy of the Abbasid Empire over other regions of Asia and Africa, and even more over Western Europe, was overwhelming and it lasted about 200 years. The Abbasids nursed this economic empire, realising the great potential for trade in the conquered territories, the scope for expansion of this trade, the importance of giving merchants the freedom to operate and the benefits to the regime of allowing merchants from different nationalities to trade in its territories. A stark contrast to what was happening in China during the same period.
Orientation towards Trade: Four Positives Trade network and common market Given the fact that there was no significant break in continuity during the period of conquest, trade continued to flourish as before.4 It was a huge common market stretching from central Asia to the Indian Ocean, from the Sudan to the west and the Russian rivers. The centre of this world was in the isthmus bounded by the Persian Gulf, the Red Sea, the Mediterranean, the Black Sea and the Caspian Sea, at the intersection of two major economic units: the Indian Ocean area and the Mediterranean area. These two territories, united in Hellenistic times but later split into two rival worlds, the Roman-Byzantine and the
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Parthico-Sassanian, were now reunited by the Muslim conquest into one economic unit. This large unit enjoyed an influx of gold, a plentiful supply of slaves and a network of major trade routes that stretched from China to Spain and from black Africa to central Asia and encouraged tremendous urban expansion. Baghdad and Samarra in the former Sassanid territories, Damascus and Fustat Cairo in the former Byzantine territories and Kairouan, Fez and Cordoba in north Africa and Spain—this vast network linking one town with another formed the material framework of the Muslim world as well as a circuit carrying the main currents of civilisation. This trend to urbanisation was far greater in scope and effect than during the Roman Empire; it ranks equally with the great period of urban development in the Hellenistic area or the growth of cities in western Europe in its early stage of development (Lombard, 1975: Chapter 6). The Islamic economy was not confined to an exchange of finished products through trade; it had developed all the characteristics of an integrated network of manufacturing processes. The Muslims improved methods of production in the industrial enterprises which they had inherited from the former rulers, the Persians and the Byzantines. They developed new branches of old industries and created new ones. The textile industry, as everywhere in the Middle Ages, was most important. Syria and Iraq had been renowned for silk manufactures, Aleppo for cotton garments, Tiberias for carpets and Galilee various kinds of textile fabrics.
Urban centres of consumption This extensive area came to be dotted with centres of urban consumption and bases of growing economic activities. Basra,
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starting as a collection of military camps after the conquest of Iraq, reached its zenith after the accession of Abbasids at the end of the 8th century. Among the towns founded in the first century of Abbasid rule, Baghdad, the new capital built in 762, was the foremost. Two years later the Caliph al-Mansur founded near ar-Rakka a town that became an important commercial and industrial centre. In 836, al-Mutasim founded Samarra on the Tigris, which replaced Baghdad as the residence of the caliphs for more than half a century. There were also many smaller towns such as Ramla in southern Palestine that became centres of lively trade. The towns in turn attracted people from distant countries. This demographic development that characterised the Muslim world was in sharp contrast to that seen in Europe during the early Middle Ages, when towns mostly disappeared. When the towns grew, the money economy spread into the countryside and this alone made life in the Muslim world very different from that of Medieval Europe.
Unification of the currency system5 The integrated economy of the vast region came to be supported by a unified currency system. In the early days, two coins were in circulation: Sassanid dirhems in the eastern provinces and Byzantine denarii in the western provinces. The Umayyads had continued with these earlier currencies, as, otherwise, the world of trade would have reacted with instinctive mistrust to any sudden innovation in the monetary field. In fact, an attempt at introduction of a Muslim dirhem at Basra in 660 failed, but it succeeded 40 years later. This success was partly due to the imaginative reform6 (carried out by the Caliphate of Umar during ad 634–644 of standardisation of the weight of three
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different systems of silver currencies in vogue and a significant change in the money situation reflecting an upsurge in economic activities. The Muslim area was rich not only in gold but in silver as well. Great quantities of gold, so far hoarded or used in jewellery, were confiscated from the palaces of the Persians kings and nobles and from the tombs of the Pharaohs. The rulers also compelled the Church to hand over their great hoards of gold in Syria and Egypt. To this was added the steady streams of gold arriving from mines in the empire. The major silver bearing areas of the Muslim world were the same as in the ancient world, primarily southern Spain, the ancient Tartesssos region, visited by Phoenicians, the Carthaginians and the Romans. The Muslims activated the mines left inactive after the fall of the Western Roman Empire. A more important group of mines existed in Armenia, northern Iran and central Asia. Also, in the west, there were two major silver bearing zones, the western tip of Spain and central Asia, together with the eastern point of northern Iran. The steady flow of gold and the abundant supplies of silver and to a lesser degree of copper and tin spawned an immense business of coining and minting. The minting of gold became decentralised and took place in all important towns. Quality went hand in hand with quantity, and the dinar, like every dominant currency was minted with extreme care. All this had tremendous consequences for economic life. With so many gold coins put into circulation, the propensity to hoard diminished. But it also led to a steep rise in prices,7 creating opportunities of ever-expanding profits for the merchants and also at a low rate of interest.8 The Muslims created a vigorous monetary economy based on expanding levels of circulation of a stable high-value coinage (the dinar) and the renewed
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integration of monetary areas that had been distinct and indifferent to each other.
Religious stance The merchants were the prime movers of the new integrated economy. According to an 11th century manual of commerce defining the activities of merchants, a typical merchant was one who strove, everywhere and all the time, and by any and every means, to get money (Rodinson, 1974: 31). The flourishing commercial life of the time was reflected in its thought and literature, where we find the upright merchant held up as an ideal ethical type. The leaders of Muslim expansion were traders even before their conversion, and they had conquered societies in which trade was very highly developed already before conquest. No wonder that the full-fledged religion of Islam came to be pervaded by the spirit and ideas of the rising merchant class. The merchant class attained a social position and self-esteem that it could secure in Europe only much later. Unlike in other civilisations, the merchant class in the Arab world derived great moral strength from Islam. There are religions whose sacred texts discourage economic activity in general, counselling their followers to rely on God to provide them with their daily bread, or more particularly, looking askance at any striving for profit. The Koran looks with favour upon commercial activity, confining itself to condemning fraudulent practices and requiring abstention from trade during certain religious festivals.9 The Koran emphasises that it is proper to combine the practice of religion and material life, carrying on trade even during pilgrimages, and goes so far as to mention commercial profit under the name of ‘God’s bounty’ (Ibid.: 24). Also, the Koran’s ideal did not challenge the right
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of ownership in any form, even though, as is true of all lawgiving, it is possible to deduce restrictions upon the use and abuse of property in certain cases. The right to property is not necessarily incompatible with justice; justice in economic matters means in Koran forbidding a type of gain that is particularly excessive (Rodinson, 1974: 21).10 The Islamic legal system was not codified like the Roman, but provided an element of commonality that was present throughout the Muslim world. The Koran itself contained a good deal of guidance on practical matters. More detailed jurisprudence, precedents, rules of family and property law, codes of social and religious behaviour were incorporated in hadith— records of tradition whose authority derived ultimately from sayings ascribed to the Prophet. Most theologians of this period belonged to the merchant class, as did most of the Muslim juri-consuls. Some of the prohibitions under Muslim law were prima-facie hindrances to development of a free market. For example, in the Koran, there is a specific prohibition of riba, which is interpreted as usury. The general perception is that this prohibition prevented any economic activity of the modern type from occurring among the Muslims. The historical records show that this prohibition had little practical effect as the legal scholars’ devised great practical ingenuity in getting round ence the theoretical prohibitions.11 There nre books of jurisp toaexpound what the Arabs call hiyal, meaning ruses or wiles. What these practices amount to is simply the authorising of loans at interest, provided that some additional legal formalities are observed. This is the conclusion that the scholars have drawn from the study of the law books and is borne out by the consistency between these rules and the merchants’ customs, as borne out by the letters found in the Cairo geniza12 (Goitien, 1968: 218–219).
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Merchants in Politics In the beginning, the relationship between business and polity was mutually supportive, but, within a century of the establishment of Abbasid regime, the rich mercantile class started to nurse political ambitions. Even earlier, under the Umayyad rule, the Persian gentry had situated itself in prominent positions in caliphal administration. This continued with the first Abbasid caliphs. Rich merchants began to play a conspicuous role in the civic administration, sometimes getting appointed even to the post of vizier. Acquisition of wealth through tax farming was the standard method for raising revenue that prevailed everywhere, in Iraq, Persia, Syria and Egypt. Land tax being the main source of revenue, the tax farming contract included very often the responsibility of managing royal estates. Most tax farmers were wealthy businessmen who had enriched themselves in other fields of economic activity and could afford to shoulder these responsibilities. The lure of profits through tax farming enticed the commanders of the army also to engage in this business. The administration of a province was usually conferred on the person who had farmed its taxes and the job became his stepping stone to a prosperous political life (Ashtor, 1976: 132–38). Tax farmers shared power with the ministers, the heads of administration, who belonged mostly to the class of rich landowners. They would cast their nets wider to engage in profitable commercial ventures. Indeed, this age of flourishing prosperity became an age of endemic corruption in administration.
Disintegration An internal revolt sprung up from the swamps of southern Iraq.13 The rebellion, which lasted till ad 883, had particularly
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disastrous economic consequences for the empire. It put an end to the highly profitable sea trade from India and South East Asia that came up the Persian Gulf to Basra, which had formed the basis for much of the legendary wealth of Bagdad. This maritime trade began to be diverted to the Red Sea and Egypt, where Ahmed ibn Tulun (ad 868–884), a young Turkish officer designated by the Caliph as the governor of Egypt, used the wealth to make Egypt effectively independent of the central government at Bagdad, to which it merely paid tribute. The Caliph, being fully preoccupied with a slave revolt, could do little to prevent Ahmed from consolidating his power in Egypt (Sicker, 2000: 35). Soon, taking advantage of the power vacuum along the Mediterranean littoral, Ahmed ibn Tulun established himself as an overlord, linking Syria, Palestine and Egypt, in a common constellation comparable to that which existed repeatedly in earlier times. Then, in ad 879, a Byzantine army, during the regime of a new and aggressive ruler, Basil I (ad 867–886) swept down from the mountains into the Jazira and laid waste the countryside, re-establishing a Graceo-Roman presence there for the first time in 200 years.
Lapse into Feudalism The loss of revenue from these developments further destabilised the Abbasid state itself, since it now had difficulty in paying the mercenary troops that were critical to its continued viability (Ibid.). From the early 10th century, the control of the Abbasids over the core of the empire in Mesopotamia was minimal. In ad 945, the region was conquered by the Iranian mercenaries, the Byyuids. The rule of this dynasty lasting 110 years marked the beginning of a process by which local landowners, the military and provincial rulers took power and set up their own smaller
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states opposed to central control from Baghdad. These feudal aristocrats created a new kind of social order in which estates were granted to the army together with the fiscal rights. The princes of this dynasty began to encroach upon the activities of the merchants, who suffered from the extortions of governors and the army. The military engaged in commercial activities and enjoyed the privilege of carrying their merchandise duty free along the roads. The regime instituted monopolies for manufactures such as silk, the manufacture and sale of which had previously been free to everyone (Ashtor, 1976: 177–83). The feudal system as established by the Byyuids came to form the core of Turkish feudalism, and led to the absolute supremacy of the army and the decline of the bourgeoisie14 (We follow it up in Chapter 9).
Business–politics Dynamics The Muslim world, as it evolved in from the 7th to the 11th century, drew its main sustenance from the far-flung trade network spreading from China to the western Mediterranean. Also it demonstrated considerable assimilative and absorptive power. Unlike the Roman world, which had made a sharp distinction between civilisation and barbarism, conversion to Islam was a simpler process than acquisition of Roman citizenship. Thus the new religion managed to bring the Berbers of the Maghreb into its fold, assimilated a large portion of Africa, and absorbed the barbarian Seljuk Turk and Mongol invaders from east Asia. Also, importantly, it had a strong domestic base, with its large urban and semi-urban centres for consumption and flourishing agriculture. The members of the merchant community were more than mere traders; they turned out to be manufacturers as well,
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developing centers of manufacture in several industries, in particular, textiles and glass that were already existing and creating a new industrial base in paper. This vast network of industry and trade, supported by a monetised economy, a stable currency and a sophisticated banking network became by far the predominant driving force of the economy of that period. However we characterise that economy, it was certainly not just some loose ensemble of feudal regimes. Trade was fundamental to its structure. The growth of cities and expanding urban markets, the spread of new crops, and sudden rise in cash crops indicated that the Muslim world, in a sense, had all the structural features of what Max Weber would characterise as a pre-capitalist economy, ahead of the Western world, by about three centuries. Thus, Islam made a powerful contribution to the growth of capitalism in the Mediterranean, in part because it preservedb ti expanded the monetary economy of late a quity and innovated business techniques that became the staple of Mediterranean commerce (in particular, partnerships and commenda agreements), and also because the seaports of the Muslim world became a rich source of the plundered money-capital which largely financed the growth of maritime capitalism in Europe. Indeed, Mandel stated this with unabashed bluntness when he wrote: ‘The accumulation of money capital by the Italian merchants who dominated European economic life from the 11th to the 15th centuries originated directly from the Crusades, an enormous plundering enterprise if ever there was one’ (Mandel, 1968: 103). The history of this empire, through the rise and fall of different dynasties, offers us rich insights into the dynamics of business-polity relationships. As the Umayyad Dynasty was expanding its territorial empire, it allowed business in the acquired territories to continue to operate as before, for it knew that it
Chapter 5â•…An Intimidating Colossusâ•… 83
was the creator of wealth. The successor dynasty, the Abbasids, also understood that the stability and continuity of a political regime cannot be ensured unless business enjoys freedom and autonomy in economic affairs, with some obln rolon, of coums , tos contribute a portion of their wealth for the affairs of the polity. But, as the empire reached its peak, the orientation of political power holders—civil administrators and the military—started changing: wealth became for them an object to be grabbed for personal benefit and not a source of strength to be nursed for the interests of the polity. This led to a complete metamorphosis in business–polity relationships, spelling doom for the empire: a kind of replay, if you like, of the decline and fall of the Western Roman Empire. Strangely, when Europe was emerging out of the shadows of feudalism and moving slowly towards a capitalist regime, the Arab Empire, already in a stage of pre capitalist maturity, went into a reverse direction. It lapsed into feudalism. If the Arab polity had been as sagacious as they were during the early period of their empire and had succeeded in maintaining a proper balance between the two vital interest groups of business and polity, the geo-politics of the region would possibly had taken a different complexion.
Notes 1. Arab tribes had founded principalities before Islam, of which the strongest was the kingdom of Palmyra in the lands of the Fertile Crescent. There was also al-Hira, a principality established with the help of Persian kings as a buffer to defend the Persian dominions against the Byzantines. A similar Arab buffer state was created by Byzantines against Persians, the principality of Ghassanids controlling Hauran, Phoenicia, northern Transjordan and Palestine. Egypt also had numerous Arab peoples long before the Muslim conquests.
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2. The exception was the pillaging of Sassanid palaces for the looting of gold. There were many instances of confiscation of hoarded gold that was used for coinage and put into circulation. 3. The local dynasties that grew up were those of the Saffarids in eastern Iran (ad 867–1495), the Samanids in Khurasan (ad 819–1005), the Tulunids in Egypt (ad 868–905) and the Aghlabids in Tunisia (ad 800–909) (Hourani, 1991: 38). After the breakup of the empire, the centralised rule by the caliphs never revived. The new rulers were successful in giving their subjects security, gave them a stable government and improved their economic situation. 4. The territories that were involved in trade were the most important territories, in economic terms, because of their agricultural, industrial and mining output, their transport and caravan networks. These included countries with the most fertile soils, such as Mesopotamia and Egypt with their oases and long tradition of irrigation and the north African plains, which produced corn and oil. There were also the mining countries, the Caucasian-Armenian group, north Africa and Spain. There were also highly developed craft industries in Iran, Mesopotamia, Syria and Egyptian delta. Shipping was also well developed. 5. This section is mainly drawn from Lombard, Chapter 5 titled ‘Monetary Problems’. 6. The gold currency was based on a single system, the nomisma, but a truly Muslim currency was first created by the striking of a gold dinar at Damascus in 696. Two years later new Muslim silver coins dirhems were minted. From this time onwards these two coins were accepted as the legal Muslim currency, remaining unchanged in the Muslim world for many centuries. This gave the necessary impetus for the striking of silver dirhems on the Muslim pattern in
l the provinces. Thus the Musl
m
dinar and dirhem,
derived from the Byzantine nomisma and the Sassanid drachma, unified the two watertight monetary systems. 7. An Arabic source quotes the Caliph Harun ar-Rasid as saying that in his days the dinar had less value than a dirham in the days of al-Mansur (ad 754–75) (Ashtor, 1976: 86). 8. An interest of 20 per cent was customary at that time in wealthy European towns whereas in the Middle East the rate, till the time of Crusades, was 4–10 per cent on the average (Ibid.).
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╇ 9. Tradition attributed to the Prophet such statements as ‘In the day of judgment the honest truthful Muslim merchant will take rank with the martyrs of faith’ … ‘The truthful merchant will sit under the shadow of the throne of God on the day of judgment’ … ‘Merchants are the couriers of the world and the trusted servants of God upon earth’ (Lewis, 1950: 91). With commercial activities becoming widespread among all sections of the population after the Abbasid revolution of 750, merchants appeared as the bearer of a culture that considered money as the only real thing of value in the universe. 10. When Muhammad started preaching, there was undoubtedly much talk in Arabia about the communistic experiment that was carried out in the powerful neighbouring empire of Persia. Over two centuries before him, theoreticians had appeared in Iran who preached the abolition of private property through the collectivisation of all goods. To some extent this was accepted by the Persian ruler Kawadh I (ad 448–531), though the full right to property was again restored by Kawadh’s son and successor Anosharwan (ad 531–579). In his precepts Mohammad does not attack private property, though he condemns riches and the rich. 11. However it also seemed to have been the practice that where non-Muslim communities were present in considerable number, the Muslim merchants let them fulfill the function of money lenders operating without any camouflage, praising the trade in credit openly and publicly. In Morocco, Jews, though a small minority, were very willing to relieve the Muslims of the burden of their order. Thus usurious loans became the speciality of the Jews in Morocco and elsewhere, of the Greeks and other foreigners in Egypt, of Hindu merchants in India, just as in Medieval Europe, the Jews and Lombards fulfilled this role or as in China, the bankers of Shansi held from very ancient times a sort of monopoly in this field. Clearly, at the very moment when capitalist practices implying the need for interest were developing, the theologians and religious lawyers took the greatest trouble to theorise about the prohibition of interest, justifying it and also allowing for cases and exceptions. All these books apply the principle that necessity renders legitimate that which is, strictly, speaking, forbidden. This has been followed in all subsequent political regimes, including the Ottoman Empire. As is well known (we will be discussing this in a later chapter) this practice became so widespread that it was taken over, along with its
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Arabic name, by the western Europe and of the Middle Ages (Rodinson, 1974, Chapter 3). 12. Geniza (pronounced Gheneeeza) denotes the store room of a synagogue or any other place in which papers covered with Hebrew letters were discarded. For, according to Jewish belief, which has its parallels in Muslim and Coptic customs, no papers on which the name of God is found should – (old Cairo) be destroyed. So far, only the Genizas of a synagogue in Fustat and of the nearby cemetery of al-Basatin have been found. These two are called by a common designation ‘The Cairo Geniza’. 13. It was a region intersected by numerous canals and exposed to tidal fluctuations, where, in consequence, land gets covered in nitrates, making cultivation impossible. A project for reclamation of land was started by several enterprising businessmen of Basra; this involved removing nitrates from the soil. A large number of negro slaves (called in Arabic Zindj) from east Africa, deployed to work here under inhuman conditions, embraced Islam, developed a consciousness of their rights under the leadership of one al-Mahdi and organised revolt against their exploitation. Within 10 years of their rising, they established themselves in a new town, ‘alMukhtara’, occupied Abbadan, cut off Baghdad’s supplies from the south, captured Basra in 871 and became a state consisting of large parts of Iraq and Khuzistan. 14. European feudalism sprang up from personal dependence and subordination, the Oriental form of feudalism was a means of securing regular payment of the soldiery. The feudal regime in Western Europe was the concomitant of a contracting economy sunk to the lowest ebb of primitive self-sufficient economic units, the feudal regime in this region was established in a period of a highly developed pre-capitalist society.
Part II
The Medieval World: ad 1000–1500
By the beginning of the second millennium ad, maritime trade had started acquiring a long-distance global character, bringing previously isolated peoples into closer contact, from the Mediterranean and African civilisations to Asia. Trade evolved into regular movements of thousands of small vessels carrying everything from luxuries to daily necessities. But it was not trade between nations; merchants and their goods circulated through a generally frictionless ‘archipelago of towns’ in which not only did the units trade with each other and handle transit trade, but they even aligned their internal economies to suit this trade. At one end of the long trading network was China; at the other the Islamic regions of the Mediterranean. In the middle was south India. China, despite its aversion to business in general, had the potential to emerge as the undisputed hegemonic power of the South China Sea and the Indian Ocean, but domestic concerns made it withdraw into a shell. At the other end, the Muslim Mediterranean had a strong business base but it failed to fill the vacuum created by China’s withdrawal because its polity became weak and inefficient. That left south India—but the political powers here were not interested in stepping out with military ventures to establish a hegemonic presence. They were content with peaceful trade. At the extreme ends were Japan and northwest Europe, developing into feudal economies. In Japan, the breakup of the monopoly of power held by the court-based aristocracy and central monasteries, and the appearance of new institutions of political authority and land control like the 88
samurai and the shogunates led to the rise of a military aristocracy. In Europe, barbarian kings evolved from tribal leaders into kings controlling the allegiance of magnates who were generally granted land in return for their allegiance; the power of the Church grew, and new arrangements described as feudal emerged. The business–polity partnership that started developing would become the core of what is known as a European hegemony. And this would later invade and occupy the vacuum in the Indian Ocean.
89
Chapter 6
Trade and Politics in the Indian Ocean
T
â•… The Indian Ocean connected a great variety of peoples, cultures and economies, being almost linked to the Mediterranean through the Red Sea, penetrating the central lands of West Asia via the Persian Gulf, washing both shores of the Indian subcontinent and linking up with the South China Sea, beyond which lay the Pacific. The sea routes were linked to over-land trade routes, creating a tight economic relationship. In the 10th and 11th centuries ad, economies throughout Asia expanded markedly and new powers emerged, such as the Cholas in southern India, the Khmers in Angkor, the Burmese at Pagan and the Song in China. These political consolidations stimulated Asia’s maritime commerce and the international traders who travelled the seas connecting eastern and western Asia.1 Before the arrival of the Europeans, the cultures and economies of the Indian Ocean were essentially self-sufficient within the geographical boundaries of the Indian Ocean and were only marginally determined by influences from outside the region (McPherson, 1993: 5).
India: A Strategic Location From the time of the Mauryan Dynasty to the 7th and 8th centuries ad, south India enjoyed remarkable political and 91
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economic stability. Although it had a multitude of contending kingdoms and would-be empires, it was generally free from the wide-ranging wars and invasions that characterised West Asia, north Africa, China and Europe (McPherson, 1993: 89–90). During the first three centuries of the 2nd millennium, south India was the bridge connecting the Mediterranean and West Asia with China.2 The Asian sea trade was sub-divided into three interlocking circuits—the Arabian Sea, the Indian Ocean, and the South China Sea—each with its distinctive cultural characteristics. The middle circuit connected the south Indian coasts— Malabar on the west and Coromandel on the east—with Sumatra and Malaya on the Strait of Malacca, and with Java and the islands of Indonesia. The eastern-most circuit was Chinese space. Within the three circuits there were several sub systems shared by numerous groups. No single power ever exercised dominance over the entire system; the local hegemonic powers co-existed with each other (Chaudhuri, 1985: 15). On the western coast of India, Gujarati merchants traditionally maintained contacts with ports in the Persian Gulf and along the Arabian Coast. By the early days of Islam, the ports of Cambay and Saymur had already absorbed resident colonies of Arab merchants, some extremely wealthy, as well as sailors from Oman, Basra, Baghdad (Ibid.: 98). The merchants of the Malabar Coast, though of a slightly later vintage, were as wealthy, powerful, astute and foreign as those of Gujarat. In the second half of the 13th century, Samudri Raja (later distorted to Zamorin) came to prominence when Muslim merchants from the Red Sea flocked to his port because the political regime offered them attractive trading terms in return for their political and financial support. The Arabs made Calicut their home, assisted the Samudri Raja in his territorial expansion and drew his support for their commercial ambition. The Chinese watched
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their long-standing trade in the Arabian Sea shrink in the face of this Arab-Indian combination (Dasgupta, 2001: 5–6). On the eastern plains, the Pallavas, Cholas, Pandyas and eventually even Vijaynagar participated in the great revival of commerce that began in the 8th and 9th centuries. Indian merchants from the Coromandel Coast were journeying actively eastward in the 10th, 11th and 12th centuries. Trading towns had been established in each of the administrative districts of the Pallava kingdom, in which local and long distance trade could be conducted with relative freedom in return for certain taxes to the ruling power. The pattern continued into the Chola era (Hall, 1980: 93). The trading towns were allowed such autonomy because they fetched the royal treasury considerable tax revenues from their vast regional commercial network. By the late 12th century, international traders were calling regularly on the Coromandel ports, to pick up pearls, betel nuts, spices and cotton products from local merchants linked to the hinterland. Tamil civilisation was marked by its first major period of urban growth, and various dynasties lavishly endowed shrines and priests out of piety and for the pragmatic reason of reinforcing their legitimacy. Rulers viewed temples not only as symbols of royal legitimacy, but also as centres of commerce, for most were associated with fairs and marketplaces and were the key to the economic integration of southern India with both land and sea trade routes (McPherson, 1993: 83–84). The Chola rulers took a positive stand on trade because they derived considerable financial benefits from it. State support was not a condition for merchants venturing into foreign trade, but the state came to their assistance wherever it felt it could intervene effectively. Even in such cases, the state did not interfere to acquire centres of raw materials or markets but to remove the obstructions placed by another country on the trade
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(Thapar, 1966: 209). Overseas trade was the strength of the Chola merchants and towns such as Mahabalipuram and Kaveripattinam on the east coast and Quilon on the Malabar Coast controlled the south Indian trade. Trade with China reached an unprecedented volume during these centuries, which led to its becoming a state monopoly in China, the Chinese government not wishing to lose the income from it (Ibid.: 207). With Mongols controlling central Asia, Chinese merchandise destined for western Asia and Europe was carried almost exclusively by sea. The 11th century Tamil traders were organised into commercial corporations supported by the Chola state. The south Indian kingdoms were neither highly centralised nor despotic. Just as the government was not in full control of agricultural production, it was unable to fully exploit the foreign trade that tied its domains to the world market. Local merchant organisations helped administer the Chola ports and also ran the major trade emporia of the hinterlands (Hall, 1980: 165). They also controlled the activities of foreign merchants and their contacts with local commercial networks. During the first few centuries of the 2nd millennium, maritime trade was sufficiently important to prompt various south Asian states to intervene politically when required, but it was in the south and in Sri Lanka that maritime trade and politics intersected to the greatest effect (McPherson, 1993: 88). On the Coromandel and Malabar Coasts, many dynasties and kingdoms, while drawing most of their power from control of agricultural surplus, watched maritime trade closely, even forging state policy by warfare and diplomacy. Rulers otherwise dependent on resources raised through local land-holding intermediaries welcomed the revenues from trade, since such intermediaries were not always willing to give up their surpluses
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without concessions from the central authorities. Also, an increasing amount of land revenue was going to temples and Brahmins by way of grants, reducing royal revenues further. So the profits of trade helped the rulers chance to decrease their dependency upon subordinates who were to compensate them for their piety (McPherson, 1993: 89). For dynasties such as the Pandyas, Pallavas and Cholas, control of trade routes and ports was vital for political life. South Indian and Sri Lankan dynasties were, on many occasions, engaged, in the interests of trade, in naval campaigns for control of the pearl- and shell-rich Palk Strait, the Gulf of Munnar, at the junction of trade routes between the western and eastern Indian Ocean. Gradually, however, they lost power to the growing strength of the merchant class, who, as the Chola state decayed, became more assertive and formed the nucleus of new centers of political authority (Hall, 1980: 4). Economic power gave the merchant guild a position of political importance that translated into influence at the royal court. The guild leaders ensured that they had a say in taxation and related matters, and very soon their power counterbalanced that of the landowners and officials at the court (Thapar, 1966: 331). The Vijaynagar military-feudal state that succeeded the Cholas in about ad 1350 continued the Chola pattern, obtaining its income from agriculture and trade. The administrative structure had become more stratified and more closely connected with the economy. The pattern was broadly similar to that of northern India and was oriented more towards the extraction of agricultural surplus than to long-distance trade. The new Vijaynagar kingdom had conquered not only the small Muslim sultanates along the coast, but much of the former domain of the Cholas. Vijaynagar lay in the interior of the Deccan plateau and was oriented toward neither agrarian pursuits nor
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international trade. For the first time in south Indian history, the region came to be ruled by a centralised system of feudalism, and the pattern that evolved was broadly in alignment with that of northern India.
North India After the fall of the Gupta Empire in the 6th century ad, India remained politically fragmented. Islam had an impact from the first era of expansion when, in ad 711–713, Arab forces reached Sind. The main impact of Muslims on India did not come until the post-Abbasid military regimes emerged in eastern Iran and Afghanistan. In ad 1030, the Ghaznavids captured Lahore just as they were losing control of their core territory to the Seljuks, and continued to rule the northern part of the Indus Valley and Afghanistan. They were replaced in the 12th century by the Ghurids who began the conquest of north-west India by capturing Peshawar, Lahore and Delhi. In ad 1206 one of their generals, Qutb al-Din Aybek, declared himself independent and founded the Aybek Dynasty, the first of the Delhi Sultanates that were to rule much of India until ad 1526. The Afghan-Turkish elites were very much like the Arabs in early Islam—hostile to conversion and content to rule as military elite with their own special religion (see Chapter 5). The sultanate period was one of great prosperity; it was central to much of east-west Eurasian trade and agriculture, and was highly productive. India and China were then the richest areas of Eurasia (Chandra, 2009). The establishment of a strong centralised empire in north India, a sound currency system and security in communications led to the growth of over-land trade to West and Central Asia as well as overseas trade, mainly from Gujarat. Multan was an important trading centre, linked directly across the Bolan Pass
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to Kandahar, Herat and Bokhara, which was the junction of the Silk Route from China to Constantinople and Lebanon. Multan was also linked via the Indus to the western sea ports. The trading networks in the Indian Ocean world were complex but cosmopolitan. No one power dominated and none made any attempt to use force to gain trade advantages or control routes. Among the intermediate port-cities along the eastwest trade routes, the most important ports were those of India. The major Indian states were land-based and were usually quite content to let the coastal trading towns be independent and prosperous as long as they provided some revenue in return. Overall, India remained highly prosperous because of its strong agricultural base, the ability of its industries to meet nearly all domestic demand and the generally peaceful and flourishing external trade.
China: Missed Opportunity China was the most extensive and technologically advanced region of the medieval world and, in the 150 years following the foundation of the Song Dynasty (ad 960), China experienced a period of unprecedented economic growth. As in Europe, this prosperity was powered by a revolution in agriculture intensified by industry and long-distance trade. The spread of highyielding wet rice cultivation and guaranteed surpluses of food enabled farmers to cultivate and market a wider range of products. Mark Elvin claims that, by the 13th century, China had the ‘most sophisticated agriculture in the world, India being the only conceivable rival’ (Elvin, 1973: 128). Sustained by a large internal market,3 an effective transportation network through the Hwang Ho and Yangtze Rivers, and the benefits of technological advances in iron and steel, merchants took the sea routes to South East Asia, exporting silk,
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lacquer-ware and some iron and steel in return for spices and other tropical products. China’s prosperity grew on the back of the reactivated Silk Route across Central Asia and the Indian Ocean sea route. Chinese settlements throughout South East Asia boosted private sea trade, which soon overtook the official tributary trade with the region. With the state supporting private sea trade and many Chinese migrating to South East Asia under the Yuan Dynasty (ad 1127–1368), the Chinese trading networks across the southern seas and the Indian Ocean became as extensive as any contemporaneous European network (Arrighi, 2007: 322). China became a formidable power in a gradually integrating world system; the mature combination of agricultural productivity, commercialisation, urbanisation and industrialisation that emerged would flower much later in Europe. Under the southern Song Period (ad 1127–1276), the polity took a pragmatic view on trade: it needed the extra revenues to meet the heavy expenditure on the wars with the Mongols to the north and the weakening of profitable government monopolies in salt, iron and wine production (Borthwick, 1992). Particularly significant was the state’s support for navigation technology; shipbuilders pioneered the use of a compass in navigation and also designed a new ship that could cross turbulent seas at high speed. The Mongol Yuan Dynasty (ad 1277–1368), following the conquest of the southern Song by Kublai Khan, the grandson of Genghis Khan, had adopted and expanded the system of private trade and government finance that, in the late 13th and early 14th centuries, spurred industry and maritime trade. Most foreign trade was private, though under government control and restricted to a few ports. Chinese ships also began to sail into the Indian Ocean as early as Sriviyaya’s decline in the 12th century, but commercial voyages rarely went beyond India.
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Inward Turn
Why did [China] turn her back, withdraw her fleet and thus
♦
♦
Towards the end of the 14th century, the Ming navy consisted of 3,500 ocean-going ships, including over 1,700 warships, and 500 armed transports for grain. No naval force in the world at that time came close to the formidable armada. The Ming made a bid for maritime dominance for Asian waters; between ad 1405 and ad 1433, the Chinese court sent a series of seven major naval expeditions into the Indian Ocean, not for conquest and plunder but for commerce and trade. Several times, they reached as far as Aden and occasionally passed on to the east African Coast (Curtin, 1984: 135). Suddenly, there was a sharp shift in policy, and the Ming navy under Admiral Cheng Ho withdrew its fleet in ad 1405. In speculating on the consequences of withdrawal, Janet Abu-Lughod makes an interesting observation, one of the ‘Great Ifs’ of history:
leave an enormous vacuum of power that Muslim merchantmen, unbacked by state sea power, were totally unprepared to fill, but which their European counterparts would be more (Abu-Lughod, 1989)
♦
♦
than willing and able to — after a hiatus of some 70 years.
Unwittingly, China ceded to future foreign navies the control of the seas that would one day determine the fate of Asia. It did so perhaps in response to its own domestic priorities: the defence of the north, which meant the completion of the Great Wall. This dynasty’s survival was at stake, and there was no money to fund the maritime expansion (Darwin, 2007: 44). After this inward turn, the ports came to be seen as dens of foreigners and their crass commercial pursuits. China’s rulers
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concentrated on rebuilding the agrarian base and internal production and marketing. In deference to Confucian beliefs, the Ming emperors embraced an agrarian ideology in which land was the true wealth. This dependence on a narrow tax base and the refusal to allow government agencies to engage in trade precipitated a fiscal crisis. By the late 16th century, the model of defense based on an army that paid itself from its own agrarian estates had also broken down, and rural disorder, relatively low during much of the Ming era, had begun rising sharply (Darwin, 2007: 87–88). In the Chinese attitude to merchants, official ideology and popular psychology seemed to reinforce each other. Confucian scholars viewed merchants as parasites and it was virtually impossible for wealthy merchants to gain social status without giving up commercial activities. For the ruling regimes, giving merchants and manufacturers too much power or allowing them to accumulate too much capital was just as bad as allowing a military commander too many armed men. Wealth was contingent on its value to the Court. Confucian officials were always trying to balance one disturbing element (professionalised violence) against another equally disturbing element (professionalised pursuit of profit) (McNeill, 1983: 40). They would relent only when their activities served official ends. To increase revenue, they would sometimes promote overseas trade and even invest government funds in related ventures. ‘The profits from maritime commerce are very great. If properly managed they can be millions. Is it not better than taxing the people?’ (Ibid.: 41). Mercantile prosperity as a source of revenue was fully recognised later by the Yuan Dynasty, which did not share the Confucian disdain for merchants. Indeed, Marco Polo’s reception at Kublai’s court illustrates this fact.
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But, as has happened so often in the Chinese dynastic cycles, the Ming (ad 1368–1644) reversed this accommodating stance towards merchants and, in ad 1371, banned foreign trade by private persons. Chinese ships could sail to foreign lands under suitable regulation and with official permission. With the reinvigoration of the bureaucratic state under the Ming, there developed a social bifurcation in Chinese elite: a bureaucratic or Mandarin class that controlled the state apparatus, and a wealthy merchant class that had no access to state power. In Medieval Christendom in Europe, business had succeeded by the 15th century in carving out an autonomous path of its own, notwithstanding canonical prohibitions against business as a respectable calling. Also, equally important, it started demonstrating that, given the backing of state power, it could effectively hold its own in a competitive market situation. Unlike their European counterparts, business in China at this period could not use the state to advance their interests. The European states had come to regard control over trade as a critical resource in their pursuit of wealth and power; for China, because of geo-political compulsions, control over trade routes at that period was far less important than peaceful relations with neighbouring states and the integration of their populous domains into an agricultural economy. In a society in which merchants were not accorded as much honour as government functionaries and in which a centralised state set the terms for money and credit, conditions were not conducive for the development of an independent and powerful bourgeoisie. The state was far more penetrative than its Indian and Ottoman peers (Tracy, 1991: 68). By Song and Yuan times, virtually all institutions required to facilitate state and private capitalism were in place: a system to organise production and distribution, a system of
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money and credit and a system to regulate imports and exports (Abu-Lughod, 1989: 331–340). China could have chosen a path to a strong state capitalism or could have actively supported the mercantile community in their trade and settlements abroad. It did neither. It is this insularity of the polity, its failure to exploit trade and industry for the pursuit of power and plenty, as European powers had been striving to do during that period, that created a ‘trap’, as Mark Elvin has argued. Though preindustrial China had reached ‘high level equilibrium’, it did not show any incentive to climb higher.
Muslim Mediterranean The first three centuries of the 2nd millennium were very different from that of the early caliphates, the Umayyads and the Abbasids. That period set the main outlines of Islam and the societies it created. The subsequent period was one of increasing differentiation within the existing framework. With the decline of the Abbasid caliphate, Baghdad no longer dominated the Islamic world.4 Instead there was a multitude of centres—Samarkand, Bukhara, Nishapur, Isphahan, Cairo and Fez. Though the Muslim Mediterranean remained under constant threat of foreign invasions—the Crusades, Mongol invasion from Central Asia and a series of nomadic incursions from the Sahara—it continued to enjoy pronounced prosperity from about ad 970 to 1250. With the gradual disintegration of the Muslim world, a powerful political base emerged in Egypt under the Fatimid Dynasty. The Fatimids had begun as a Berber Dynasty ruling over Tunisia. In ad 969, they conquered Egypt and moved their capital to Cairo, taking away the major province of Baghdad from the Abbasids. In ad 1171, the Fatimids gave way
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to the Ayyubid Dynasty, and in ad 1250, they, in turn, gave way to Mamluks, the slave soldiers who had made up the major part of the Ayyubid army. The Mamluks ruled over declining Egypt until the Ottoman Turks conquered them in ad 1517. The Fatimid administration was friendly to the merchants and gave free rein to their capitalist tendencies. All sectors of the economic life were free—crafts, industry and trade. The government interfered in the trade in victuals only insofar it had to, for guaranteeing the supply of wheat to the big towns. In the relatively open trade of the Fatimid and Ayyubid periods, Jews and Muslims were part of a single trading community. The Fatimid Empire was organised by a Jewish businessman of outstanding capacity, Ibn Killis, who later adopted Islam and became the first vizier of the new state (Goitein, 1968: 239). Jews were competent in trade, but they were not only traders; they were free to practise any other profession on an equal basis with the Muslims, cutting across religious communities and encouraging practices that were very conducive to a kind of international business culture. For example, the office of wakil al-tujjar served as a legal representative for foreign merchants in much the same way as an English commission agent was to do in the 16th century and later (Curtin, 1984: 113). In Cairo, if a foreign merchant needed to collect a debt, he could apply to a wakil for help. Banking instruments were well developed so that money could be easily transferred without necessarily moving coins from one place to another. A 10th century writer pointed to the fact that a bill of exchange was accepted with greater readiness than an allocation of income from taxes, and then commented, ‘Merchants are more powerful than viziers’ (Goitein, 1968: 239). A rich class of industrialists succeeded, in spite of heavy taxation, in building up new enterprises and conquering new markets for their products. Although the regime maintained royal factories, it abstained from establishing industrial monopolies.
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The connection between commerce and government was particularly evident in the Mediterranean trade, increasingly threatened by European vessels. Arab boats plying in the Mediterranean needed military protection and the owners had to depend on government. On the India route, protection needs were less pressing and merchants ran their show (Abu-Lughod, 1989: 227). The conquest of Iraq by the Mongols had far reaching consequences on the entire Muslim Mediterranean region. One of them was the establishment of Mamluk rule in Egypt and in Syria. The regiments of military slaves who succeeded in expelling the Mongol invaders set up a government of their own, eliminating the civilians. Medieval feudalism received its final shape from the former slaves. The Mamluks, by establishing the economic and political superiority of the military, swept away the last remnants of self administration. The Karimi merchants, who had become very important in the last decades of the 13th and the first few decades of the 14th century, captured most of the spice trade in the Indian Ocean, displacing the small merchants. The Karimis accumulated great wealth as the Mamluks oppressed the small traders with taxes and monopolies. The merchant notables were a rich, powerful and socially honoured class, the wholesalers, brokers, international traders and dealers in luxury goods and intimately linked to the Mamluk state. The Mamluks also invested in commerce, either by employing merchants or forging partnerships with them. The emirs also invested in a wide range of routine commercial activities, possibly taking advantage of their status to avoid market taxes or cover illegal affairs. The merchants also acted as bankers to the regime. The Karimi spice merchants, who controlled the money lending business, could make large loans,
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not as individuals but as consortia represented by a few of their leading members. The state and sultan’s household gave direct employment to the merchants because of their extensive manufacturing and trading activities. Merchants were also employed in the slave trade. In the Mamluk Empire, while the merchants could not function without state protection and co-operation, the political regime could not dispense with the services of the merchant elites. Trade, apart from international trade and large-scale international wholesaling, remained private and independent, except for taxation. The state went to great lengths to support the merchants in their trading activities, from using diplomacy to providing armed escorts to ships with valuable cargos. The Karimi disappeared in the first decades of the 15th century, and this marked a turning point in the relations between the merchant class and the state. Out went the Karimi heritage of state protection, fiscal supervision, close banking and merchandising relations and a degree of official employment. The status of merchants as an independent class was lowered, and merchants were more fully assimilated into the state (Lapidus, 1984: 126). When incessant warfare began draining the resources of the Mamluk state, it sought to control, absorb and monopolise large chunks of the private economy. The government started to debase the currency in ad 1424. At the same time, it confiscated private sugar plantations and refineries and raised prices to increase the profit margin, but domestic consumption and exports fell. Venetian merchants began to develop competitive sugar production in Crete and Cyprus (Maddison, 2007: 199). In ad 1429, the government banned Egyptian traders from selling imported spices to foreigners until the sultan had completed his transactions. The Karimis moved a significant amount of capital elsewhere, and a state monopoly replaced them (Lapidus, 1984: 126). In the
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traditional Mediterranean form of trading and investment, the commenda, the merchants became regular officials of the state, handling spice trade on behalf of the sultan. This became the norm in the case of the other flourishing trades as well (Lapidus, 1984: 127). As the state’s participation in the economy intensified, the number of merchants serving as agents and regular employees of the sultan increased to keep pace with the proliferation of state offices and functionaries for trading. This rise of the mercantile community in the Muslim Mediterranean, from the 10th to the 11th century, gave the Middle Eastern bourgeoisie a social position and self-esteem that it secured far later in Europe. But it could never become an organised body and, as a class, never obtained political power, although many of its members occupied the first and second echelons of the state. Their status and power was undermined by two developments. One, the monetary and the mercantile economy gave way to one in which feudalistic trend became dominant and, two the bourgeois came to be overshadowed by castes of slave soldiers, mostly of Turkish extraction, which started dominated the history of that part of the world for the following 800 years.
Power Vacuum in the Indian Ocean During the early Song Period, Chinese ships preferred to meet Indian traders in the Strait of Malacca, but from time to time, China allowed Persian, Arab, Malaysian and Indian ships to enter a few selected harbours in which their transactions were closely supervised by state officials. By the late Song and Yuan Periods, not only did the Chinese open more ports to foreign ships but Chinese junks were foraying to Indian ports to meet Arab vessels there. During the early Ming times, the Chinese
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continued to maintain an impressive navy, a fact demonstrated in the opening decades of the 15th century by the wide-ranging fleet of Admiral Cheng Ho. But, by the mid-1430s, the Chinese withdrawal from the Indian Ocean had become permanent. The vacuum created left only the small Mamluk fleet with their Gujarat allies standing in the way of the Portuguese intruders. Viewed from the perspective of the Mediterranean, this vacuum was certainly unusual. In the Mediterranean, a perpetual state of naval warfare existed from the 9th century onwards, and commercial ships always moved in military convoys. But, in the Indian Ocean, commerce was not threatened by sea warfare and merchants did not depend, as did the Italians, on armed ships from the state to guard their passage. This system of laissez-faire and multi-ethnic shipping established over centuries of relative peace and tolerance was clearly unprepared for intrusion by the Portuguese following very different ‘rules of the game’. ‘The Arab merchants of Calicut were convinced that the Portuguese were not traders but pirates. Their apprehensions by and large came to be true. The Portuguese gradually elaborated a complex system of compulsion’ (Dasgupta, 2001: 8–9). On land, they forced a series of treaties that essentially gave them the right to buy products at below market prices and at sea they instituted a violently enforced pass system that required Asian vessels to purchase Portuguese permits. Through their military force, the Portuguese thus caused a radical restructuring of the ports of trade throughout the Indian Ocean that undermined Calicut. We would be discussing these developments in Part 4.
Notes 1. Major changes in maritime trade took place after 1200
ad.
By then the
carrying capacity and the trading capacity of the great maritime routes
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had enlarged from the norm in late antiquity. By the 13th century, bulk commodities to meet the most basic needs had entered these great arteries of trade. Contemporary descriptions list manufactured textiles, metals, utensils, weapons, semi-processed raw materials such as raw silk, raw cotton, and extracted forest or marine products. Also bulk food stuffs such as grains, sugar, butter, salt and dried foods (Abu-Lughod, 1989: 271). 2. As early as the 8th century, Arab-Persian ships were making the complete journeys from the Persian Gulf to Chinese ports on the South China Sea. By the 10th Century, the long journey was being broken at India and again at the Strait, stopping at places virtually dictated by the monsoon. In these locations colonies of the foreign merchants were gradually established, as traders were forced to have layovers of three to six months or longer (Curtin, 1984: 96–101). There are references to settlements of Muslim merchants at the Indus mouth, the Malabar Coast and on Ceylon. Resident factors, not used by the Italians until the 14th century, were thus an early feature of the Indian Ocean trade (Abu-Lughod, 1989: 266). 3. Adam Smith’s reference to Chinese market, see Arrighi 2007, Introduction. 4. The Muslim world displayed great intellectual vigour at a time when Europe was comatose and anaemic. The early Abbasid caliphs, particularly Harun-al Rashid and Mamun, played a pioneering role in sponsoring secular learning, founding libraries and observatories and inviting scholars from Syria, Mesopotamia, Persia, and Transoxiana. They financed translation of Greek and Indian works on philosophy, astronomy, mathematics and medicine. Scholarly activity in Baghdad faded in the course of the 12th century and disappeared with the Mongol invasion.
Chapter 7
Business on Leash: Japan
T
â•… The isolation of the Japanese islands gave the country an unusually unified and self-contained history. Protected from the play of competing civilisations or disruptions caused by foreign invasions, the Japanese people have lived a relatively undisturbed existence. Yet Japan went through some fundamental changes that transformed it from the primitive tribal society that it was before the 6th century ad into a nation of aristocratic bureaucrats from the 7th to 12th centuries, and then into a nation of contending feudal powers, and finally to the nation state of today.1 There is a slow organic quality that has distinguished Japan’s political and social evolution, partly as a result of long periods of isolation (Hall, 1971: 3–4). In the beginning, it was primarily a land-based economy with hardly any alternative sources of wealth. A heavy burden on the peasant population supported the upper strata of landowners, fighters, priests and officials. From the 5th century, Japan began to adapt creatively to the changing Asian political environment. The country’s political stability and independence was seriously threatened during the 400-odd years of almost constant civil wars that raged on the Chinese mainland between the fall of the Han and rise of the Tang Dynasties (from ad 220 to ad 618) as hundreds, perhaps thousands, of Chinese and Korean intellectuals fled to the islands and mingled with the Japanese ruling aristocracy (Perez, 1998: 15). 109
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By the 7th century, Japan began to adapt the key elements of governance from the Chinese model, particularly the system of a centralised state headed by an absolute sovereign. The early Japanese elite were warriors as well as rulers. A series of aristocrats ruled as sovereigns and their offices became hereditary. The power of the emperor was always limited but fell further into decline during the 9th century. Between ad 857 and ad 1160, the emperors came to be dominated by large landholding families. By the 11th century, semi-independent land holdings or shoen had become numerous and there was continual warfare among them. The encroachment of feudal practices—as identified with the rise of the bushi or the military aristocracy—into political and economic leadership, came slowly over the course of many centuries.2 By the late 13th century, Japan was like a coalition of semi-independent states under powerful military rulers, without any national system of taxes, justice or even common defence. By the 15th century, Japan h d become fragmented into small do mains and was mired in Civil War among powerful regional lords.
Merchant Prominence Paradoxically, the break-down of central authority freed local merchants and entrepreneurs to increase their economic activities during the Muromachi Period (ad 1338–1573) (Borthwick, 1992: 41). Agriculture was highly productive, backed by sophisticated irrigation systems and fertilisers. Peasants had gained significant levels of autonomy; major peasant revolts in ad 1428 and 1441 secured the abrogation of all debts. As trade and wealth spread, the peasants s iftrd rom being self-sufficiin and paying their taxes and dues in kind to much greater involvement in the money economy.
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From the 11th century Japan had been trading with Korea and China and, in ad 1404, trade was regulated with a formal treaty with China. Japan sold copper, sulphur, timber and specialist swords (37,000 a year by the 1480s) to China. Exports to China were now mass commodities, refined copper, sulphur, folding fans, screens, painted scrolls and above all, swords. In return, Japanese ships came back laden with strings of cash, raw silk, porcelain, paintings, medicines and books. Merchants became autonomous units within the major trading cities. In the West, ports trading with the mainland grew; inland fortress towns had large markets (Ponting, 2000: 460). Japanese merchants went down to South East Asia, and set up business in the Philippines, Siam and Taiwan, among other places. By the 16th century, Japanese ships were familiar in ports throughout the area (Perez, 1998: 42). Japan was no longer an under-developed member of the Chinese world order, and large quantities of Chinese currency entered the country. A money economy was created and merchants soon created credit mechanisms, money transfer systems and loans at interest through the bankers (doso). The daimyo or feudal overlords began to develop free markets around their castles to attract artisans and wholesale merchants. Often the daimyo would promise artisans and merchants a free hand in their own governance to attract them to his castle. Trade was immensely profitable to its patron and commercial income became the mainstay of both the civil and military aristocracy in Kyoto, the seat of the imperial administration. With the increase of trade, wealth was no longer tied to the land but could be accumulated in other ways and stored as precious metals or goods. The merchant class that grew around the administrative centers was able to cope with local power centers and formed za, roughly similar to the European guilds, to
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negotiate with rulers and gain exemption from local taxes. The za, which was a closed community of merchants or artisans who claimed monopoly rights to the sale or manufacture of particular commodities, proliferated during the 15th century. Patrons such as a great temple or a noble family guaranteed these rights. In an age when legal protection was of little real significance, this model helped commercial and artisan groups thrive, but their independence did not grow as it did in Europe. The merchant guilds continued to be dependent upon feudal support to such a degree that, in the 16th century, these could be easily brought under the firm control of the military authority (Hall, 1971: 124). The Shoguns—barbarian-subduing generalissimos, technically the emperor’s military deputy, leader of bakufu3—would always try to rein in the increasingly independent merchants and daimyo. They had also to contend with the rising power and wealth of the Buddhist temples, which controlled a great deal agricultural wealth and had become involved in money lending and pawn-broking. They also found it necessary to maintain their own armies to defend their land and wealth against rising lawlessness of the period (Perez, 1998: 40). The Shoguns were not slow in tapping sources of income from foreign trade or domestic monopoly.
A Turning Point Towards the end of the 15th century, the urban civilian administration lost power to the rising class of military men in the countryside and Japan stood at an epic turning point by the middle of the 16th ntury. The country dissolved into civil war, the imperial capital Kyoto was raided and burnt down several times, beginning in the 1460s. But no single military leader was
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able to consolidate power and the country remained at war for several decades. The change that broke this impasse came from abroad, triggered by Portuguese merchants. As they stumbled on to Japanese soil in 1543, the polity began to be transformed. Three successful military geniuses coming out of east-central Japan beat their fellow daimyo into submission and impose a rough unity. The ‘three unifiers’—Oda Nobunaga (1534–1582), Toyotomi Hideyoshi (1536–1598) and Tokugawa Ieyasu (1542– 1616)—were cruel and brilliant military men. By the time of Ieyasu, the military hegemony was firmly established and legitimised in a new Shogunate authority that managed to keep the peace for over two-and-a-half centuries. The Tokugawa Shogunate, as it established itself in 1603 out of the Civil War, was a feudal version of the modern police state. It kept the central part of Japan and capital of Kyoto under immediate family. The political tranquility that historian George Sansom calls Pax Tokugawa was marred occasionally by peasant uprisings and political assassinations, but the period was generally characterised by peace under a benevolent samurai aristocracy (Sansom, 1943). The ideal economic world envisaged by the Tokugawa administrators derived from the experience of the 16th century daimyo and the new Confucian book learning of the 17th century. The Tokugawa Shoguns held that the society should be divided into broad classes: warrior bureaucrats parallel to China’s scholar bureaucrats, peasants, mostly farmers, artisans and merchants. The rationale for putting the merchants at the very bottom rung of the social ladder, in spite of their wealth and riches, was that peasants were economically secure and had a guaranteed source of income, their land. It postulated a fundamental agrarian economy with minimum development of trade—a society in which the samurai governed, the peasants produced and the merchants
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took care of distribution. The pursuit of this policy had its paradoxes and conflicts (Sheldon, 1958: 2). Over the 1st century or so of the Tokugawa administration, agriculture prospered with the expansion of the land-base and productivity improvements, and wealthy farming families began to emerge, powered by secondary economic activities. This created a paradox for the rulers; given the fact that the cultural ethic of the Tokugawa regime was averse to growth of affluence; it was looked down upon and was thought to reflect a decline in the moral fibre of both the samurai and the peasant classes. Merchants were denied free access to foreign trade and the government interfered extensively in the production and distribution of key commodities. The government’s attitude stemmed from the Confucian doctrine, which placed the merchant at the bottom of the four classes on the assumption that, as a ‘mover of goods’, he was by definition unproductive. Japan began to experience a profound struggle between the process of economic growth and the limitations imposed upon the economy by the political system, and the struggle was accentuated by the fact that the restraints were enforced just when the economy had acquired new capacities for growth and overseas expansion. On a pragmatic level, another kind of contradiction surfaced. The samurai scorned the merchant’s way of life, but also became deeply dependent upon the merchants’ services. Restricted to his castle towns, the samurai took special procurement merchants (goyo-shonin) into their service. Also, since a samurai was absolutely forbidden from engaging in any kind of commerce, he would give to the merchants, a special and exclusive right to manage commercial enterprises and also official sanction and some protection (Sheldon, 1958: 32). We have seen something akin to this in the classical Greek Period (see Chapter 1). The ruling class in Greece would not, because
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of cultural inhibitions, allow their own citizens to engage in non-agricultural business activities, but gave a free rein to noncitizens to pursue such vocations. The merchant communities started rising to prominence in the Tokugawa regime. Some of them, being especially patronised by the Shogun and daimyo, came to be known as the ‘house merchants’. This was the beginning of an alliance between the merchants and ruling authorities that has continued, in some form or other, since then. By the 18th century it was clear that Japan had entered a new phase of urban-centric commercial economy. Edo (later Tokyo) had become more populous than contemporary London or Paris. With the rapid development of a currency and exchange system, a great number of commercial houses had sprung up in Osaka and Edo to focus on money ending and exchange. By the 19th century, houses based on manufacturing and cottage industry had begun to make their appearance. By the middle of the Tokugawa Period most of the outstanding Chonin (non-samurai urban dwellers, merchants and artisans) houses which were to retain their status into the modern period had been established. The founder of the House of Mitsui had his start in the 1620s as a sake brewer. By the 1690s, the Mitsui became the financial agent for the Shogunate and the imperial house, in addition to serving several daimyo, managing also simultaneously a large network of wholesale provision stores. It diversified its business rapidly, establishing a rapid communication service between Edo and Osaka and also financing largescale reclamation. The House of Sumitomo began as drug and iron goods merchant, but soon expanded into trading of copper, operating copper refineries at Kyoto and Osaka, and developing the rich Besshi mines (Hall, 1971: 209). By the late Tokugawa Period, signs of a new style of economic development were visible at two levels. Urban growth and
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the expansion of the consumer market had injected a new spirit of enterprise into the countryside. Wholesale organisations and village entrepreneurs developed new techniques of mass production. The developments in rural areas had important consequences for the city-based licensed merchant, with whom they competed, and some of the daimyo. New practices that emphasised local production for export sale to Edo and Osaka on a monopoly basis began to lure the fiscal agents of the Han, a daimyo domain, still further into collaboration with the commercial class. But although the merchant prospered and was the master in his world, he did not challenge his place in the polity and acknowledged the fact that he was a servant in the samurai’s world. The feudal political power based on land was separate from the power based on the new commercial and money economy (Sheldon, 1958: 36). The cities in which the merchants lived were enveloped in the feudalistic government and social organisation and did not develop into self-governing cities as in Europe (Ibid.: 37). The financial power of the cities was carefully balanced against the political power, each depending heavily on the other for a continuation of the status quo. The rise of the merchant community to economic power was almost an underground movement, a contrast with the development of its counterpart in Europe. The Tokugawa Era transformed Japan economically, and was the foundation of Japan’s modern history. Tokyo (Edo) and Osaka became major urban centers. The Japanese economy and society had managed to move into a ‘virtuous circle’ of rising prosperity. The Tokugawa Era ended in January 1868, when their main forces surrendered to the combined royalist forces. Then began the truly, national government of the Meiji Era. For many, the end of the long period of divided regional political
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power symbolised the end of feudalism, the end of an oppressive political philosophy, the demise of artificial controls over personal choice and livelihood, the end of national seclusion and the end of economic stagnation. The Japanese evolution happened through a process that differed from the revolution in Europe of the late 18th and the 19th centuries. In Europe, the members of the newly powerful classes, especially the urban bourgeoisie, challenged and sometimes overturned the privileges of the long entrenched aristocrats. By contrast, in the Japan of the Meiji Era, it was the members of the elite of the old regime, the samurai, who spearheaded the attack on the old order. Their role has led many historians to describe Japan in the 19th century as undergoing ‘a revolution from above’ or an ‘aristocratic revolution’. One of the main driving forces behind the revolution was the need to build a strong and united Japan to counter the coercive foreign presence. Their first dramatic step was to abolish all the daimyo domains, thus dismantling a political order in place for 260 years. In three years, they jumped from the Middle Ages to the mid-19th century. Equally, if not, more remarkable was the second great change: less than a decade after the restoration coup, by 1876, the economic privileges of the samurai were wiped out entirely. The coup leaders expropriated an entire social class, the semi aristocratic elite from which they themselves came. The third was a system of universal conscription of all males for three yeas of active military service and four years of reserve status; by the mid-1890s, Japan’s military was strong enough to move from the task of keeping order at home to that of imposing its will overseas. Fourth, parallel to the programme for military reform, the new government instituted a system of education, declaring that four years of elementary education was to be compulsory for all children. Finally, one of the most
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portentous new departures of the new revolutionary era was the decision to put the emperor at the very centre of the political order, symbolised by the triumphal progress of the emperor from Kyoto to Edo in 1868. All these were self-propelled institutional changes that generated order, stability and support for business to expand.
Notes 1. Broad chronology: Yamato Period, Heian,
ad
794–1185; Fujiwara,
Muromachi,
ad
ad
ad
300–365; Nara,
858–1160; Kamakura,
1338–1573; Sokuho,
ad
ad
ad
710–784;
1185–1333;
1568–1700; Tokugawa,
ad
1600–
1868; Meiji Period, ad 1868–1912. 2. Historians have customarily divided the process into three: the Kamakura Period (1185–1333), when the military leadership and feudal practice existed in equal equilibrium with those of the Kyoto court; the Ashikga (or Muromachi) Period (1338–1573) during which the bushi took over the remains of the imperial system of government and eliminated most of the court proprietorships, and the Tokugawa Period (1603–1867) when the bushi class stood unchallenged as the country’s rulers but relied increasingly on the non-feudal means of government (Hall, 1971: 78). 3. Bakufu means ‘tent government’, a term applied loosely to feudal governments between 1192 and 1868 and headed by a Shogun.
Chapter 8
Emerging Out of the Shadows: Europe
I
â•… In the medieval power structure, the merchant community in Europe was confronted with two dominant powers: first, the local magnates such as the dukes and the counts who rule the mosaic of principalities that emerged as the Western Roman Empire collapsed; second, the Church. After the fall of the Roman power in the West, some imperial functions passed to the Latin Christian Church—some but not all, for the Church’s authority was essentially spiritual or ideological, not military, and its claims were embodied in law, not in armies (Hall, 1986: 120–121). How did the merchant community adapt to this power structure, with entrenched interests stretching back to centuries, and emerge as economic entrepreneurs, with an ethical and mercantile orientation completely foreign to the values of the feudal society? The strength of the merchant community came to be based on five pillars: economic upswing, monetisation, property concept, organised marketing and transaction efficiency.
Economic Opportunities The beginning of the 2nd millennium had ushered in a phase of European economic expansion that continued uninterrupted 119
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till the middle of the 14th century. After the instability brought about by barbarian invasions and the plague of the 6th and 7th centuries, north-west Europe and Italy experienced a period of economic and demographic growth from the 8th to the 10th centuries. With the security that feudalism provided in a chaotic world, land was cleared for cultivation and large estates set up. Agriculture, the base of the subsistence feudal economy, expanded following a series of technological innovations between the first half of the 6th century and the end of the 9th century: the water mill, heavy plough, the three-field system and new methods of harnessing draught animals. Economic historians are of the view that, between the first half of the 6th century and the end of the 9th century, northern Europe created or received a series of innovations that ushered in highly productive agriculture, laying the foundation for a secular increase in trade (Cipolla, 1976). With agricultural productivity increasing, the disposable surplus available to the feudal lords was larger than ever before. Then there was income from several kinds of non-agricultural activities such as animal husbandry and fabrication of leather, wool or cloth. Also many feudal lords could derive additional income through their control of mines, ports or crossroads that happened to be located within their domain. As demand surged, so did internal and cross-border trade. The portfolio of resources derived from agriculture and bulk utilitarian goods was extensive and these were exchanged across the continent, in local, regional and national markets. Sweden, for example, had no salt, which it vitally needed to preserve fish, meat and butter for the winter; on the other hand, it had a monopoly of European copper throughout the Middle Ages. Multiple exchanges of commodities was facilitated by low transport costs relative to those in the great continental land masses,
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given Europe’s long, indented coastline relative to its area and good navigable rivers. Trade came to be built upon such ‘great complementaries’ (Jones, 1964: 90). The large landowners also wanted luxury goods such as gold and silver plate or bronze and enamel from the Meuse Valley, the Rhineland and Limoges, pearls from the Persian Gulf and diamonds, rubies and other gems from India. High-class war horses from Lombardy or Hungary and arms and armour from Solingen, Toledo and Milan were greatly in demand too. A large trade in building materials also emerged. The Church had its own specialised demands, for craftsmanship in buildings, art, parchment and writing materials (Mann, 1993). The varied needs emanating from the ordinary people for food and from the wealthy aristocrats and courtiers for luxuries helped to create the critical mass. The trading networks established within the heart of the feudal economy were along two parallel diagonal lines, running from north-west to south-east. One line gathered the produce of Scandinavia and the north to the mouth of the Rhine, moved it up the Rhine to Switzerland and thence to north eastern Italy, and carried Mediterranean and eastern produce back. The other line began in Flanders, gathering North Sea produce, moving it mostly by land transport through northern and eastern France to the Loire and thence to the Mediterranean and north western Italy. This network also covered the manufacturing and commercial centres of northern Italy, the southern Netherlands and later southern Germany. Long distance trade also resumed with towns such as Venice, Amalfi and Bari renewing their links with Byzantium, thereby reversing the stagnation that had occurred in the 9th and 10th centuries in the western Mediterranean following the Arab conquests (Spufford, 2002: 14).
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Monetisation Rapid monetisation widened and deepened market development, the core of what has been described as a commercial revolution. The monetary economy started around the year 950, and gathered momentum in the first half of the 11th century, first in the Italian cities of the late 11th and 12th centuries, and subsequently, in England and France, approximately between 1180 and 1320 (Kaye, 1988: 16). Monetisation was facilitated by the great commercial development of the Ottoman Empire, with which England was closely linked, and an influx of silver from the Eastern Islamic Empire, combined with the discovery of veins of silver in Germany, near Goslar, in the Hartz Mountains (Spufford, 1988: 74–105). From the middle of the 12th century, there was a continuous sequence of large-scale producers of silver within Europe until the Villa di Chiesa mines went into a sharp decline in the second quarter of the 14th century and those of Kutna Hora a little later. The silver produced by this sequence of mines vastly surpassed that produced by the Hartz mines in the 10th century and rivalled that produced by the mines of central Europe at the beginning of the 16th century (Ibid.: 240). The money supply was at a high point, not again reached for several centuries. Substantial cash started penetrating the countryside as the habit of measuring and calculating in monetary terms began to be extended to all things. Peter Spufford has characterised this broad translation of older values in monetary terms as a ‘revolution in attitude towards money’. Where previously, for example, lords had valued their forest holdings primarily for their status and pleasure, in the 13th century they came to be seen as a resource to be rationally exploited for earning profits. In Champagne, in 1170, under Count Henry the Liberal, good
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timber came to be treated as cash and was to be cultivated and sold for building, while scrub was to be crushed and transformed into cultivable land. Reclamation of land for cultivation developed into a business venture. Philip of Alsace, Count of Flanders, invested in drainage schemes to reclaim land for cultivation and started founding new towns for profit; these included Calais and Dunkirk. The profit motive percolated all down the line. Landlords began to employ professional managers and accountants to get the most out of their resources (Spufford, 1988: 245–46). Cash started changing relations between landlords and tenants. Tenants were able to discharge their obligations in cash, and the landlords welcomed this practice since the money allowed them to buy a wider range of things and achieve a higher standard of living. On English manorial estates, for example, both labour services and rents in kind were increasingly paid for in money. By 1279, the number of rents paid in money had overtaken the number paid in produce or labour services (Wood, 2002: 79). More and more, the feudal landowners wanted money rather than influence over men in the form of loyalty. Landowners were also quick to go in for market-related production in their land. Trade linked the aristocratic domain estates and their products with the exporting cities dominated by merchant capitalists and brought the two interests together (Dewald, 1996: 83–84, 87).
Property Concept Feudal property rights are normally schematised by historians under three broad categories. First, the estate typically included a domain or land under the estate owner’s direct control that could be used as he wished. Second, on some groups of land, the
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estate-owner had only indirect control, because this land had been granted out for permanently fixed rents to peasant tenants. Peasants’ rights differed from place to place, but normally the peasant could sell the land, leave it to his heirs and in most ways treat it as full property, so long as he continued his payment to the lord. Third, the estate carried with it rights to exercise political power and run economic monopolies within its boundaries; typically these rights extended over all those who held permanent leases from the estate. The system of feudal property in land began to disintegrate under the combined impact of a growing market and monetisation. It was gradually becoming possible, for example, to possess and exploit land without holding clear title to it or having the right to sell it. In the medieval towns, proprietors of urban dwellings, which usually served as both residences and places of businesses, owned outright the land on which their buildings stood, and were free to dispose of it at will. While it was possible to possess and exploit land without holding a clear title to it or having the right to sell it, this was not the case with commodities or money where it made economic sense only when it could be traded or invested with incontestable ownership right. This was the beginning of the evolution of the institution of property in a commercial economy; by the 16th century, it became axiomatic in Western Europe that the king ruled, but that his subjects owned and that royal authority generally stopped where private property began. Property started becoming a thing, fully detached from person and family and from the explicit exercise of judicial and political power (Dewald, 1996: Chapter 2). In some societies divided by wide barriers of power and status, predatory behaviour by the lords was not uncommon. Anywhere east of the Elbe, in Prussia, Poland and Russia, the local lord enjoyed so much authority over the population that there
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was abusive treatment even of those residents who were normally free, let alone the serfs. The rise of commercial agriculture made conditions worse in these regions from the 16th to the 18th centuries. In the other regions of Europe, the erosion in property rights inherent in the concept of lordship, so fundamental to feudalism, formed one of the early modern period’s most important social changes. However, the erosion took place only gradually over the next few centuries till its last vestiges were virtually wiped out during the French Revolution.1
Market Forms During the Carolingian times, markets were held under the auspices of bishops and the transactions were based on local subsistence needs. As markets diversified and developed, merchants needed an organisational framework and supporting facilities. By the middle of the 13th century, sites for fairs had been institutionalised in four towns in the counties of Champagne and Brie in France. Merchants from different regions would assemble at particular sites during specified periods for transactions and business. All the regions of France sent their merchants there, as did northern and central Italy, Flanders, Hainault, Brabant, Spain, England, Germany, Switzerland and Savoy. These came to be recognised as the most important emporium for European trade by the mid-13th century. Merchants depended on the feudal lords to organise the fairs. The counts of Champagne and later the kings of France played a basic supporting role, without which it would have been virtually impossible to institutionalise the functioning of the fairs. This marks the beginning of an extraordinarily long and almost continuous process of adjustment of interests between the mercantile community and the ruling regimes. What were
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the main factors and circumstances underlying the development of markets and convergence of interests between the merchant community and feudal lords? First, for the feudal lords, it made rational economic sense to facilitate transactions in utilitarian goods and discourage the ‘plunder machine’ that was an irritating obstruction in those centuries (Jones, 1981). They started putting restraints on the waywardness of their subjects and also their own arbitrary behaviour. Second, security of the merchants was essential. The counts of Champagne, for example, gave the merchants very active protection, beginning from the day the merchants set out for the fair, and Thibaut II even got the kings of France to take under their protection all merchants passing through the royal territory on the roads to and from the Champagne fairs. Later, in 1209, Philip Augustus placed under his protection, all the Italian and other foreign merchants going to the fairs. Third, the lords had to assure justice to the merchants in respect of any disputes arising from transactions at the fairs. The chief officers attached to the fairs also doubled as wardens responsible for order and justice and controlled the fair seal, at least until 1318 when a chancellor or the keeper of the fair seal was appointed. The court of the fair wardens was a tribunal of capital importance. The counts of Champagne and Brie facilitated a local system of justice within the fairs themselves. The Guards of the fairs, who were officials appointed by the counts, policed the fair grounds. These officials who numbered 700 at times were under two notables who constituted a tribunal of justice, hearing cases, adjudicating conflicts and imposing penalties (Abu-Lughod, 1989). Fourth, the lords also had a financial interest that the fairs went off smoothly, as the fairs fetched considerable revenues from tolls on the goods in transit, rents on the halls, stables,
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and houses leased to the travelling merchants and licence fees for all sorts of economic enterprises. The lords collected fees for using their seals to ratify contracts and for a host of other purposes. Fifth, with the territorial enlargement of the market, there was an emerging recognition that the market was a mechanism with the capacity to define value, not only in the absence of, but also in spite of, governing agencies to regulate and control it. French chroniclers record an instance in 1304–1305 when the King completely failed to regulate the price of grain. Prices were soaring because of a scarcity of grains, and officers started checking hoarding. Maximum prices were set at one-third of the current price and farmers ordered to bring out their grain to the market. This proved disastrous. Grains promptly disappeared throughout Paris to the extent that bakers were forced to close their shops. A similar English attempt to regulate the market through maximum price on common food-stuffs during the famine of 1315 had to be promptly withdrawn. The concept of the market as a dynamic self-regulating system gradually took hold in the consciousness of people. A demonstration of the organisation of the market beyond the King’s control in this period was the evolution of a floating market price for money itself in response to constant monetary debasement (Kaye, 1998: 24–28).
Business Transactions Underlying the process of market development was the progressive sophistication of the technical procedures for settling transactions and for systematic book keeping. It spread over Europe from Italy as a centre.2 These were developed by the merchants themselves in response to their emerging business needs: the
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economies of scale associated with a growing volume of trade, and the need for effective mechanisms for enforcement of contracts at lower costs (North, 1981: 29). The most important of these innovations related to mobility of capital was the bill of exchange. Starting as a notarised instrument involving transactions between Genoa and the Champagne fairs, by the first half of the 14th century it had become the normal requirement for commercial payments between cities in Western Europe. Then there were innovations designed for transformation of uncertainty into risk, starting from sporadic individual contracts to more sophisticated forms in the later centuries. The third group of innovations relates to business risks, for spreading risks through portfolio diversification or by drawing in a large number of investors to share in risky ventures.3 These institutional innovations marked the beginnings of market-driven arrangements between merchants. The significance of these arrangements is that, both in devising and enforcing them, the merchant community had been functioning as developers and as regulators as well; they did not look for any special legislation from princes to look after the common interest. In fact, as some recent research has shown, they had on their own perfected contractual arrangements among merchants residing and operating in different political entities (Roover, 1974). In the first three centuries of the 2nd millennium, the conjuncture of these five critical factors provided the first momentum of growth for market and business in north-western Europe within the structure of feudalism. Many feudal ethic and obligations that were not in harmony with the emerging business ethics started getting diluted. Business was, as Wallerstein put it, both a solvent as well as a natural product of the medieval society and economy during the first three centuries (Wallerstein, 1979: 20).
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New men who lived, so to speak, on the margin of a society
♦
♦
In the beginning of the 2nd millennium, the merchant hovered at the periphery of the hierarchical feudal economy. A typical merchant, Godric of Finchale, a true Horatio Alger of the 11th century who rose from rags not merely to riches but even to sainthood, was depicted by Henri Pirenne, the great medieval historian, as the archetype of the emergent merchant class:
where land alone was the basis of existence … Speculation … largely contributed to the foundation of the first commercial fortunes. The speculation of a little peddler, a sailor, a boatonly he knew how to use it. (Pirenne, 1958)
♦
♦
man or a docker furnished him with quite enough capital, if
While recent research by economic historians counters the ‘mercantile settlement theory’, it could nevertheless be asserted that a typical merchant came from a variety of social origins. Some were former merchants for the abbeys and enjoyed fiscal privileges; many had been free merchants from the Carolingian times, while some would have been landowners taking to commerce. Many of them gradually faded out because of the substantial decline in long-distance trade and the absence of protective safeguards in those decades of political uncertainty (Fossier, 1997: 312). The feudal system was inherently antagonistic to the idea of giving merchants the autonomy they needed for their business enterprise to survive and flourish. Yet, the merchant community, learning to live with the mistrust of the peasants and the contemptuous haughtiness of the nobles, could, within just three centuries, successfully cross the treacherous waters of that age of political fragmentation and incessant warfare, and emerge as an independent and assertive business force. It would perhaps be no exaggeration to say that the kind of versatility, resilience
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and adaptability that we normally associate with modern business enterprises have their roots in the medieval past. While the energy, initiative and opportunism of the merchant community stand out, so do their unabashed materialism, insolence and egotism. A typical example in this regard is the Flemish draper, Jehan Boinebroke, described by his biographer as a person single-mindedly devoted to money, subordinating his every thought, word and action to this objective. Benedetto Zaccaria, known as the ‘merchant admiral’ of Genoa, chose a different route to prosperity, using his own fleet, intervening freely in politics and war, to launch enterprises that secured for him vast commercial fortunes. The fortunes of the merchants underwent an astonishing transformation. By the 11th century, the Pantaleone of Amalfi could present decorated bronze doors to their Cathedral, to San Paolo fuori de Mura and San Michele di Gangaono. Florentine money-lenders and businessmen like the Bardi or the Peruzza had a turnover of several hundred thousand florins per annum (Gies, 1972). Some of the richest merchants were close to the court, which needed their financial and political support. The banker Jacques Coeur, ‘the first financial magnate in Europe’ (1395–1456), invested his capital in all possible sorts of lucrative ventures and had interests throughout Europe. He became the treasurer and minister of the King of France, Charles VII, and had a hand in state reforms and in military and diplomatic policies (Kerr, 1971). A slightly older contemporary, Buonaccorso Pitti (1354– 1430), took an active part in public affairs in Florence. Considering himself equal to the highest aristocracy, he participated in wars and political intrigues and lived in the thick of factional struggles in the city (Le Goff, 1990: 262). The next two chapters take this story forward and look at how business, as an independent and potent force because of its
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wealth creating capabilities, started interacting, virtually at the same level, with the major power holders of the feudal society in Europe.
Notes 1. Later 18th century witnessed a series of efforts by the state to reduce the lordship’s burden on the peasants. This meant an attack on anything that restricted peasants’ economic freedom, an attack on what 18th century called serfdom. One after another 18th century kings legislated either the outright abolition of serfdom or severe restrictions on its exercise: the Habsburg Empire in central Europe in 1767, and in the 1780s, Denmark in 1702, the kingdom of Savoy, in northern Italy, in 1772 and the German state of Baden and Bavaria in 1783. When the French Revolution fully abolished what remained of feudalism in France, its efforts thus formed part of a broad movement of agrarian reform that was moving across Europe (Dewald, 1996: 76). 2. Sombart regarded that double-entry book-keeping ‘is born from the same spirit as the systems of Galileo and Newton, as the teaching of modern physics and chemistry’. It reduced the gain idea to an abstraction by putting the profit in a specific form, a definite sum of money in contrast to the natural aim of subsistence which was in the forefront of the medieval business man’s mental attitude. It was this abstraction of profit that first made the concept of capital possible (Nussabaum, 1993: 160). 3. These instruments, of Jewish, Byzantine and Muslim origins, through their evolution in the hands of the Italians to the regulated and joint stock companies are an evolutionary story of the institutionalisation of risk.
Chapter 9
In the Limelight: Knights of Commerce
I
What is your substance, whereof are you made? —Shakespeare, A Midsummer Night’s Dream
In the preceding chapter, we have discussed how, in the first three centuries of the 2nd millennium, the merchant communities emerged as the moving spirit behind the development of markets in north western Europe. Associated with this was the growth of towns as the nucleus of commercial and urban expansion. Governance of the towns came to be dominated progressively by the patriciate class consisting of the nobility and large merchant groups. The mercantile culture and ethic wore down the feudal structure of stratified duties and obligations, and more remarkably, the strong ecclesiastical barriers to trade and wealth creation. This then is the theme of the present chapter.
Urban Expansion The development of markets spurred urban growth, particularly along the trading corridor. There was a provocative correlation, as Holton notes, between the upswing of the 132
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The merchants were obliged to overflow the boundaries of
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European economy from ad 1000 and ad 1300 in terms of population growth, increasing production and development of new markets and urban expansion (Holton, 1986). By about the second half of the 11th century, there grew up at many places in north western Europe urban settlements, the burgi, around the nucleus of the protective walls of the old Roman towns. During the early Middle Ages, these towns had shriveled up into a corner within the ancient walls, with their functions reduced almost exclusively to those of government and administration.
the old burg and to establish alongside it a new one … In this way were born, besides the ecclesiastical cities and feudal fortresses, a species of mercantile agglomeration in which the that led by the inhabitants of the inner city (Pirenne, 1958).
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inhabitants engaged in a way of life in complete contrast with
The revival of trade and the emergence of towns was achieved at the expense of powerful vested interests. The Christian Church was wedded to the prevailing economic structures. Its members comprised tiny literate elite and its ascetic ideals were suited to an agrarian culture, and it could be jolted from its introverted stupor only by a strong external force. Long-distance trade provided that force (Green, 1993: 20). The 10th century towns were primarily ecclesiastical and political, and were almost exclusively consumers of goods and services. In the 11th and 12th centuries, they became economic agglomerations that also produced exportable industrial goods and provided important services of re-consignment of basic necessities as well as of luxuries (Nicholas, 1997: 2). At the same time, the increases in rural productivity made it possible for the towns to become weighty corporate actors within the overall framework of feudalism.
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Towns become Trading Communities The medieval town that took shape became by nature a trading community. Commercial capital started working as the solvent of the ‘natural economy’. The feudal towns served, to borrow an expression from Charles Tilly, as ‘containers and distribution points for capital’ (Tilly, 1994). Self-sustaining rural communities that, with few exceptions, produced a narrow range of coarse goods for local consumption were transformed, expanded and refined by the unrelenting pressure of commercial forces. Over the decades, urban settlements provided the setting for the emergence of a business community based on ties between individuals rather than on kinship or personal dependence, as in the countryside (Holton, 1986: 30). By the middle of the 13th century, merchants and artisans were creating institutions aimed at preserving their autonomy in their spheres of interest. With these institutions, the towns became integrated units of economic activity. The units of market competition were not just individual merchants, but the towns themselves, which sought to enforce their monopolistic privileges against the countryside and against rival towns. In these ways, some of the urban centers became laboratories for the techniques and practices of economic production and exchange within a protected political framework. As such, they provided a history and an experience of a dynamic repertoire that was elaborated on a much larger scale, much as the national state was to become in the era of absolutism and mercantilism (Katznelson, 1993: 183–84). Merchants in the towns had the capacity to redirect production away from local markets to trade on a much wider scale. In turn, once the nodal points became intertwined in a larger market system that included overseas trade, the new world system became self-reinforcing, and capitalist production and exchange
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came to be elaborated on a much larger scale (Katznelson, 1993: 162–64). Given the obvious contrast between the functionally undifferentiated countryside and the economic specialisation of towns, historians have often argued that the towns could be regarded, as M.M. Postan characterised them, as ‘non-feudal islands in the feudal seas’ (Postan, 1972: 212). However, the status of the town was not that of a non-feudal island, its freedom and development was not ‘according to its own priorities’, as in Weber’s historicist formulation. The relationship between town and feudalism was mainly one of synergism and contrariety. The norm in the 11th century was for land-owning families to use their city residences and contacts to expand into commerce, but the reverse process occurred more often in the 12th and particularly 13th centuries, as persons who gained wealth through trade, bought land in the city and then increasingly in the rural environs as a means of gaining social status and political influence (Nicholas, 1997: 3). As the break-down of town life and the practical disappearance of the middle class in the West is the great watershed between the last phases of the Roman civilisation and the early Middle Ages, so the revival of town life and the growth in the wealth and power of the middle class marks the great transition from the early medieval into the later medieval and modern times (Vries, 1984).1
Guilds Expand their Role While, in a turbulent age, feudal society provided its members with a modicum of security, the towns, not being a part of that, had to look for guarantees of person and property from princes, nobles and clerics on whose land they came up. As traders came
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from a variety of social origins, they began to group themselves in guilds. Often known as charities or fraternities, these guilds had a purely social function to begin with, notably to encourage self-help and solidarity, but their focus started changing from social to mercantile. Guilds had initially admitted artisans but gradually excluded them and welcomed only great merchants (Verhulst, 1998: 107). They became closed associations, which tended to restrict trade in cloth and other important products by dominating and regulating artisans’ looms. In some towns, these merchant guilds merged with associations of merchants, known as ‘hanses’, which developed during the 12th century especially at Ghent and Saint-Omer but also in other towns. These guilds provided, protected and regulated economic environments for robust craft production and for the extension of networks of trade beyond the local regions. The guilds also procured privileges from the princes, nobles and clerics on whose lands they lived, allowing them to govern themselves and administer their own justice, very much as with the citizens of ancient Greek polis. They gained their freedoms sometimes by rebelling, sometimes by coming to terms with the local rulers. All male residents of urban communes enjoyed equal status and the right to participate in communal assemblies—an enormously important innovation, in that it established the principle of territorial rights in place of rights derived from social status (Pipes, 1999: 109). Self-administered justice was especially important because, as commercial people, they frequently entered into private contracts which neither royal nor feudal courts could enforce. In time, other rights were added. If the feudal court is the basis of modern constitutionalism, the charters gained by the medieval burghers from their lords may be said to provide
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foundation of modern civil rights. The greatest triumphs occurred in countries that did not then have constitutional monarchies: Italy, the Low Countries and Germany. In England, France and Spain, they were less successful (Pipes, 1999: 108–9). Thus ‘towns people’ emerged gradually as a ‘Third Estate’, alongside the clergy and nobility.
Emergence of Self-governing Communes The emergence of communes was an act of political and social assertion by leading local men pushed to it because of the instability of authority and by decades of conflicting violent claims. The urban communes were the work of men privileged and well-born, enlisted mainly from among the large class of resident urban knights. They also included a scattering of rich merchants and money-lenders, a few local men trained in the law, and a handful of small landed proprietors of some antiquity. Their authority soon spread out through the expanding property interests and commercial ties of its citizens, moving into the countryside and overcoming any resistance from rural communes or magnates. There were differences in the way communes originated and established themselves across Europe, but they all grew into strong municipal structures, the focal points of all classes and interests, not only of mercantile and artisan classes, but also of feudal, agrarian and military ones.2 Though the communes held the bulk of local authority de facto, whatever the claims of ceremony and legal authority, they were never strong enough to seize the full range of public powers. In the first century of their existence communes coexisted with the older authority but over the next century, dual or inter-locking authority came to be terminated.
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The one common characteristic of their evolution was that, to begin with, the aristocracy was the mainspring of the movement; it was the aristocracy which triggered the movement. Even their counterparts in the country—the associations of knights, small landed proprietors and freeholders, and men of substance—were bound together by oaths to defend existing rights or to seize new ones. Its objectives were those of propertied or privileged men, responding to its local needs or perils and taking collective action in order to be more effective. This common characteristic in the evolution of communes has long been ignored by historians in the name of ‘urban democracy’ (Fossier, 1997: 368).
Dominance of Merchants in Communes Towards the end of the 12th century, the stranglehold of the nobility on the communes started loosening. The quarrels among the nobility made for the greatest danger to their authority in the city. In all the great Italian communes such as Milan, Florence, Genoa, Pisa and Bologna, the nobility was hopelessly divided. By the middle of the 12th century, pressure groups of merchants emerged within the communes. Most of the larger inland cities had one or two merchant guilds, and their elected heads now began to turn up as governmental advisors and diplomatic agents, representing the city’s big commercial interests. They aimed to influence commercial policy in large-scale trade and sought to fix the norms that governed commercial practices (Martines, 2002). By the 13th century, the highest echelon of merchants formed the cities’ governing class and held all the power even though numerically this patriciate was an insignificant proportion of the
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urban population. Masses of wage workers, serfs, small-scale artisans and shopkeepers were dependent upon them. According to one Italian chronicler, the ‘people’ were that part of the population that ‘lives on buying and selling’; he did not consider anyone who ‘lived with the labour of his hands’. One German chronicler, relating the revolt of Mainz, called the plebeian population a ‘pestiferous mass’ and a ‘dangerous mob’ (Gurevich, 1990: 259). The interests of large merchants and of craftsmen within the communes did not always match, and serious ruptures erupted in many cities between them by the middle of the 13th century, particularly in Italy. Just as in the period after ad 1100, municipal noblemen working through their commune had pushed forward to take power away from bishops or empire, so also in the decades after ad 1200, the popolo confronted the aristocratic commune, grasped piece-meal at its authority, or took it over altogether by throwing armed men into the fray. The rich businessmen and their part of nobility did not give in. The old set of big merchants and bankers were grouped together with a large array of knights in an organisation known as the Motta and they hit back. The popular political movements of the 13th century ended in dictatorship or oligarchy (Nicholas, 1997, Chapter 8). The popolo were defeated by organised resources: by feudal magnates in upper Italy, by merchant bankers and entrepreneurs in north-central Italy, west of the Apennines, and by alliances everywhere between big money and feudal landed interests. As long as the power of the consular nobility remained intact, rich merchants, shippers and bankers were ready to accept the support of the emerging popolo, so seeming to endorse it. But after about ad 1250 or ad 1260, having fully achieved their aims and now menaced by the political ambitions of the middle-classes, they broke with the popolo, dividing and undermining the popular movement (Martines, 2002).
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The different kinds of associations had a political as well as social role to play since they were instruments for acquiring and exercising power. During the 11th and 12th centuries, they contributed to the formation of urban laws that were distinct from the customary laws of the surrounding countryside and were better suited to a dynamic society based on money transactions. The communes were largely responsible for the fact that the towns acquired their own statutes and distinctive institutions. The bench of aldermen, sometimes in isolation and sometimes together with representatives of the legal community, became the political expression of the dominant class in Europe. We discuss in the next chapter how this power came to be exercised in three clusters of towns in Europe, in regions dominated by Hanses, in Flanders and northern Italy.
Mercantile Ethic and Culture The growth of the consciousness of money’s place and function in society paralleled the rise of the merchant from a lowly position to one of great social and political power over the course of the 13th century. The merchant’s social success presented a newly rationalised model of behaviour and perception, leading individuals far removed from commerce to imitate their modes of thought and activity (Roover, 1948). Money became the blood of the city and the place of an individual in the hierarchy came to be determined by his revenue. Even when city functions multiplied, the money mentality won over and modelled sensitivities and behaviours of the practitioners of other professions: the jurist would sell his knowledge of law, the professor his learning, the day worker his physical strength and the minstrel his talent (Rossiaud, 1990).
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You should seek to conceal your total income from the
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The principal values of the merchants of the late 14th and early 15th centuries come out clearly from the memoirs of Giovanni di Pagolo Morelli (ad 1371–1444). His memoirs abound in advice:
communal government in order to avoid paying taxes and should use every possible means to show only half of what you really own. You must be friends with whoever is in power and belong to the strongest party. You should trust no one, not servants, nor kin nor friends, because men are full of vice and imbued with deceit and betrayal when money or any other possession is in question, there is no friend or acquaintance who can take better care of your interests than you can yourself. If you are rich, be happy to other means.
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buy friends with money if you cannot gain your friendship with
It was said of Morelli that he could not remember how many children his daughter-in-law had, but the sums paid for dowries he remembered with precision (Gurevich, 1990: 269). Second, the mercantile culture started shaping the outlook and behaviour of the town dwellers. The town dweller was more often than not a recent immigrant, yesterday’s peasant. The market place was the heart of the town and the town dweller learned dependence upon the market. Above all he learned about diversity and change, about the wide range of opportunities open to him. He could profit from urban refinement that, after ad 1350, came to be called ‘urbanity’ or civility, for, there existed an ‘art of living proper to the urban world’. The towns offered new careers in business, in the professions of medicine, law and teaching and in government administration.
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They developed as great centers for the growth of new ideas and attitude. Also associated with this was a strong feeling of local patriotism. The great merchants themselves, at least in the 13th century, were prepared to pay for this with their money and their lives.
‘In the Name of God and Profit’ 3 Since Augustine (ad 354–430), the Church had conceived of a singe universal society with Christ as its head. Gregory VII undertook in the 11th century to give society a unified control under the Pope. Politically, the Church rebuked kings for the mismanagement of states and of their private lives; economically, the Church sought to regulate industry and commerce by preaching the idea of the just price, by prohibiting usury, by teaching that property is a trust from God held for general benefit, and by its inculcation of charity; intellectually it developed a single culture in the schools and universities and, when everything failed to achieve conformity, it invoked the inquisition. During the period when the merchant community was developing its own power network, it had to reckon with the infrastructure of papal power over an enormous terrain. By the late 11th century, this ideological power network was firmly established throughout Europe in two parallel authoritative hierarchies of bishoprics and monastic communities, each responsible to the Pope. Its economic subsistence was provided by tithes (contribution) from the faithful and by revenues from its own extensive estates. Ideologically, the church was sustained by a monarchical conception of religious authority, asserted to be superior in an ultimate sense to secular authority. Understandably, there was a continuous, fluctuating power struggle between secular rulers and the church.
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Inevitably, the merchant community had to work its way through the jurisdiction of the two dominant power holders in the feudal society. The merchants had to protect their own person and property and to ensure for themselves the freedom to move across territories to transact their business. The way the Champagne fairs came to be organised was a tribute to the business-like behaviour of the participants and the protection offered by the lords. While the lords were busy with their own power struggles in the feudal world, they had the pragmatic sense to allow the business to carry on in their independent ways so long as they did not encroach on their power and authority within their territorial jurisdiction. In a sense, it was this hands-off relationship that contributed to the enormous growth of business over these three centuries. However, it was not easy for the merchant community to get past the authority of the church in their business transactions: the mercantile culture itself was not in harmony with the ecclesiastical tradition of the Church. Preachers thundered tirelessly against the avaricious and the wealthy. The profits of usurers, preachers insisted, continued without interruption, denying the normal rhythm of work and rest and destroying the connection between the person and his labour because interest continued to accumulate while he ate, slept or even listened to a sermon. The accusations of the preachers were striking a sympathetic chord in the minds of the city dwellers. One chronicler of the early 13th century, Matthew Paris, wrote of the Lombards (as Italian bankers and money lenders were called in countries north of the Alps): ‘The Lombards, great rogues ... are traitors and imposters … They devour not only men and domestic animals, but also mills, castles, farmlands, heath and woods.’ The persecution and slaughter of Italian usurers, particularly in France, during the late 13th and 14th centuries, were
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phenomena as frequent and widespread as pogroms against the Jews (Gurevich, 1990: 250). The tri-functional scheme of ‘prayers-warriors-plowmen’ of the 11th century was in obvious contradiction with the emerging social reality. There was a gradual transformation in attitudes even among papal views. In ad 1078, a council at Rome had condemned merchants by stating that it was impossible for either merchants or soldiers to pursue their trades without sinning and denied them the hope of eternal salvation unless they could find other work. Yet, in ad 1179, Pope Innocent III canonised the merchant Homobonus of Cremona within two years of his death (Wood, 2002: 116). Even in the teachings of Berthold there was a qualitative change in the attitude towards the merchant community. He came to take the view that merchants were necessary to the functioning of society and that vocations have been distributed according to the will of God and that no one can abandon his ‘service’ to pass from one social order to another. According to him, what was reprehensible was not the occupation of the merchant but practices such as hoarding, monopolistic trade, deceit and theft. The south German cities of Rosenburg and Augsburg, where Berthold preached, were large commercial centers with a wealthy merchant class. The values of Augustine, the theologian and moralist opposed to property and riches, started losing their universal acceptability. Though Thomas Aquinas (ad 1225–1274), regarded trade as ‘something sordid and shameful’, he came to fully recognise its necessity for society. Over time, wealth ceased to be spoken of exclusively in negative terms. People started to see their professional vocation, their property and their time, as gifts of God. The theologians and friars of the mendicant orders made a notable contribution to the ethical and religious justification of commerce and the merchants.4 The exaltation of the
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merchant developed in parallel with economic nationalism. In the 14th century, the Italian civilian Bartolus, a friend of Dante and Petrarch, and his pupil Baldus, praised trade and commerce as the foundation of political power, and also encouraged the development of a large and prosperous merchant class in the cities (Wood, 2002: 118).5 The emergence of a self-confident merchant community within the framework of European feudalism changed the power equation fundamentally. The business elites that emerged out of the cauldron of feudal Europe form an interesting contrast to their counterparts in Muslim cities. The merchant cities of the Middle Ages, as Braudel put it, ‘all strained to make profit and were shaped by the strain’ (Braudel, 1984: 91). The Syrian and Egyptian cities lacked a class organisation in the Western sense. The rulers were a group apart, followed by religious leaders and intellectuals, who in some texts were put roughly on the same plane as other leaders including rich merchants. Longdistance merchants were urban notables in ways somewhat similar to their western counterparts, but they were more linked to the state than in Europe. As we have discussed in an earlier chapter, the repression of the market mechanism by the Emir deprived this group of any chance to exert political influence; social respectability came even more from involvement with the government and religion than in Europe (Lapidus, 1984; Hourani, 1991). Business entrepreneurs in Medieval Europe worked and flourished in autonomous city-states, where the influence of landed wealth was necessarily limited. The special juridical status of urban communes made it possible for their inhabitants to develop and sustain their own political interest, while it isolated them culturally and socially from the agrarian world round them. In this way:
…cities were not only foci of economic activity but schools
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of political and economic association—incubators of the bourgeoisie as a self-conscious, assertive, interest group. They were also crucibles for the refinement of values that, although rooted in European culture, were still deviant and feudal order. (Landes, 1958: 20–21)
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limited to a minority—values ultimately subversive of the
We discuss in the next chapter how the Hanse League and the merchant republics of the major city-states shaped the characteristics of the bourgeoisie.
Notes 1. The role of urban location in the demise of feudalism and in the rise of capitalism has provoked interesting debate among economic historians over the usual town-centric portraits of epochal transformation. Urban locations did have a role both in the demise of feudalism and in the rise of capital, but the role was arguably quite different from that of the linear developmental trajectory ascribed to by Paul Sweezy. As Sweezy has argued, feudal cities were the ‘prime mover’ both for the decomposition of feudalism and for the rise of capitalism precisely because they constituted an external proto capitalist agent of dissolution within the ambit of the feudal mode of production. The relationship between the merchant capitalism of feudal towns, the post-feudal mercantilism headquartered in the political capitals of absolutist regimes and industrial capitalism of factory cities was emphatically not one of a movement along a straight line. The feudal town was not the lineal ancestor of the early modern city, nor was the early modern city the linear ancestor of the industrial capitalist city. Any such thought has been decisively rebuffed by Ian de Vries’ reconstruction of European urbanisation in early modern Europe. De Vries demonstrates that there was no gradual or benign process of urbanisation hand in hand with a steady development of capitalism culminating in the great towns ‘studied by Engels’ that were created de novo in the late 18th and early 19th centuries (Vries, 1984).
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2. The patterns of evolution in the north and south of the Alps were different. North of the Alps was a land of strongly established villages, without a strong urban tradition, with princes closer at hand and with craft activities firmly anchored to local production. The aristocracy played a key part here. Merchants were outsiders, relatively weak. The land from the Siene to the Rhine was the cradle of the communes, where all that the merchants desired were guarantees of protection and economic liberties. It was a different kind of world for the merchants in the region south of the Alps in Italy. Overcoming political turbulence and confused authority, at the beginning of the 2nd millennium, several settlements in Italy, with roots in Roman municipal and Bishops’ seats, struggled hard to regain their autonomy. Because of the instability of authority and decades of conflicting violent claims, leading local men resolved to have self-government: the conscious formation of the urban communes was the work of men privileged and well born, enlisted mainly from among the large class of resident urban knights (Fossier, 1997: 371–73). 3. The motto on the ledger of Francisco Datini, the merchant of Prato (14th century), a deeply troubled man whose agonies were caused more by the fear of losses than by the fear of God (Origo, 1957). 4. In Roover (1974), we may read an absorbing account of the scholastic attitude to trade and entrepreneurship from the 11th to the 14th centuries which is designed to counter Max Weber’s thesis that religious influences stifled the development of capitalism in the Middle Ages. 5. One of the high points of economic humanism was Poggio Bracciolini’s dialogue on avarice. Without the cupidity which motivated the economic life, all liberality would cease, ‘all the magnificence of the cities would be removed, all culture and ornament would be destroyed, no temples would be built, no colonnades, no palaces, all arts would cease, and then confusion of our lives and of the republic would follow’ (Wood, 2002: 118).
Chapter 10
Playing with Power: Merchant Republics
B
â•… By the 14th century, several groups of merchant communities had established themselves as financial powers with substantive control over the administration of many cities along the trade routes in Europe. The political system that came to be formed was based on the city-state: autonomous, relatively large and internally compact, each bordering the next without serious discontinuity. It was the political creation of a commercial metropolis which, through war, diplomacy or purchase, succeeded in enlarging the territorial framework of the original urban commune and in dominating its hinterland of small and middling towns and villages (Hocquet, 1999). In many significant ways, we see in the behaviour of these merchant groups the beginnings of what we have come to know as the ‘bourgeois’ character. Though feudal princes had formal jurisdictional sovereignty over the urban growth centers, the bourgeoisie in many urban centres succeeded in holding their own. History was in their favour, for the princes were involved in feudal and dynastic wars and left the bourgeoisie relatively untouched. We discuss in this chapter the behavioural pattern of three such groups: the Hanse, a powerful and domineering group of merchants operating out of Lubeck who ran far-flung trade networks emanating from north and Baltic Seas; the merchants 148
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based in southern Netherlands, the hub of a flourishing textile industry, who had to keep themselves perennially engaged in fights to preserve their economic independence from feudal encroachments; and the Italian city republics of Milan, Venice, Florence and Genoa, with their rich concentrations of trade, industry and wealth.
Hanse Merchants The Hanse merchants were the true inheritors of the Norsemen, using the broad spaces and coastlines of Europe as their playground. The central axis ran from London and Bruges to Riga and Revel, the gateways to either Novgorod or to Vitebsk and Smolensk. The merchants from the north of Germany strove to establish trade monopoly in this region: they extended gradually their geographical reach, from Zuyder Zee to Finland and from Sweden to Norway. The Hansards were individual traders who travelled with the goods they had to sell, dominating the commerce of northern Europe in the 14th century. During the earlier centuries of medieval expansion, they had established themselves as the main commercial intermediaries between east and west. It was they who traded and reaped the profits rather than the Flemings, English and Poles who produced or consumed many of their goods. The Hanseatic League began as an association of merchants and ships from north German coastal towns like Bremen, Wismar and Danzig seeking to protect their common trade interests. The towns were concerned not only with German trade, but also with long distance trade between Western Europe and the Baltic: the movement of cloth, salt and wine from the west, grain and forest products from the east and fish from the North Sea and Scandinavia. The north of Europe, the trading waters
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of the Baltic, the North Sea, the English Channel and even the Irish Sea, became the scene of the sea-borne commercial triumph of the Hansa. Established formally in Lubeck in 1356, the League reached the peak of its medieval commercial prosperity in the 14th century as ‘one of the oldest, most complete and complex merchant organisations of the Middle Ages’ (Mauro, 1990). Not a state, not even a firmly constituted organisation, the merchant alliance was a remarkable success story because of its solidarity and shared pride. In the Mediterranean, with its comparative abundance of wealth, the different cities could operate independently and compete with each other in fierce rivalry, but in the Baltic and North Sea, with low profit from the bulky goods that were the staple trade of the region, the traders had to control both supply and demand, and a strong self-regulating organisation was the plank on which their success was built (Braudel, 1984: 103). Aggression was the key in their business dealings. In the early days, the League worked to secure the legal rights of anchorage, storage and residence and local immunity, which its members required to conduct their business. Over time, it started resorting to any means to protect its turf, cajoling, decreeing, threatening, boycotting and, when needed, using force. The contemporary political structure was the framework of an Empire within which—as in the rest of Europe at the time—noble and royal families played out their competitive struggles for power. No wonder, therefore, that the League could not count on help from the emperor in their early skirmishes and subsequent war with the King of Denmark. When the skirmishes with Danish kings became irritants to their trade, the League decided to challenge them. The League raised naval forces, first to suppress pirates and then to contest the policies of Denmark. Their hands were strengthened
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when the Danes sacked Wisby in 1361, provoking the League to work out an alliance with Norway and Sweden. Subsequently, the troops of the League captured Heisingborg, destroyed Copenhagen and occupied the Sound. It imposed upon the King of Denmark the Treaty of Stralsund by which they acquired wide freedom and control of castles in his country (Holmes, 1975: 124). The German Emperor was not pleased with all this; he was, on paper at least, with the King of Denmark against his own subjects. War and trade thus developed as complementary ways of gaining control of what belonged to others. Hansa’s war against the King of Denmark was a significant milestone; it signaled that a new power has arisen in the north of Germany, which came to be accepted as a reality by Flanders, France and England. The League developed into a mighty trading empire, linking at one time as many as 90 towns: each proud and jealous of its prerogatives, but never losing sight of their common objective— domination of trade in their domain. Each town of the League was like a miniature republic, but in matters of trade affecting common interests, it would submit to persuasion, arbitration and sanctions by the League. The Hanseatic League possessed no formal constitution and no central government, but had very great commercial power. Apart from defending privileges of members in such out-posts as Bergen, Bruges and London, the League enforced a ‘guest law’, which forbade direct trade between noncitizens in their towns; thus locals prospered as middle-men. It could pronounce the exclusion of a city or a merchant that did not follow its customary rules and the ban could be potent. Self-regulation by the League was crafted carefully; it secured a balance between the collective business interests of its members and the independence of the towns. The solidity displayed by the League carried it through for nearly four centuries.
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In the cities, political posts were generally the rewards for those who had successful careers in trading and banking; in German cities the town hall usually housed the merchants’ exchange as well as the government. Political posts went to the heads of rich families when it was time for them to retire from their commercial travels. With trading and money as their strength, towns like Lubeck could even confront the imperial power. These towns also chose symbols that were an assertion of their power and authority. Hamburg had a painting of the Day of Judgment which showed knights, princes and even Popes being pitch-forked into Hell, while hard-working grocers and drapers were being raised in bourgeoisie triumph to the Right Hand of God. The slow decline of the Hanseatic League was the result of both economic and political factors. It was the mysterious wanderings of the herring that triggered the decline of the League’s North Sea trade monopoly. The Hansa owed a large part of its riches to the herring trade, and when in the 15th century, the fish began to spawn in the North Sea, the centre of northern Europe’s commercial success shifted to the Netherlands. The Hansa also found it increasingly difficulty to handle aggressive modern states such as England, Prussia and Muscovy. What is the legacy that Hansa has left behind? Over the centuries, Hansa had created a way of life whose solid virtues were cemented into every stone of its bursting and elegant cities. Many European historians have hailed it as a beacon for all who seek a future based on sturdy local autonomy, international cooperation and mutual prosperity. Never before, as Braudel said, was there a true international economy (Braudel, 1984: 102). To be Hanseatic was to belong to an inimitable, international civilisation based on shared values and priorities.
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Southern Netherlands In the late Middle Ages, a number of independent counties, politically fragmented and located in the northwest corner of continental Europe, spread over parts of what today are France, Luxemburg, Belgium and the Netherlands, collectively referred to as the Low Countries because of their nearness to sea level. The more prominent among these were the counties of Flanders and Hainault, the duchy of Brabant and the bishopric of Liege. Flanders (now western Belgium) was within the feudal fold and to some extent within the political orbit of the king of France of which the count was a vassal; the other counties, theoretically, were within the territorial ambit of the less effective German King. By the 13th century there were a large number of towns dotting this region, which derived their wealth from a highlydeveloped woollen cloth industry. In the 13th century Flanders reached its peak; so great was the production of Flemish cloths that, in some sense, one could characterise it as a kind of industrial revolution (Abu-Lughod, 1989: 84). By the 12th century, the towns could secure privileges from the kings and counts for ensuring freedom and safety of trade. They strove hard to maintain the integrity of their liberties on which their commercial success was based. Unlike the towns of the Hanseatic League or the cities of northern Italy, the towns in the Netherlands could never isolate themselves from the seigniorial or princely politics. The towns framed economic policies of their own, negotiating and making decisions on trade relations, both long distance and local and setting up their own commercial jurisdiction with authority over native and foreign merchants. The general revolt in Flanders (1322–1328), leading temporarily to the deposition of the count, was sparked by the count’s action in granting rights of justice along the river Zwin
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to a relation of his. This was unacceptable to the business community, for the Zwin, Brughes’ line of communication with the sea, was considered far too critical for the cloth industry of the towns to be open to arbitrary decisions. During the 13th and 14th centuries, merchants dominated not only local but also national and international politics. The rich burghers had very high stakes in the textile industry and had to remain constantly vigilant about the moves of the counts and the King of France. Each of these counties had a different constitutional arrangement with the dukes who had come to power by inheritance, purchase, or conquest. At the peak of their prosperity, the governments of the three great commercial towns of Bruges, Ghent and Ypres, in Flanders, were in the hands of aldermen elected from the wealthier burgesses, though, formally, they had to share their powers with bailiffs representing the Count or Duke. In Ghent, an oligarchy of 39 persons rotated the 13 aldermanic posts among themselves every three years (Holmes, 1975). This situation had always been extremely frustrating to the dukes nursing ambitions of acquiring substantive control over Flanders, since it was the most valuable part of their dominion in terms of revenues. Flanders and Brabant also included some of the most important old and established industrial and commercial towns of Europe and were more difficult to manage than large agrarian states. Things could get very confusing for rival political governments when the Flemish towns got involved in their disputes, as in the Hundred Years’ War between France and England (1337–1453). The towns flourished on wool imported from England, so they had to take sides. Edward III (1327–1377) tried to secure the alliance of the Flemish towns against the King of France. Given their natural hostility to the French crown, the towns allowed themselves to be used as a lever by Edward III.
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When the French and the English fought for control of Flanders, the workers sided with the English invaders. The English forces, with help of worker militias, defeated the French in the famous battle of Courtrai. This victory not only altered the internal governance of the Flemish cities but the outcome of international politics (Holmes, 1975: Chapter 1). That the designs of the English failed is another story, but, in the confused political situation that emerged, the three big towns of Bruges, Ghent and Ypres consolidated their republicanism. But the towns started losing their bargaining strength with the decline of the cloth industry in Flanders, which happened when England and Holland showed they could produce simple clothes more cheaply. Internal cohesiveness between the patriciate and the textile workers became fragile. The workers took to the streets in 1280 in virtually every textile town in Flanders to protest their conditions. These open conflicts of interest sapped the political strength of the towns when it came to taking on the counts or the King of France. Between the towns also, conflicts of business interests developed, as, for example, between Antwerp, the growing centre of international trade, and Bruges, the declining centre of the Flemish cloth industry.
Genesis of Global Financial Centres Flanders occupies a unique place in the evolution of trade and its finance. For several centuries the region was the economic centre of gravity for the whole of Europe. Bruges contained within itself a point of maximum commercial intensity, as it united the two major poles of maritime circulation—that of the Mediterranean with that of the Baltic and North Seas. In its markets products were found, exchanged and transported from the near east and Africa by the Genoese and the Venetians and the goods were
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bought from Russia and Scandinavia through the Baltic by the ships of the Hanse. Bruges became the chief commercial city of northern Europe (Holmes, 1975: 18). Bruges retained its primacy until well into the 15th century when the silting of the Zwin estuary made it difficult for ocean-going vessels to reach the harbour. Bruges was overtaken by Antwerp, and for more than 50 years, Antwerp wielded supremacy greater than that of Bruges in its heyday. Some scores of men, princes, diplomats, artists, poets, travellers and merchants, have left on record their astonishing admiration at the queen of commercial capitals. Two characteristics marked it apart. First, its cosmopolitan character; Antwerp attracted trading nations because of its better and more enlightened treatment, and fewer restraints and greater tolerance, in contrast to Bruges. Second, the network of trade among the different ‘nations’ at widely scattered points and in particular, the techniques of their financing, building in the risk factors, can be said to be the beginning of a ‘circuit of finance’ that would in later decades would be one of the main foundations of oceanic trade (Neal, 1990). Considering the close relationship between trade and finance, it is easy to understand why merchant bankers left Bruges and set up shop in Antwerp. Foreigners—Italians, Frenchmen, Englishmen, Germans, Portuguese, Spaniards, or ‘nations’, as such groups were called—came to do business at Antwerp. The singlemost important event that marked the beginning of Antwerp’s rise was the decision of the Portuguese to choose the city for marketing spices. From 1460, the Portuguese had begun marketing the produce of their oceanic enterprises at Bruges. But when the Portuguese royal factor established himself at Antwerp, the spice trade leapt into prominence. Vasco da Gama’s success in getting to the source of east Indian spices ensured that for half a century
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to come, Antwerp was to be the main channel of Portuguese spices into Europe. The English also chose Antwerp as the ‘mart town’ for English cloth. The south Germans, based at Nuremberg, Augsburg and Frankfurt and linked with such places as Berlin, Breslau and Leipzig traded in metals from the central European mines and in the fustians woven south Germany. Big German firms such as the Fugger, Hochstatter, Welser and Tucher had all begun with a combined metal and cloth trade and later specialised in metals, in particular copper and silver. Many Lombard traders settled in the city and became involved in the creation and financing of inter-European enterprises. Antwerp’s political, religious and fiscal autonomy were secured after paying a political price. The city had extended support to Maximilian during his 10-year struggle with the Flemish towns which was to last unimpaired until the advent of Philip II 70 years later. The alliance was formalised by Maximilian’s charter calling upon nation’s residents at Bruges to transfer themselves to Antwerp. The creation of Charles V’s empire gave the city natural advantages inside his extensive political system and made it the obvious place for feeding the precious metals of the Americas into the European trade stream (Elton, 1963: 42). But this had a price: the town had to be willing to ‘support the prince in his necessities’. Second, it had to accept the policy the prince pursued with the resources thus provided. For the first 50 years of the century, which were coterminous with the reign of Charles V, these conditions were substantially fulfilled. The town was invariably ready with the money required to confirm an old privilege or require a new one or to redeem a toll or farm a tax, while its wealthiest strangers made the loans which an imperial monarchy happened to be in constant need. The town used its privileges to protect its business community, but this was never to the liking of the monarch.
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City States in Italy Around the year 1200, north and central Italy had 200 to 300 city republics, although only a handful of them contained more than 20,000 inhabitants. In the course of the 14th and 15th centuries, the number fell sharply but the survivors included cities of great commercial importance, notably Genoa, Milan, Venice and Florence. Merchants from all over northern Italy ventured forth to take advantage of the opportunities for trade in the expanding European economy. The basis of that trade was the relation between an undeveloped area and a developed one, between northern Europe, where markets for luxury goods opened up once the political situation began to stabilise, and the older markets in the Levant, where many of the goods were to be found. Italy was located half way between these market areas and lay in the midst of the sea that facilitated transport, so that Italians were destined to be middlemen—the traders and shippers. Everywhere in northern Italy, in small towns and large ones, entrepreneurs collected what capital they could and went out to exploit market opportunities. Over the next two centuries, they built up a network of commercial relations that spanned all of Europe, from England to Egypt. All this became the life-line of the developing European economy (Goldthwaite, 1991: 31). The big four Italian cities occupied themselves with fairly distinct market niches. Florence and Milan engaged in manufacturing and in overland trade with northwestern Europe, with Florence specialising in textile trades and Milan specialising in metal trades. Venice and Genoa both specialised in maritime trade with the east: Venice in deals with the southern Asian circuit based on spice trade and Genoa in deals with the central Asian circuit based on the silk trade (Arrighi, 1994: 88).
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Florence had no port and therefore no fleet of galleys but the very elaborate worldwide of firms like the Alberti were a Florentine speciality. The big four created a vast international network. Florentine gold florins, for example, first issued in 1252, became a standard international currency for all of Europe. By early 14th century, Florence had outstripped all of its neighbours and indeed most other European towns, in size and wealth as an industrial centre.1 As a nominal part of the Byzantine Empire, Venice had been serving as the transfer station for goods dispatched to northern Italy by traders within the Byzantine system. During the 12th century, Venetian traders expanded their scope to the whole eastern Mediterranean, profitably mixing trade, piracy, conquest. Participation in Crusades was fully exploited by them to pursue their commercial interests (Atiya, 1962). In material terms, Venice was the greatest commercial success story of the Middle Ages—a city without much industry which came to bestride the Mediterranean world and to control an empire through mere trading enterprise. The 15th century saw the culmination of Venetian prosperity. In the period just before 1423, Venice was said to have 3,000 vessels, of less that 100 tons burden, manned by some 17,000 sailors; 300 large ships with crews totaling 8,000; and 45 galleys employing in all 11,000 men. These figures may be a trifle exaggerated but they give some idea of the swarming activity of the Venetian seaways (Clough et al., 1952: 61).
Entrepreneurial Ethos and Culture In these city-states, the merchant community acquired a culture and ethos strikingly similar to what one finds in the capitalist countries of today. One distinct feature common among
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the city-states was the entrepreneurial attitude of the merchant class. They were imbued with a pro-enterprise culture which flourished in the autonomous ambience of the cities. Cities of the 16th and 17th centuries saw the dominance of ‘a group of talented and ruthless entrepreneurs’, classic examples of what Pareto called the ‘speculator type’, whose pursuit of profit at once encourages and is encouraged by economic development. In his classic study on the Renaissance, Jacob Burkhardt stressed their ‘individualism’. The pro-enterprise culture was suffused with aggression. Venice was driven to acquire, for the sake of her trade interest in eastern Mediterranean, the islands of Negroponte, Crete and many lesser places on the route between Venice and the Black Sea. If Venice had sugar plantations in Cyprus, Genoa controlled the alum mines of Phocaca, alum being a vital raw material for the textile industries of Europe. The rivalry of Venice and Genoa in the eastern Mediterranean—almost a foretaste of the rivalries of imperialist powers in the early 20th century—produced bitter wars in the later 14th century. Within this conglomerate, one can discern different patterns of intermixing of business and politics. The Venetian political structure was that of an oligarchy. The city’s leading families were merchants and bankers and the city’s governing council represented the leading families. The ruling Doge came from the patriciate and the ruler was in substance its chief executive sub-serving the domestic and foreign interests of the merchant capitalists. The Venetian state’s policies were geared to promote commercial monopolies, protect its merchants and channel trade through Venice rather than to create a territorial empire. Their rulers gained a reputation for their ability to wage canny and successful sea battles for the benefit to the city’s merchants, bankers and manufacturers.
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The great advantage that the Venetian state enjoyed, as compared with the larger states in Europe, was that it could finance wars carried out in the interests of the merchants by borrowing from the merchants and taxing the cash flows such as customs and excise passing through the extremely commercialised economy. The strength of the Venetian state was in its fiscal rectitude and in ability to borrow and tax, with support from business, without creating a bulky bureaucratic governance and fiscal structure. At the start of the 17th century, while other European states were acquiring war debts and struggling to set up workable fiscal machinery, Venice could manage to liquidate its entire debt (Lane, 1996: 326). Second, finance started emerging as a major tool for the expansion of business; the Florentine traders had developed the expertise to use finance as an effective leverage. By ad 1250, Florence had 80 important trading and banking firms like the Spini, Spigliati, Bardi, Pulci and Alfani. Other towns such as Sienna, Lucca and Pistoia boasted dozens of wealthy firms but Florence became the financial capital of Europe in the 14th century. The importance of the bankers of Florence was enhanced by the break-up of the order of the Templars2 in the early part of the century. Florentine networks of business were embedded in an extensive and dense web of financial support. Scattered all across the Western world, and yet linked with the technical facilities for dealing with one another, the Florentines had what was in effect Europe’s only international banking system. The great bankers of the time were at the same time members of the wool guilds so that international banking and commerce in cloth developed co-extensively (Ibid.). Well before the end of the 14th century, Florentine capital and business knew how to assert its strength to the point where it could penetrate and outbid its
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most vigorous competitors even in their home areas. In 1382, Venice reversed its protectionism to allow the Florentines to set up an establishment in Venice and allow them to invest in the Venetian maritime trade. Florentine capital contributed significantly to the growth of textile industry in Ragusa in the 15th century. In Barcelona, the king, recognising the superiority of the financial services provided by Florentines, allowed them to move in, despite vigorous protests by local merchants (Goldthwaite, 1991). Florentine finance owed its respectability to its involvement with the politics of the day; Florentine bankers would assiduously cultivate political personages and leverage these connections to their enormous business advantage. Papal connections inspired awe and Florentines used it to good effect through management of papal finance. The papacy collected taxes, dues, fees from almost every land in Europe, and this money had to be collected and sent to Rome or held till they were needed. The popes needed a highly organised system to carry out these functions; the Florentines provided it. Ironically, it was the Church then that, despite its condemnation of many banking practices, stimulated the growth of crossborder financial transactions, the basis of what we would call an international bank. The pan-European activities of the Popes were inextricably bound up with the commercial expansion of Italian business: they had virtually grown together (Holmes, 1975: 67). By plugging into the Papal financial network, the banking firms were able to build up an extensive branch operation, ensuring that ‘the largest floating capital in the world’, as the Florentine chronicler Geovanni Vilani described it, passed through their hands (Roover, 1974). The strongest of these families/firms at the end of the 14th century,
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the Alberti, established its position in the Papal network so securely that it was able to survive the break in diplomatic relations between the Papacy and Florence occasioned by the War of Eight Saints (1375–1378). Trade in religion on Rome’s account was so inextricably combined with trade in wool on Florence’s own account that the firm’s business did not suffer much even though the family was exiled for over a century, from 1401 to 1428, because of the city’s internal fractional strife (Goldthwaite, 1991: 35). What Alberti began was developed more vigorously during the Medici Period.
High Finance: Genesis From involvement in Papal finances it was but a small step for the Italian bankers and financiers to get involved in the finances of the princes and kings. This association between business and politics is the genesis of what we call ‘high finance’ today. This shift to high finance increased as the returns from the wool trade shrank because of a change in consumer preferences and entry of new players. Florentine expertise in finance gave its merchants tremendous business resilience, changing their business models and enabling them to exploit new opportunities. During the Hundred Years’ War (1337–1453), the constant need for financial assistance imposed on the two sides by the commercialisation of warfare created unprecedented opportunities for commercial and financial intermediation and the Florentine merchant bankers were well placed to take advantage of this (Arrighi, 1994: 107). The Florentine chronicler Giovanni Villani wrote about the activities of Florentine merchants in England during Edward III’s war with France in ad 1338 and after:
During this war between the kings of France and England the
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merchants of the King of England were those of the Bardi and Peruzzi companies of Florence. Through their hands went all his revenues and wools and other things and they (Holmes, 1975: 68)
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supplied from them all his expenses, wages and other needs.
The influence of Italian bankers permeated many regimes in Europe. Two such bankers, Biccio and Musciatto, dominated the finances of France in the reign of Philip the Fair (1285–1314). The Bardis, who had extensive business interests in northern Europe, owed their prosperity to their association with the King of Naples, also the Count of Provence in southern France; they lent him money to finance his wars and in return got the exclusive right to control the exports of grain, fruit and diary products from Apulia in southern Italy and grain from Provence, trading extensively in French textiles and scarlet cloth from Ypres. But high finance had its heavy price. Joanna of Naples repudiated half of the debt owed to the Bardi by her kingdom. English mobs rioted against the foreign usurers. Finally in 1345–1346, Edward III was unable to pay the huge sums he had borrowed from the Bardis. This catastrophe threw the Bardis into bankruptcy and they paid their creditors only 48 per cent. It was probably little comfort to them that the Peruzzi were involved in the same crisis and likewise went bankrupt (Clough et al., 1952: 86). When the financial leadership in Florence in the 15th century went to the Medicis, the family used its bank as a lever to gain effective control over the Florentine state. ‘It is hard for the rich to live in Florence, unless they rule the state’—this is how one of the Medicis rationalised their attitude towards the state, implying that if you do not control the state, the state will ruin
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you (Parks, 2005: 87). Business and politics came to be inseparably intermixed. Cosimo, the dominant Medici figure in the 15th century, reached out across Europe—planning, calculating and spinning his web across the continent’s financial centres (Hale, 1977: 127–43). The diplomatic function of the foreign branch managers of the House of Medici was always considerable. The branch in Milan, for example, was a kind of ministry of finance, housed in a palazzo made available to the bank by the Duke, Francesco Sforza, and greatly enlarged at Cosimo’s expense (Hibbert, 1979: 87). The Medicis became so deeply involved in the business of politics that they rose to prominence in the ranks of the European aristocracy even though their commercial and financial activities withered away. They gave the Church a number of cardinals and two Popes, Leo X (1513–21) and Clement VII (1523–34), and France two queens, Catherine and Marie. Branches of the family were princes and dukes down to the 18th century. In Genoa as well, state policy was primarily directed at ensuring the superiority of Genoese commerce in their traditional trade routes. Genoese enterprises managed to establish and maintain, through their naval power, a quasi-monopolistic control over the Black Sea terminal of their Central Asian trade. As long as the Mongol Empire could ensure the security of this central Asian route, and Genoa retained its military superiority in the Black Sea, Genoese trade prospered and grew in scale, scope and volume. Then, the Ottoman power rose and destroyed Genoese supremacy in the Black Sea region. The setback to Genoese long-distance trade prompted the landed aristocrat-turned-merchant class to rethink its strategy. With the military commercial empire beginning to disintegrate, the Genoese landed aristocracy withdrew from commerce to re-feudalise itself. Meanwhile, the bourgeoisie element of the
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merchant classes found itself in a crisis: on the one hand, it had huge reserves of money, information, business know-how and connections, but on the other, it no longer had the ability to protect itself and its traffic. Then, opportunity presented itself on the Iberian Peninsula when Barcelona’s leading private banks collapsed in the crash of the early 1380s. The Genoese filled the gap to become the most important financiers in the Iberian region, very much as the Medici had taken advantage of the collapse of Bardi and Peruzzi in the crash of the 1340s. The Genoese merchants took over Castilian trade. Once they had obtained this foothold, the Genoese was well placed to entrench themselves in the Castilian economy, and later participate in the lucrative trade between Seville and Castile’s colonial empire. It was with the help of the Genoese merchants that the King
of Spain was able to convert the intermittent flow of silver from America to Seville into a steady stream. After 1567, the Spanish troops fighting in the Netherlands demanded regular monthly payments in gold coins. Genoese merchants provided this. Thus Genoese predominantly influenced the course of 16th century Spanish development. If the Catalans rather than Genoese had won the struggle for entry into the would have taken a profoundly different turn. (Elliott, 2006)
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Castilian commercial system, the history of a united Spain
In Venice, as in Florence, the end of the Eurasian trade dictated that the surplus capital be transferred from trade to war and state-making activities, from the business of trade to the business of politics. In Florence, it materialised in the highly concentrated form of the irresistible rise of the Medici to the monarch
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of the city; in Venice it materialised in the more diffused if less spectacular form of ‘rentarisation’ of the entire upper stratum of the city’s merchant class. These elements played a passive role in the subsequent expansion of the capitalist world economy. Thus, when at the end of the 15th century, the European world economy entered a new phase of expansion under the impact of the so-called great discoveries, the opening-up of a direct link between Europe and the east Indies, and of the conquest and the plunder of the Americas, the capitalist classes of Venice, Florence and Milan played no active role in the promotion and organisation of the expansion. By then, their surplus capital had been fully absorbed in state-making and had lost much of its previous flexibility. It was Genoese capital that showed the way.
Business and Politics: A Matchless Mixture Even before the expression ‘colonial empire’ existed, the city republics of the end of the Middle Ages, before the rise of the Great Powers and before the Age of Discovery, did in a real sense, possess one. With regard to Genoa and Venice, Fernand Braudel has spoken of ‘European expansion’ taking place as early as 12th century. These aggressive little entities were oriented towards external trade and no longer lived in an exclusive relationship with the countryside around them. Venice and Genoa had its borders marked by Lisbon, Fez, Damascus, Azov in addition to Bruges and the Hanseatic League. They possessed trading outposts and possessions abroad, from the Barbary Coast to Caffa on the Black Sea. It was like a Portuguese Empire before its time, but confined to the interior of the Mediterranean (Ferro, 1997). During the crusades, Venice came close to occupying the Byzantine Empire but Genoa restored the Paleologue Dynasty.
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Divided among themselves, they came up against a wall: Islam strongly entrenched in the Levant, which the Vivaldis from Genoa had attempted to bypass by means of expeditions, round Africa, as early as 1282. Their enterprises failed because these were too large for small states. But the idea lived on. The big city-states of Italy had become major European powers instead of being appendages to feudal lords. The entry of businessmen into political decision-making drew them into the economic functioning of the state. In all their diversities, they were able to adapt their ways of thinking to the realities of the economic world and assert their own scale of values. Looking back, after the city-states were gone, from the turmoil of the 16th century, it would seem that the personages like Cosimo, Lorenzo de Medici or Jacques Coeur had belonged to a more self-assured, in some ways even innocent age. They all came before the sacking of Rome (1527), before the sieges of Naples (1527–1528) and Florence (1529–1530). But the city state format was proving inadequate for giving continuous support to expanding business activities. By the end of the 15th century, the relatively autonomous Italian city states found themselves pawns of great power politics. In 1492, the dual monarchy of Castile and Aragon—the linked but not merged inheritances of Ferdinand and Isabella— completed the conquest of Granada, eliminating from Iberia the last substantial vestige of once great Muslim empires. Responding in part to the threat of a united Spain, France made a bid for Italian hegemony, initiating the era of wars on a European scale. These wars in their turn shaped the European state system, constructed the platform for European conquests outside of Europe, and helped form the centralised, autonomous, bureaucratic states that eventually came to predominate Europe and then in the world as a whole. Prosecution and conduct of
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wars required men, material and finance; the way the different political regimes could raise these resources became critical. The natural rhythm of the body politic was broken and a new one in the form of fiscal military state started evolving.
Notes 1. Florence had an annual income greater than that of the king of England and the revenue of Venice and its Terra Firma at the middle of the 15th century was 50 per cent higher than that of France, more than the double of England and Spain (Bobbitt, 2002: 83). 2. The Knight Templars were among the most famous of the Western Christian military orders. Templar knights were among the most skilled fighting units of the Crusades. Non-combatant members of the Order managed a large economic infrastructure throughout Christendom, innovating financial techniques that were an early form of banking, and holding many fortifications across Europe and the Holy Land. The Templars’ existence was tied closely to Crusades, and when the Holy Land was lost, support for the Order failed. King Philip IV of France, deeply in debt to the Order, burned the members at the stakes and confiscated their wealth. Under pressure from King Philip, Pope Clement V disbanded the Order in 1312. The organisation existed for nearly two centuries in the Middle Ages.
Part III
The Great Transition: Warfare Technology— The Catalytic
In the beginning of the 15th century, Europe was a region of fragmented sovereignty and porous borders. Muslim dominions had come up in most of the Roman Empire’s former space. A loosely linked Byzantine Empire extended from eastern Italy to the Black Sea. To the north, an even more indefinite Russian state stretched to the Baltic. A Danish kingdom wielded power from the western Baltic to the British Isles. South of the Baltic lay a host of shifting Polish, Bohemian and Hungarian principalities. To the west was a Saxon Empire that claimed the heritage of Charlemagne, and still further, the Kingdom of France. Within the ring formed by three sprawling ephemeral states, rivals commonly used armed force to further their own interests without paying much attention to their nominal sovereigns. Nearly all European political units were composite states built around ruling families and dynasties. Nothing like a centralised national state existed anywhere in Europe. There has been a tendency to take a rather mystical view of the rise of these states, the argument being that these states had features—some representative or semidemocratic government, controlled state power, the rule of law, individual and local liberties and privileges—that were behind the rise of Europe and thus crucial for the development of industrialisation and capitalism. So, the argument goes these states were models for other societies wishing to become ‘modern’. Actually, the processes that powered the emergence of the European fiscal-military state had little to do with these factors and more to do with the revolutionary changes in 172
the strategy and tactics of warfare that made it impossible for princes and monarchs to conduct war within the feudal setup. The princes and monarchs were compelled to bring military activities under the umbrella of the state, thus institutionalising the relationships between the merchant capitalists and the monarchs. These fiscal-military states were strengthened further as they adopted mercantilist policies and practices. The progressive deepening of collaboration between business and polity through fiscal– military–mercantilist states was at the roots of European hegemony in the later centuries.
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Chapter 11
Sword and Purse: Beginnings of Collaboration
T
â•… The 16th century was one of transition from the era of small city-states mostly ruled by patriciates with business interests or supported by business communities to one of nation-states ruled by monarchs. Geo-political developments started changing the face of Europe. The complex of principalities and territories known as Germany was at the height of prosperity and population. The decline of France in the wars of the previous two centuries and of Italy in the Franco-Spanish wars of the previous 30 years had put Germany at the centre of the European stage (Elton, 1963: 23). The rising power of the Habsburg Empire emerged as the central political sensation of the times.1 As Germany came to occupy the centre of the European stage, the authority of Charles V was open to challenge on all fronts. France felt encircled and frustrated in her search for military glory and was spoiling for opportunities to settle a web of claims in Burgundy and Italy. In the eastern border, the formidable power of the Turks was a constant worry. Internally, the 85-odd imperial cities’ jealously guarded their independence and maintained their defences while the aristocratic nobles regarded the 16th century monarch as not more than primus inter pares. Charles found himself challenged simultaneously by intense 175
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religious dissidence. It was but inevitable that Europe came to be involved in incessant warfare.
Warfare Technology By the early 14th century, new techniques and technology started revolutionising warfare.2 For a thousand years or so, following the fall of the Roman Empire, the cavalry had been the dominant branch of armies throughout Europe. The mounted warriors were nobles while the foot soldiers accompanying them were the serfs and commoners. The introduction of the rapid-firing longbow was the first blow at the primacy of the cavalry; the introduction of guns in the 14th century, first as artillery and then as firearms, reduced the cavalry to an auxiliary force and the infantry now moved to the fore. Archers, and then infantry armed with muskets, ended the dominance of feudal knights and the massed squares of pikesmen. The armies themselves grew dramatically in size, giving their commanders scope for decisive action in the field and ending the era of the static, inconclusive siege tactic that was a favourite till about the end of the 15th century. It is generally admitted that, at Ravenna in 1512 and at Marignano in 1515, field battles were won by artillery for the first time in history (Cipolla, 1993: 28). Princes and monarchs keen to expand their realms using the opportunities opened up by the new technologies of war became desperate to overcome the military constraints inherent in the feudal military structure. Feudal armies were organised and equipped on the basis of a network of relationships—military specialisation, land tenure and personal obligation. In medieval Europe, war had been an honourable profession for wealthy specialists, eulogised in the European literature as selfless knights,
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who trained for it from early youth, in return for economic security through grants of land, and pledged service and allegiance to the lord. A land-holding warrior class developed free of all duties save that of rendering mounted service to the lord for a number of days in a year. The rulers could no longer count on the feudal ethic and obligations as the main instruments for the mobilisation of men, materials and weapons. However, none of the then ruling princes and emperors in Europe were equipped to organise, on his own strength the men, material and finance required for the switch to the new warfare strategy. In feudal warfare, the cost of war was levied through the social system; in the emerging landscape only a statecontrolled fiscal system could meet the cost of war. But creating such a system takes time, and rulers were driven to look for quick ways to mobilise resources, given the frequency of wars.3 The strategy for resource-raising became the prime mover in the transformation of relations between the rulers and social elites, in particular the community of merchant capitalists—the beginning of a long process that extended from the early 16th century to around 1700.
Resource Raising Raising resources for warfare became the axis round which business–polity relations started moving. The character of the economy, the extent of urbanisation and the spread of merchant communities, location of financial centres—all these influenced the ways in which the ruling classes and business entrepreneurs started relating to each other. If one were to draw a line from Copenhagen to Venice, all the thriving commercial towns were situated west of that, with
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relatively uncommercialised agrarian economies to the east. Merchant capitalists were dominant in the urban civilisation of 15th century Western Europe. Despite the collapse of the 13th century agrarian boom and the population crisis produced by the plague after about 1350, the wealth of the trading towns had increased—in the north, where the Hanseatic League dominated the Baltic and the North Sea, and in the south, where the Danube and the Rhine towns controlled the profitable trade routes over the Alps into Italy and from France and Burgundy in the west to flourishing industries and markets in the east. On the other hand, eastern Europe’s primarily agrarian economies were dominated by the feudal ethic and had little commercial orientation. There were also differences in the relative availability of commercial capital and surplus from agricultural activities. These two factor endowments influenced the pattern of state formation as well as the relationships between political actors and business entrepreneurs. Two types of social interaction influenced these developments: the logic of coercion in which administration and violence control human activities in a territorial setting, especially the extraction of resources from peasants; and the logic of capital which controls human activities in the market, especially trade, finance and transport. We follow Tilly in discussing the outcome of the interplay between the two logics, as the different regimes got involved in resource-raising efforts.
Agricultural Economies In Europe’s zones of herding and subsistence agriculture, with capital remaining slight and dispersed, as in Russia, the ruler had little option but to enlist the support of landlords to conscript peasants for the army and to create massive bureaucracies for
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collecting taxes for necessary resources. The mode of mobilising resources was primarily, as Tilly characterised it, coercionintensive (Tilly, 1994). Since there was little urbanisation and so also concentration of capital, rulers squeezed the means of war from their own populations and others they conquered by building their own massive structures of extraction. The Mongol hegemony respected this power structure and, during the 16th century, as the Mongol states collapsed, Russian conquests to the south and east brought into being a system of forced labour by peasants with restrictions on their rights to move. Landlords generally enjoyed, as in Russia, the freedom to exercise economic and political control of the peasants in their jurisdictions. When the Muscovite tsars, Ivan the Great (1462–1505) and Ivan the Terrible (1533–1584) set about to establish direct control, bypassing the independent power magnates, they had to create an army and bureaucracy attached to the crown. As this was a capital scarce region, they could not draw upon any financial resources to procure men and ensure their allegiance; they had to resort to extensive land grants. The logic of territorial expansion through war left the Russian state with no option but to buy the allegiance of office-holders in the bureaucratic set up with expropriated land. The system gathered momentum with the formal codification in 1649 of the practices of serfdom that had gained currency over two centuries. As the Russian state began seriously to engage in war with its heavily-armed western neighbours, it had no option but to expand the bureaucracy. The growing population of 16th century Europe put a premium on food production and land acquired a greater value since the collapse of the agrarian boom of the 13th century. Everywhere it was the aristocracy, not the urban middle class, who made the most of the changed circumstances. The great granary of Europe—the area east of the Elbe—was exploited by
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landowners who often succeeded in adding territorial rulership to commercial success. The nobility and bureaucracy were so strong that where they sensed profit in trade transactions, they would shut out the merchants. When, in the 16th century, large volumes of eastern European trade began to flow westward, they used state power to contain merchants and coerce peasant producers for supplies for their shipments (Tilly, 1992: 142). In Prussia as well, the mobilisation of the army was through a forcible quota; every canton was required to provide a quota of men, a system that was deployed to man the Swedish army that had occupied Prussia during the Thirty Years’ War (1618–1648). The land-owning class used its quasi-feudal powers as a lever to impose the burden of military obligation on the peasantry. The Prussian state saw it could ensure a steady flow of men, material and finance for war by reinforcing and strengthening the powers of the land-owning class and by creating more state-guaranteed privileges. The officer corps in Prussia was mostly drawn from the nobility. All major tasks of the government, including taxation, management of the economy and the administration of the royal domain were subordinated to the imperious command of a military regime. The impact on the character of the state was the dominance of large privileged nobilities and substantial state bureaucracies.4 A social hierarchy, defined, supported and dominated by the state, became the inevitable outcome in states located in regions with scarcity of capital (Brewer, 1994: 62). In some regional economies, the expanding trading cities had a decided edge in relation to the feudal powers. The Iberian Peninsula hosted a conglomerate of dynastically linked monarchies. Portuguese kings had the great advantage of deriving much of their income and credit from the commerce of a single city. With heavy involvement in world-spanning international trade, Lisbon maintained tenuous relations with an agricultural
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hinterland, with the monarchy drawing a large share of all its income from profits on overseas trade (see Chapter 14). Ready revenue gave its rulers wide autonomy vis-à-vis the population they ruled, but it made them dependent on the continued flow of that revenue and on the people who produced it. Naturally the Portuguese crown remained vulnerable to a decline in Lisbon’s commercial vigour, and it was but natural that Lisbon’s commercial oligarchy retained power in royal affairs. Madrid in Castile remained the headquarters of the landowning nobility that, like the crown, profited immensely from the capture of Muslim lands, but as the revenue from these sources became uncertain, the crown had to borrow extensively from the merchants. Such cities managed to extend their prerogatives in the interplay between vigorous nobility, an expanding monarchy and the merchant community in urban clusters involved in overseas trade. So, from the middle of the 13th century, Barcelona and other cities obtained self-government, especially in trade affairs, monetary and fiscal authority and even the right to equip a war fleet. These privileges were granted in return for gold, which the kings used for dynastic purposes. During the 13th and 14th centuries, bargaining between the three major forces enabled them to realise their main goals (Tilly, 1994: 228).
Urbanised Economies In contrast to primarily agricultural economies in which the state had abundant land at its command, maritime states such as Venice collaborated with merchants and financiers and developed its sea power on the strength of resources from excise and custom. In states such as the United Provinces, convergence of the interests of the ruling class and the capitalists smoothened
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the internalisation process. In the earlier centuries as well, princes and merchant capitalists often worked towards a common interest when it came to defence or aggressive warfare. During the Hundred Years’ War, a commercial war party evolved in Europe that made alliance with aggressive sections of the nobility and succeeded in delaying the efforts of Richard II (1379– 1399) to make peace when the war was going badly. Their main interest was to become contractors to the army and, more importantly, to bring Flanders within the orbit of the English wool trade (Mann, 1986: 432). But this relationship between ruling regimes and merchants—the conquest of markets as well as land—became more entangled in the 16th century, when the polities had to rely on the services of external sources to adapt to the revolutionary technological changes in warfare. First, they had to seek services from a class of contractors, condottieri, whose job it was to conduct war on a purely commercial basis.5 They would serve any political regime so long as their contract of service specified the size of force to be provided, the length of time it was to serve, and the scale on which it was to be paid. By the late 15th century, commercialised warfare became classless and international. The mercenary served any master: Protestant Germans happily fought under Spanish or French colours; Italian specialists served the Queen of England or the Dutch. They had a bond of loyalty to the employer, but only so long as the employer paid them. If they were not paid, they would ransack the countryside. The Spanish Fury of 1574, when unpaid Spanish troops ransacked Antwerp, was one gruesome and spectacular example of the fate that befell countless towns and villages in north and central Europe in the late 16th and 17th centuries (Howard, 1978: 29). The wars of the knights of the early Middle Ages now became wars of the mercenaries (Howard, 1978). The economic scale
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of mercenarism reached unprecedented proportions during the late 16th and 17th centuries. It was business on a massive scale, this business of organising through a network of contractors the food, arms, uniforms, shelter and means of transport needed for war. The organisers of war, the military entrepreneurs of that age, became in effect organisers of big business. Princes and monarchs, handicapped as they were by the lack of mobile resources, had to outsource the business of war to a very large extent to these entrepreneurs, who developed tremendous financial muscle with their own power bases. During the first half of the 16th century, they organised armies under contract, extended credit to equip and pay them, led them on campaign and commanded them in battle. The alliance between banking and war-making fostered the rise of the German military enterprises that edged out the Swiss as kings of Europe’s battle-fields. The Emperor’s lack of regular taxes or a standing army made the Holy Roman Empire a welcome pasture for both the south German bankers and the military enterprisers. Wallerstein, a petty nobleman of Bohemia, bestrode the Germans like a colossus, with the biggest and best organised private army. Though nominally a contractor serving the emperor, he behaved like a sovereign by virtue of the size of the military force he commanded, numbering over 50,000 men at its peak. Whenever required, he lived off the country he operated in, with no scruples in doing so. It was to such mercenaries that Maximilian ended up owing much of his debt of six million florins, an amount 18 times his annual income (Brady, 1991 in Tracy, 1990: 146). What Charles V started, continued thereafter during the time of Philip II, the bulk of whose troops consisted of foreign mercenaries (Elliott, 1970: 24). Second, the revolution in military technology had also been opening-up trading opportunities in raw copper and bronze
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ordnance.6 The most conspicuous example is that of Fugger, who, among many business lines, was also a great merchant of copper and owned a gun foundry. King John II of Portugal, King James IV of Scotland and Maximilian developed real technical expertise in gunnery by patronising gunners and gun founders and devoting a good deal of resources to arsenals and artillery trains (Cipolla, 1965: 25–26). Wallerstein had also organised arms production in some of the estates owned by him in Bohemia in partnership with a Flemish businessman and speculator named Hans De-Witte (McNeill, 1983: 121). The Habsburg emperors also used this merger of private commercial and military enterprise for their military ventures. Another remarkable power structure was created by the Swedish king, Gustav Adolf (1611–1632), who used his public authority to conscript manpower and supplies for his campaign in Germany. Also, and equally importantly, he could produce armaments from Swedish iron production, developed by Louis de Greer, a native of Leige and a resident of Holland. Third, if princes and monarchs were to avail themselves of the services of these outsourced outfits, they had no option but to seek financial assistance from the wealthy merchant banking families. For Charles V, the Fuggers of Augsburg were the most prominent of the financial families of south Germany on whom he could count. The Fuggers had a meteoric rise during the 16th century, using the intimate relationships that they had been cultivating for several past decades with the Habsburg monarchs. It was not a kind of relationship that usually subsists between lenders and borrowers; it could more appropriately be described as some kind of beneficial strategic partnership. The ruler could indulge his dreams of territorial aggrandisement and dynastic consolidation, while the merchant house got new opportunities
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in different types of business. Such links laid the foundations for internationalisation of business and financal dealings.7 In the late 14th century, the Fugger family was a successful textile trader, but what turned the fortune of the firm is their lending to princes in times of their need. Jakob, the grandson of the founder, loaned Sigismund, the Archduke of Tyrol, 20,000 ducats, taking as security the most productive of the Schwarz silver mines and the revenues of the entire province of Tyrol. Another loan to Sigismund in 1488 gave the Fuggers the management of silver production in its entirety. When Maximilian followed his cousin as the Archduke of Tyrol, he could not simply do without them. In 1519, Fugger engineered a spectacular manipulation to secure the election of Charles V as the Holy Roman Emperor. The historian Ehrenburg has called this raising of funds to bribe the electors as the biggest business deal of the century. The election was a great trial of strength for Europe’s money powers. The French Valois drew upon the Italian gold and the Habsburg contenders were backed by a consortium of the Welser, Fugger and others (Ehrenberg, 1963: Chapter I). The Fuggers’ extensive international network also allowed them to provide a critical service to the Habsburgs, whose empire was fragmented throughout the continent. They would transfer money paid by the vassal states in different European currencies, to Augsburg by means of bills of exchange, through the money market in Antwerp. The Fuggers also met the personal expenses of the royals. Thus, at the Vienna congress, when the marriages of Maximillian’s grandchildren to the Hungarian King Ladislaw were being arranged, Fugger was putting up the dowries. He also lent to Maximilian and his entire court sufficient jewels with which to shine before their guests (Ibid.; also Beard, 1963).
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Fourth, while seeking credit from merchants was not a new development for ruling princes, in the 16th century it was a different game: the polities needed the back-up of an institutionalised financial market. It became the normal practice in the 16th century for princes to approach the merchant capitalists for loans to finance their warfare. South German merchants such as the Fuggers joined the Italian colleagues in lending to kings. The Fuggers borrowed in Antwerp, for instance, to finance Spanish wars with future deliveries of American silver as collateral (for development of Antwerp as a financial centre, see Chapter 8). Long range borrowing obligated the ruling princes to foreigners they could not easily control. Of these the Fugger and Welser families of Augsburg in Germany were the most prominent. In the initial years of his reign, Charles V had easy access to the world of finance through Antwerp, the economic centre of his empire and then, at the peak of its prosperity, it had a highly-developed machinery for liquidating resources and raising loans for the conduct of policy and especially of war. Thanks to Gasper Ducci, the Italian financial expert based at Antwerp, finance capital was mobilised by means of bonds that the receivers-general of the Netherlands issued in their own name. These were ‘bearer bonds’, redeemable by whoever came into possession, and were thus negotiable and legally recognised under an ordinance of 1536. These bonds came to be regularly issued: government could raise capital from wide sources and the rates could be linked closely to commercial borrowing. At Lyons the same object was to be achieved by the ‘King’s Letters’ issued by the French government. Successful conduct of war depended on a stable business– polity relationship. But, while the rulers knew they had to make contractual payments to the private military enterprises, none of the major powers had fiscal machineries that could
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ensure the discharge of their liabilities. There was always a tension and tussle between the crown and the financing business house. The Fuggers, for example, could not refuse the incessant demands for funds from the Habsburgs, their biggest borrower and one of the most powerful forces in European politics. The fortunes of big mercantile houses and the financial fortunes of Europe’s royal families were inextricably intertwined, and the Antwerp world of high finance faced a catastrophe in the third quarter of the century when Spain declared itself bankrupt in 1557 and Portugal followed three years later. The bankers saw their issues compulsorily converted into 5 per cent annuities. The state bankruptcies were followed by those of public authorities in the Netherlands, among the receiver-general and a number of towns. The bankruptcies exposed the hollowness of crown finances under the pressure of war; the existing taxes seemed inadequate even to meet the most pressing needs. The failure of Philip II to pay the troops he had deployed in the Netherlands to curb the unrest over high taxation cost him dear. His troops ransacked Antwerp, provoking a general revolt all over the Netherlands. The country joined together to form the Union of Utrecht and declared its independence in 1981. Although south Netherlands soon fell to Spanish troops, the seven northern provinces, protected from invasion by the river barriers, held out against the Spanish, creating an independent polity run by the bourgeoisie (see the separate Chapter 16 on the Dutch Republic). For the ruling princes, exclusive dependence on military entrepreneurs was fraught with grave risks, as mercenaries could be faithless. There was always a lurking fear that, some day, a powerful military entrepreneur might behave like Sforza, who, in 1450, successfully usurped the state of Milan and ruled over it for almost 50 years. There was also another daring instance,
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somewhat earlier, in Italy; the 6,500-strong Great Catalan Company took service with the Duke of Athens only to turn on him in 1311 and establish its own ‘duchy of mercenaries’ which survived for 63 years (Thomson, 1994: 28). The aggressive European rulers, those living close to the market for mercenaries, had developed one-to-one contractual relationships with large financiers and merchant houses, but they were increasingly realising that it was not a permanent solution to their recurring financial crisis. They needed to replace the mercenaries with loyal standing armies, and at the same time ensure a steady stream of resources to pay for their up-keep, training and their arms. The solution lay in internalising the organisation and administration of men, material and finances, by creating within the framework of government, a resource raising fiscal machinery with bureaucratic underpinnings. This internalisation was a key element in the formation of fiscal-military states. By the beginning of the 16th century, they had begun to take an embryonic form, with taxes and customs sufficient only to support the nucleus of permanent armed forces (Glete, 2002: 21). The process of maturity was a long one, and merchants and financiers provided critical support in the development of complex fiscal and bureaucratic organisations and the apparatus that smoothened the process to maturity. We discuss these in the next two chapters of this part.
Notes 1. The empire covered much of western and central Europe. Through inheritance from his father in 1506, Charles V became Duke of Burgundy— Franche Comte’, Luxemburg, the Netherlands—and, in 1516, through his grandfather, Ferdinand of Aragon, inherited the crown of Aragon, with Sicily and Naples, and a little later, Castile, with its American conquests,
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subsequently united through the personal union of Ferdinand and Isabella; then in January 1519, his grandfather, the Emperor Maximillian died, leaving Charles heir to the Austrian lands (Austria, Tyrol, Styria, Carinthia, Carniola) and the original family Habsburg family lands round the upper Rhine, between Switzerland and Burgundy (Elton, 1963: 23). 2. This was first emphasised by Michael Roberts in his now-famous inaugural lecture at the Queen’s University of Belfast in January 1955. He identified four profound changes in warfare during the period 1560–1600: First, a revolution in tactics, as archers and then infantry armed with muskets ended the dominance of feudal knights and massed squares of pikesmen; second, a dramatic increase in the size of armies; third, strategies changed as the possibility of decisive action in the field replaced the static and inconclusive siege tactics of the previous century; fourth, war became more of a depredation on the civilian society (Bobbitt, 2002: 69). 3. There were fewer years of peace in the 17th century than ever before: Poland only knew 32, France 47, England 59 and Spain hardly knew peace at all. In the first half of the century there was not one calendar year of peace (Parker, 1979: 73). 4. At the end of the 18th century, the military nobility represented 68 per cent of aristocratic families in the Prussian electoral provinces and 60 per cent of those in eastern Prussia. 5. Military contractors of this type had been flourishing in the Italian peninsula, in the later Middle Ages, a couple of centuries before they took root in the north of Alps. The Swiss had established their reputation in this area, having demonstrated their military mettle by defeating Burgundy’s Charles the Bold during the 1470s. Soon, thereafter, every power needed its own Swiss soldiers and it became a profitable business for the Swiss cantons to supply soldiers for pay. The deployment of Swiss mercenaries became so widespread that, in 1515, two Swiss armies, one in the service of the French king, and the other in the service of an Italian baron, found themselves on opposing sides in a battle in northern Italy and almost annihilated each other. Following the footsteps of the Swiss, a few small principalities started specialising in the production and sale of mercenaries. Large scale mercenarism in the form of the free companies flourished in Europe between 1300 and 1450. When Britain needed extra troops for her war against rebellious Americans, she turned to Hesse-Cassel, a small 18th
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century state: this gave rise in American folk history to the word ‘Hessian’ signifying crassness and unpatriotism (Tilly, 1992: 82). 6. Nuremberg was the main centre of German metallurgy; Lyons was the centre through which France bought her provisions. Bolanzo, on the way from Tyrol to northern Italy, and Antwerp where the flow of commodities from west Africa and later the Spice Islands met the flow of metallurgical products from Germany and Flanders. 7. The really big firms such as Augsburg’s Fuggers grew much too big for the protection the city-states could supply. Sometimes they conducted separate foreign policies against their own governments or against their natural allies. The war between Charles V and German Protestants in 1546–1547 and its aftermath supply some telling examples. At Augsburg the Fugger stayed loyal to the emperor but their government supported the Protestant League; at Nuremburg the big families, all Lutherans, kept the entire city loyal, and at Strasbourg, the threat of outlawry, if Charles won the war, drove the Protestant merchants to face exile rather than resistance and ruin. The lesson is clear: the great south German firms, having out-grown their home-towns, gravitated towards the monarch for protection and favour.
Chapter 12
Fiscal Revolution: Grip of Financiers
T
â•… The alliance between political and business entrepreneurs, though mutually beneficial, was inherently unstable. First, the mercenaries were unreliable; second, there was no administrative and fiscal set-up to manage and service the growing debt. On both fronts, the European polities took up reform measures that were, in more senses than one, revolutionary in their implications. Over the 17th and 18th centuries, an astonishing increase took place in the size of national armies and navies, as well as the supporting bureaucratic and fiscal apparatuses. The two reforms were to be the solid foundations for viable nation-states. By the 16th and 17th centuries, the major powers had standing armies, professionally-equipped and trained and kept in perpetual readiness for war. Apart from external aggressors, the challenges to the authority of the crown from religious and aristocratic dissenters were becoming a normal feature in 16th century Europe. In the course of these two centuries, national armies increased tenfold. By the last quarter of the 17th century, the Spanish army consisted of 70,000 troops, the Dutch 110,000, the French 120,000, the Swedish 63,000 and the Russian 130,000. In contrast, during this period, the British army had only 15,000 troops, smaller than it had been in 1475, mainly because she did not get involved in any major international conflict in 191
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Europe between the mid-15th and 17th centuries (Brewer, 1989: 8). When, however, she came to be involved after the Glorious Revolution (1688) with several wars in the European continent, the War of English Succession (1688–1697), the War of Spanish Succession (1702–1713), the War of Austrian Succession (1739– 1748), the Seven Years’ War (1756–1763) and the American War of Independence (1775–1783), Britain’s land and naval forces were nearing nearly 200,000. All this weighed heavily on state budgets.1 Inflation resulting from the inflow of Spanish–American silver had raised the overall costs of government and with the increasing burden of war, raising resources became crucial. Three main ways of acquiring revenue were at hand. First, direct taxes of various types, such as taxation of the individual and his wealth, hearth taxes, taxes on landed and urban property, taxes on specific types of wealth and taxes on livestock. Second, excise on foodstuffs, wine, beer and salt. The third possibility was to borrow money. This became increasingly necessary, because, as the 16th century advanced, the fiscal systems of most states were unable to guarantee large sums, just when urgently needed for a campaign or for other purposes. By the 16th century, the countries in Europe usually had an overall annual budget that dedicated different sources of revenue to different heads of expenditure. As a general rule, the costs of peace-time government were laid upon the income of a prince from his domain, from customs and from Regalian rights. In times of warfare, it was grossly inadequate. The monarchy in England, for example, preferred to sell crown property in the late 16th century, but this could not be stretched beyond a point. In Sweden too, as revenues were seldom sufficient, the income of the crown was sold or pawned to raise lump sums
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in cash. In Denmark, despite the fact that revenue from the domain did at first increase in absolute terms, by 1662, the proportion from this category was reduced to 10 per cent, whereas, it had oscillated between 37 and 62 per cent in the first decades of the 17th century. The central purpose of the fiscal reform was to seek out the most profitable forms of taxation that could guarantee the largest sums of money quickly and safely to the treasury. But in pushing through such a reform, European polities had to contend with several internal power holders, be these municipalities, nobles or the Catholic Church. In the 14th century, European kings had to deal with these elites not as powerful individuals, but as members of corporate assemblies or estates (Brady, 1991: 134). Such corporate institutions formed and flourished during the 250 years after ad 1250, beginning as tools of government through which kings and princes sought consent from the politically active, propertied classes (Strayer, 1970). Different estates had their own legal entitlements to be defended by their corporate powers. Before the 16th century, no crown west of the Elbe River in Germany could tax on its own authority; all levies had to be accepted by assemblies of elites known as Parliament (England), Parlements (France) or Cortes (Spain). In many countries, clergy and nobles were able to defend their tax exemptions or at least sustain preferential treatment. As the rulers sought to expand their fiscal and war making capacities, they had to recognise claims made by various elites (Poggi, 1978: 72). The tax base of the different countries was broadly similar. It was mainly a combination of direct taxes, usually levied upon landed wealth together with indirect taxes on international trade and domestic commodity production, though, understandably, the proportion between direct and indirect taxes varied from
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state to state. England depended on land tax, custom and excise, France had a chief direct tax, the taille, along with a series of indirect taxes—the gabelles, tabacs, aides and traites—usually administered by tax farmers. In Prussia, kontribution extracted from land matched the akzise levied on the towns. The United Provinces combined a levy on real property with customs duty and a general excise on a wide variety of commodities. These standard taxes were grossly inadequate for financing the continuous warfare in which the countries had been involved. But resources could not be raised speedily from internal sources because of several constraints. The nobles and the clergy normally enjoyed fiscal immunity. As late as 1659, in the territory of Ravenna in Italy, clergy, nobility and foreigners were exempt from paying taxes, though they held 35, 42 and 15 per cent of the land, respectively (Cipolla, 1993: 40). Over most of Europe, fiscal privileges created delays, reduced receipts and complicated the tax raising process (Ibid.). Because of this inelasticity, the political regimes had to turn to indirect taxes, which fell heavily on consumption of necessities. The burden hit the poor the hardest and they could not be coerced beyond a point. The fiscal managers had to strike a delicate balance between the resource needs of the political regimes and the willingness and capacity of the conventional sources: ordinary citizens, landed aristocrats and merchants. Given the urgency and desperation, the fiscal managers were driven to extraordinary and unorthodox ways of collecting standard revenues and also to explore new avenues such as borrowing. In the 16th and 17th centuries, the major concentration of wealth being with the bourgeoisie (Kamen, 1971), every polity in the capital-intensive regions wanted the resources of the bourgeoisie on tap. Polities could pursue their military adventures only with the support of
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the bourgeoisie, which in turn would seek to extract its price. The way the different polities came to manage their relationships with the bourgeoisie and strike a balance became a critical factor in the power equilibrium within Europe. In France, the ordinary receipts2 were too small to pay for the needs of the Bourbon monarchs even in peace-time. In war, these receipts became totally inadequate.3 Financial managers came to depend on other sources of income, the Affaires Extraordinaires. Things were called extraordinary until they had become so generally accepted by law and custom as to become ordinary. These were the rentes, a loan to the crown, giving an annual interest on loans, and the treaties, a contract between the king and a financier, known as a traitant, assuring the king a certain amount of resources. In the initial stages, fiscal administration was carried out with the minimum of bureaucratisation. Collection of taxes was generally farmed out to private business interests. The government sold its right to collect a particular tax or part of it in return for a substantial down payment in cash. Tax farming was an efficient method since government servants were limited in number. Financiers would extend loans to the crown because the right to collect taxes over a number of years provided them with collateral. For financially beleaguered monarchs, this had some distinct advantages: plenty of cash in hand and a regular predictable income because the tax-farmers paid a fixed annual rent for the tax regardless of the yield. The cost of collection being the responsibility of tax-farmers, the monarch could scrimp on the fiscal administration and collection machinery. In France, the farms for the indirect taxes provided 80 per cent of royal income in the first half of the 17th century, and a significant but fluctuating proportion of total revenue until the end of the ancien régime (Bonney, 1991: 292).
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Then there were some ways of raising extraordinary revenue. France introduced the sale of offices during the wars in Italy in the late 15th century and made it a widespread practice during the wars of the 17th century. In Spain, sale of offices was done during the war against the Moors and was most frequent during many of the wars against France. Francis I bureaucratised the system of sale of public offices by establishing the Bureau des parties casuelles as the official vendor of royal posts. High officials were also allowed to sell subordinate offices and even incumbents could sell their positions. Subsequent monarchs not only created new offices, but divided existing ones, conferring a single post on as many as three persons. By the mid-16th century, this had created a big problem. In 1546, the Venetian ambassador reported that ‘there are an infinite number of offices, and they increase every day’. In the second half of the 16th century, about 50,000 new offices had been created, a figure which does not seem improbable when one looks at some of the figures for the growth of the bureaucracy (Kamen, 1971: 179). The profession best represented in this spectacular growth was the law, this ‘amazing flood of lawyers’, who thronged the administrative bodies of the state at virtually every level—but only on paper. In practice, the great majority of the new officials were absentees, men who had acquired the office for the social position it conferred and for the salary that went with it. The threat to the state, then, was not overbureaucratisation, but absentee officials, officials who had been appointed not because they were qualified but because they had paid for the post. So great was the demand for office that a considerable inflation in prices occurred. A judgeship in the Parlement of Paris, for instance, was officially valued in ad 1605 at 18,000 livres; under Louis XIII the price reached 70,000, and by 1660, the post was valued at 140,000 (Ibid.).
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In the early 17th century, prices went up when offices were made inheritable. From 1604, the monarch started charging an annual fee to officers who wanted the right to bequeath their offices to their heirs and successors. Throughout the first half of the 17th century, the sale of offices constituted an important source of French revenues, never falling below a quarter of the total. In a fiscal crunch, the monarch would raise large sums with great rapidity, by creating and selling more offices and increasing the charges levied on the existing office holders. These officers enjoyed fiscal exemption and were not obliged to pay the taille. All this created a fountain of corruption in which the French office-holders loved to thrive. The upper classes protested about the sale of office, which they regarded as their domain. Every estate’s general in this period, up to the last one in 1614, protested at the ‘frightful number of superfluous offices’. But so long as the state needed to sell offices, there was no alternative to venality. Sully, Richelieu, Mazarin and Colbert in France and Philip II and Olivares in Spain, all had their reforming phases and though all were conscious of the acute financial problems that venality caused, they were prisoners of their own system; they all accepted venality as the direct and inevitable response to the financial pressures created by war. Colbert’s valiant efforts merit a mention. He devised ‘maxims of order’ to replace what he termed ‘maxims of confusion’ (Barzun: 292). He set up the Chambre de Justice to punish the financiers and created a new Consiel Royal des Finances to direct the financial machine, together with a new accounting system to ensure that proper standards were maintained. But his efforts were a failure. The new institutions were able to supply the needs of the monarchy only so long as the king did not involve France in war. Once war broke out, even Colbert was forced to resort to
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extraordinary measures. The state’s fiscal apparatus became a front for financiers, men who owed loyalty neither to the institutions nor to the state. So while the government sought to build new administrative structures that were supposed to be immune to corruption, it was formalising and systematising methods of financing that increased corruption. The personal links between the men who ran the two systems and the interchangeability of the personnel of the two systems point indicate that the financial habits of the French monarchy were not an avoidable aberration of the absolutist government but an integral part of it. Second, another extraordinary measure, common both in England and France was the sale of honours. In England, the periods of greatest venality were also years of war. Henry VIII’s conflicts with France in 1540s, the heroic Elizabethan struggle against Spain in the 1580s and 1590s and of King James’s peace in the 1620s, when England was at war with both France and Spain, were periods remarkable for their political corruption. In the 17th century, James and Charles, and more often than not, their favourite, the Duke of Buckingham, sold knighthoods, baronetcies (newly created in 1610) and peerages. The first two Stuarts raised at least £620,000 through the sale of honours between 1603 and 1629. The years of greatest sales were years of greatest financial crises. The prevalence of competing private interests within the state was most obvious with the sale of offices and titles. The purchase of an office or a title constituted a quick road to social respectability for the wealthy and upwardly mobile mercantile families. The sale of office was practised to a lesser extent in almost all states, though France was notorious in this respect. Revenues from the sale of offices for the French monarchy reached 55 per cent of the ordinary revenues during 1630–1634 (Bonney, 1991: 292). The capital value held in offices was estimated at
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419 million livres in the 1660s (Bonney, 1991: 292). A second great wave of sale of offices occurred during the period of Louis XIV’s later wars, while reliance on semi-private contractors continued to the French Revolution and beyond. Third, the sale of trade privileges and monopolies prompted by fiscal needs was an important device that the bourgeois exploited to the fullest extent. Take the situation in England. Begun by Elizabeth and rapidly expanded during the Spanish War in the 1580s and the 1590s, the practice reached a peak in the 1630s when the monopolies on starch, coal, salt and soap raised £80,000 a year and between £200,000 and £300,000 for the monopolists. In early 17th century England, merchant involvement in joint stock companies influenced the role they played in national politics (Brenner, 1993: 199). The English crown granted economic privileges to particular groups of merchants, mainly through incorporation as a joint stock or regulated company; Brenner terms these privileges ‘politically constituted forms of private property’ (Ibid.: 652). The Levant and East India traders came to exercise, in particular, overwhelming dominance in state finances. As custom farmers, they came to play an increasingly crucial role in providing credit for a crisis-ridden government in the 1620s and 1630s. Between 1620 and 1640, some 28 different men headed syndicates in control of the farms for currants, wines and sweet wines. Of these, 10 were East India Company (EIC) directors, and 11 were leading Levant Company merchants. At least eight of the others were not merchants at all, but financiers and financial administrators. Among all these custom farmers, there were only two merchant adventurers who had been dominant in the cloth trade with Antwerp (Brenner, 1993: 82). By the Turkey Company patent of 1581, the Crown granted the whole of the lucrative west Asian market to a single joint
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stock company of just 12 merchants. Of the 12, no fewer than eight were London aldermen or became aldermen some time during 1580s. Three were at sometime Members of Parliament (MPs). Also, three of them were the most important mediators between the Crown and the city merchant community. The patentees gave £5,000 as a loan to the Queen and the charter was issued. Such royal backing of commercial initiatives in return for financial support became the norm and was a powerful influence on the development of the Levant–East India trade. In the 16th century, few states contracted long-term debts, but, by the end of the 17th century, almost all states were permanently in debt. In the ‘domain state’, loans would be contracted to bridge short-term financial difficulties; often, parts of the domain would be pledged and the obligations paid back as soon as possible. In the ‘tax state’, loans were established as a part of the state’s budget and guaranteed by regular taxation. The charges upon the debt were funded by permanent tax resources. Servicing of the debt, which included both the payment of interest and the repayment by installments of the money borrowed, constituted usually the most significant item of expenditure (Bonney, 1991: Chapter 12). The permanency of public debt paved the way for the bourgeoisie to increase its influence, as cities and their financial elites extended the loan capital to the state (Bonney, 1991: 286). From the Middle Ages itself, merchant bankers held a wide range of positions in the financial administration of city-states as well as those of princes and kings. They were mint masters, managers of silver mines, receivers of taxes and holders of state monopolies (Bonney, 1991: 5w6, Chapter 14). Princely finances attracted them and in return for their services, they obtained economic advantages. If they were members of the prince’s inner circle, they were well informed about the prospects of war and peace
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and could spread their risk. This world of high finance exercised growing political influence and from the late 14th century, central Europe came to be dominated by the high finance of Nuremberg and Augsburg. In the 16th century, with the growing burden of military expenditure, there was a public debt in practically every kingdom, duchy and republic, not confined only to the empire under Charles V of France and of Spain under Philip II. An almost universal growth in the demand for capital (Bonney, 1991: 515) from external sources came to be matched by its supply. The supply of capital was diverse and of extraordinary geographical scope, reflecting the spurt in trade and economic growth that was visible in several sectors and branches that were highly profitable. In the 16th century, the highest profits were made in Mediterranean and Atlantic maritime trade and were concentrated in a number of port cities; in the production and commercialisation of goods finished on the continent, especially in southern Germany and the Rhineland (Bonney, 1991: 516). Financial centres dotted Europe, exercising functions similar to those of towns with fairs in the early Medieval Period. These financial markets were all located in regions known for their intense economic activity, from which surplus capital could be siphoned off for investment. There were many municipal, regional or international centres offering public credit, either through their merchant bankers or a range of borrowers or at times both (Ibid.: 519). There were institutional and political limits on the functioning of such markets. Thus, in Venice, the Signoria monopolised the sources of wealth for its own public credit operation, and the capital market serviced those needs to such an extent that no other power even dreamed of floating a loan on the closed financial market of the Rialto. On the other hand, Genoese capital
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circulated freely in other markets and supplied public credit demands in Naples, Lyon, Antwerp, Madrid and Valladolid. In several markets, Genoese bankers dominated as state creditors— for the kings of France at Lyon, and for the kings of Spain at Antwerp, the Bisenzone, Milan and Naples.
Financiers and Public Debt There were two distinct ways in which financiers came to acquire significant influences on management of public credit. First, through the public banks, as seen in Italy, Spain, the Netherlands and south Germany during the 14th and 15th centuries, these banks were primarily engaged in exchanging currencies in circulation, but, as urban authorities increasingly resorted to the sale of life annuities, the most common form of long-term credit, the public banks became involved in the management of public credit. This was the practice in a large number of independent and sovereign cities. In contrast, public credit elsewhere remained largely in the grip of a class of powerful financiers (Bonney, 1991: 528). While allowing for specific national differences, broadly similar types of financiers were to be found in France, in the lands of the Spanish monarchy, in the Austrian Empire, the United Provinces and to a lesser extent, England (Ibid.). Thus, in 17th century England, moneyed men and goldsmiths such as Philip Burlamachi and Sir Paul Pinder had advanced large sums to the first two Stuarts, and combined this with tax farming, the operation of monopolies granted by royal fiat and the tenure of offices in the fiscal apparatus. During the interregnum and under Charles II, financially powerful figures such as Alderman Edward Blackwell and Sir Thomas Vyner had performed a variety of financial services for the Council of State and the restored king, acting as loan agents, bullion merchants and
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remitters to creditors abroad. By the 1670s, goldsmith bankers like Blackwell and Vyner—who together were owed £645,000 by Charles II—were assigning the interest on the royal debt on their creditors, thereby involving their depositors in what we might call the precursor of the national debt. Large financiers had a vicious grip on the finances of the polity. The root of the evil was the tax farming system. In 1671, custom farming was cancelled; the excise farm ended in 1683 and the hearth tax farm in the following year. The English Treasury thus came to control both revenue and expenditure (Brewer, 1994: 93). The abolition of the tax farming system did not signify that the fiscal needs of the state could be met without the help of rich private financiers. As there was a basic disjunct between the flow of revenue into the system and the prolonged and often indecisive campaigns in which the rulers got embroiled, the dependence on those who could organise resources remained. In order to meet temporary financial needs, the government appointed ‘monied’ men as ‘cashiers’. These men had access to substantial funds in the private money market and were prepared to lend large sums to the monarch in return for access to constant flow of revenue remitted to their office. This system of undertaking received a boost immediately after 1688, when William III became desperate for cash to carry on his campaigns against James and Louis XIV and appointed a number of financiers on the Revenue Board. It is only when the state created a new way of raising money by setting up the Bank of England in 1694 did individual financiers lose their grip over the tax-collecting machine. Personal royal debt was not transformed into a parliament-controlled public or national debt suddenly, but in a series of complex steps. The government was looking for long-term borrowing instead of the short-term financing that the Tudors and Stuarts
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had been forced to adopt. In fact, during the second half of the 17th century, more than a hundred schemes for the setting up of a public bank were put forward in Britain (Davies, 1994: 254). Born out of a marriage of convenience between the business community of the city and the government of the day, the bank was the first confident step taken towards the institutionalisation of the public credit system in England. The needs of the government, involved in a long war against Louis XIV, were growing at a much faster pace than the lending resources of the goldsmiths and at the same time the business interests were getting critical of the monopolistic power of goldsmiths. The bank came into being by the Ways and Means Act of June 1694, its real purpose being to raise money for the War of the League of Augsburg by taxation and by the novel device of a permanent loan. This Act was known variously as the ‘Tonnage’ or ‘Tunnage Act’, because the taxes were to be raised from both ships and wines. The establishment of the Bank of England did not break the connection between the state and private financiers. They continued as underwriters of government issues and as negotiators of contracts to pay for the provisioning of British troops overseas. The two functions were intimately connected, with many government contractors also subscribing to the loans. The greatest wealth in that age was to be made in government finance (Brewer, 1989: 209). Arguably, financiers were in a sense the by-products of the rapid expansion of the 18th century fiscal military state. A consortium of bankers, ‘monied men’ investors, speculators and stock jobbers were living off the states’ need to borrow money to fund their wars. In England, the financiers were commonly viewed as part of a Whig plot to tie the public to the new regime of 1688 and as the true power behind the ministry and the monarch, and were also accused of making private fortunes at the
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nation’s expense, by lending the state their own and other people’s money, and by the overt espousal of a belligerent and therefore expensive foreign policy (Brewer, 1989: 206–07). However, as the rise of funded wealth and the domination of flows of money and goods by contracts and licenses issued in London placed a heavy burden on the Bank of England’s resources, the government was forced to turn to the private banks and merchants who began to be known as ‘merchant bankers’. The funding of a national debt by the mercantile and property owning classes revealed the perfect trust which subsisted between the elite and government; the Bank of England came to be regarded as the institutionalised expression of the trust. The national debt became something like a national icon (Bayly, 2002: 62). While the medieval state remained small, it could attain a large measure of autonomy, existing off its own financial resources plus extortion from dependent groups. After warfare technology changed, no state could survive on the battle-field unless it found ways of collaborating with better-organised civil groups to raise funds. Building on medieval traditions, some European elites, including those in England and France, made claims to a political voice.4 In many situations, like the English, issues of taxation were enmeshed with issues of political representation. In France, a contest over judicial and legal authority between the Parlements and the Crown was repeatedly acted out, culminating in the mid-17th century Fronde, in which the Crown’s authority to raise new taxes came under challenge. In Prussia, with the move towards absolutism, the ruler acquired direct control over an urban excise on consumption goods, allowing him to fund his army without depending on the estates. The English, French and Prussian rulers succeeded in making the elites subordinate to them; the failure of a European sovereign
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to achieve a measure of autonomy in exchange for recognition of certain claims could spell disaster. Constructing state power on the foundation of an effective fiscal system meant working out a boundary between what the state could do and what lay beyond its powers. States able to expand their capacities to extract resources and to field armies developed a measure of autonomy from the elites and the common people they governed. States diverged along absolutist and constitutional lines, but were collaborated closely with their dominant classes. This collaboration was gradually turning into an organic unity between state and dominant classes (Mann, 1986: 501–15). Fiscal revolution, combined with military revolution, provided one dimension of this growing organic unity, the other dimension came from economic nationalism. This is the theme of the next chapter.
Notes 1. For France, the increase was dramatic in the 1630s, following its entry in the Thirty Years’ War. Expressed in real terms, there was a five to eightfold increase from the early 17th century to the 1690s (Bonney, 1991: 282). Spain, which had already experienced an enormous increase in its military burden in the 16th century—probably unequaled by any other state—was confronted with a new peak in the 1650s (Ibid.). Between the 1590s and 1670s, the English budget increased 16 times in money terms, and more than this if we take into account the last decades of the 17th century. In Denmark, from 1602 and 1700, state expenses rose 12-fold, with a significant rise after the standing army was created in 1637. And in the Dutch Republic, military costs as a result of the Eighty Years’ War against Spain reached a peak during the 1630s and 1640s; there were equally high levels of expenditure during the Anglo-Dutch Wars and again during the Nine Years’ War in the 1690s. 2. There were three main sources of ordinary income: the taille, corresponding to modern taxes on land, on the individual (income tax) and on movable
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effects. The other elements of ordinary taxes were indirect—the most important of which were aides, gabelles and traites. Aides was a kind of excise levy on merchandise and goods sold within the country, gabelles was a tax on salt and traites was customs duties levied on goods entering or leaving the realm. 3. In theory, the overall amount of taxation deriving from royal farms increased by over 60 per cent in the period 1630–1661. At the time of the fall of Fouquet, it stood at 36.9 million livres. Yet the maximum that the state could hope to receive from farms in 1661 was a mere 11 million livres. The charges on the farms resulting from the alienation of sums for the payment of wages of venal officers, Rents sur L’Hotel de Ville and pensions for important personages consumed the balance of 25 million livres (Dent, 1973: 39). 4. In England, in particular, during the first half of the 17th century, when Parliament was engaged in a confrontation with the Crown, there were sharp conflicts within the merchant communities. Each group had different interests to defend. The aristocratic oppositionist group that thrived on profiteering on Spanish islands was in favour of an aggressive Spanish policy and was not against the increasing levies that were being levied on trade for meeting the costs of warfare. The Levant merchants, on the other hand, who had been thriving on trade and did not want that their trade routes to be disrupted in any manner, were opposed to the levies. As Parliament was opposed to levies imposed, the two merchant groups, with opposing business interests, engaged themselves openly in the political battle between the Crown and the Parliament.
Chapter 13
Economic Nationalism: Fusion of the Sword and Purse
W
The king also, having care to make his realm potent, as well by sea as by land, for the better maintenance of the Navy, ordained, That Wines and Woads from the parts of Gascoigny 208
♦
♦
We discussed in the two previous chapters how, as the fiscalmilitary states were taking shape, the major political powers and the bourgeoisie came to be increasingly dependent on each other. Dependence showed up in various forms, but, given the territorial ambition of the ruling classes, and the over-riding need for resources, the power and the reach of the bourgeoisie were always visible. A war cannot be fought and won without the backing of a strong and supportive economy; military strength alone does not help. Princes and monarchs soon came to realise that they needed wider and deeper relationships with the bourgeoisie to get an edge in their power games. Contemporary powers were experimenting with different policies and practices in the search for national wealth and prosperity. Francis Bacon, the English statesman and philosopher who lived in those times, described how trade policy was being framed by the Crown in terms of a political objective. In his History of the Reign of King Henry the Seventh (1622), Bacon said:
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and Languedoc, should not be brought but in English bottoms; plenty to consideration of power. (Whittaker, 1960: 32)
♦
♦
bowing the ancient policy of this estate, from consideration of
Two broad orientations may be discerned. One is the focus on state power—not to re-acquire the empire on the continent but to create a rich polity based on commerce. Till the 17th century, British or French monarchs used to let courtly or dynastic considerations govern their views on war. The orientation was changed by the success story of the United Provinces, whose polity was dominated by the bourgeoisie. A small but rich country could also be a rich power (discussed in Chapter 16). The other was on serving particular interests in the domestic economy or even of protecting them from disruption and taking opportunities, as they come, to strengthen them. The two can be reconciled only if we appreciate that power for the state and plenty for its citizens are not exclusive of each other. The two never were mutually exclusive in 16th and 17th century Europe. In the previous chapter, we have reviewed how the political powers and merchant communities had been relating to each other to strengthen the fiscal foundation of the states. The strategies adopted by the political regimes were coercive, designed primarily to appropriate more and more of the surplus that the bo rgeoisie generated through their economic activities. When the focus sharpened on the need for attaining economic power, the ruling regimes started looking for ways to create an environment in which the trading community would be enabled to generate a continuously rising surplus. The ruling political regimes and the rising bourgeoisie realised the need for working in tandem. Many states in Europe traditionally wedded to the concept of dynasticism saw the advantages of a ‘marriage with trade and … came to decent terms over a settlement’ (CEHE, 1967: 495).
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What was behind the amorphous list of ideas and practices that came to be adopted by different political regimes? Evolving during the 17th century, these practices—the search to maximise exports and minimise imports, the obsession about the balance of trade and the level of gold reserves, trade rivalries, high tariff walls to foster industry—have been labelled as ‘mercantilist’ by later historians. The rulers of Europe were not committed to any ideology or policies, but were thinking only of increasing their economic power in the most effective manner. They did not set out to make fundamental changes to create the nationstate; they did so in order to increase their own power and glory. At the end of the process, when stronger states had evolved, national identities were formed round these units (Ponting, 2000: 577–84). Medieval economic policy had been in the hands of various over-lapping authorities—municipal, religious and royal. These agencies characteristically fragmented economic life by enforcing special privileges and by competing against each other for exclusive competences. The centralisation of economic policy, with the other authorities subordinate, laid the foundation of what has been generally described as the mercantilist state (Vries, 1976: 237).
Economic Nationalism A brief background first. The spectacular inflation of prices in the 16th century levelled off and began to decline, mainly due to the decline in the volume of silver imports from Mexico and Peru in the New World from 1625. Several factors contributed to this decline: the exhaustion of the mines, the tragic decline of the Indian population and the growing self-sufficiency of the New World economy. Trade in other routes also suffered and
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the impact was visible in the industrial sector of the European economy. In the earlier centuries, the political regimes had shown concern only when the personal interests of the princes or monarchs were affected or under threat. Over the 16th century, this attitude was significantly changing. With incessant warfare requiring an uninterrupted resource inflow, the rulers could not afford to ignore the adverse impact of fluctuations in trade and industrial policies on their economies. In the early 17th century, rulers started reacting positively to disruptions in trade and their internal economies. This marked the beginning of policies aimed at helping build a symbiotic relationship between the government, military and private economy. Whenever a commercial crisis hit the economy, governments reacted with measures to soften the blow and ensure that the next crisis would be less harsh. They were willing to shape economic and social institutions and the course of economic change, and to frame laws for that purpose. There was an almost universal faith that this arrangement, rather than the free play of market forces, was the natural order of things (Supple, 1959: 230). The acceptance of government role in regulating economic affairs had its roots in the scattered acts and thoughts of feudal and municipal authorities of the past. The Italian, Hanseatic and Flemish cities had all developed their own versions of a ‘navigation code’ restricting their merchants’ use of foreign shipping. Scattered throughout the royal edicts are hundreds of instances of ‘incipient economic nationalism’. The medieval princes were not wholly unaware that there was a relationship between their own solvency and the economic welfare of their subjects. In a sense, what happened in the 17th century across several countries in Europe was a kind of centralisation of local regulations as were prevalent in medieval Europe. What was in the nature of
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embryonic merc ntilismin medieval Europe matured fully over the course of the 17th century when Europe was engulfed in an economic crisis (CEHE, 1967: 498). These policies and practices had several aims. The first was the removal of hindrances to trade. The new forms of trading that developed in the 16th and 17th centuries had a formidable number of obstacles to surmount. Markets were still necessarily small and restricted. Politically and fiscally, ancien régime Europe was an enormous mass of small independent jurisdictions that interfered constantly with the free passage of trade. The River Elbe at that period had 35 customs posts, while the Danube in Lower Austria alone had 77. The cumulative effect of all this on costs and distribution is obvious (Kamen, 1971: 110). In their efforts to secure economic unity, the states wished to replace local economic practices, whether those of the Church or guild or town, by general policies seeking to bring all territories into a cohesive, national economy. The second aim was to support industries and activities that enhanced a country’s military power. Allied with this were the opportunities that came in the way of the states. Cipolla stresses the vital role played in England by immigrants fleeing religious persecution in the period 1550–1650 (Cipolla, 1976).1 The Spanish effort to suppress the Dutch revolt plunged the Flemish economy into ruin, forcing the Flemish textile workers to flee. The speciality of Hondschoote—light, inexpensive woolen cloth—took root in new locations like Leiden in Holland and Norwich in England, transforming the textile industry of western Europe. The French Huguenots, fleeing France after Louis XIV revoked the Edict of Nantes in 1685, spread industry throughout Europe. Even in agrarian Prussia, many industries benefited from the Hohenzollern policy of encouraging Huguenots to settle there (Vries, 1976: 87–88).
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Take the position of Jews in several European countries. In the Medieval Period, discrimination against them in western Europe had led to their assuming important roles in commerce as ‘cross-cultural brokers’. The reverse of expulsions and prohibitions was that more tolerant states received well-qualified or rich strangers and did well as a result. Sometimes when the employment of a few strategic individuals was crucial for developing industries for national power and for military preparedness, many nations would subordinate religious or political considerations to secure their employment. Louis XIV, despite his antipathy to Huguenots, supported colonies of Dutch Protestant ship-builders at new naval depots he was intent on developing. Peter the Great returned to Russia from his European tour with Dutch and other western craftsmen to establish a variety of strategic industries. The linen industry in Ireland developed in the early 18th century because the English government paid the Huguenot Louis Commelen to move to Ulster and teach the more sophisticated continental methods there. By 1711, a Linen Board had been established under government auspices, an early example of an organised effort to spread skills in the absence of immigrants. The British were sensitive to the need for such efforts to spread skills because of the fiasco of the Cokayne project of 1614–1617.2 Third, associated with it was economic estatism or the search for control. The national governments sought to take over the economic functions formerly carried on by the Church, the town, the guild, the province or the feudal lord (Clough, 1952: 197). Import substitution was pursued as a desirable objective; it originated from the conventional view of the period that a positive balance of trade was always a key indicator of economic health and a source of national power in comparison with other nations. Navigation Acts deployed by England were directed
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at replacing imported ships, sail cloth, paper and glass with domestically produced counterparts. Because such factors in the late 17th century were gradually making the English industry more efficient, these protective measures generally speeded up the maturation of affected industries. In France, Louis XIV’s finance minister, Jean-Baptiste Colbert, pursued a policy of industrial support. With the tariffs of 1667, he all but prohibited the import of a wide variety of manufactures. He established dozens of factories, privileged with royal charters and subsidies, to produce tapestries that were being imported from the southern Netherlands, glass being imported from Venice, porcelain and other luxury goods. He even set out to define the correct production methods, business practices and quality standards of French industry. A large number of these industries became high-cost and uncompetitive, but some such as sugar refining, the mirror factory of St Gobain and the tapestry factories survived. The rulers of most 17th century states were not willing to let an invisible hand distribute economic assets among them. They faced the economic crisis and sought to ensure, through laws and open warfare, that economic activities are redirected in their favour. The impact of military and administrative initiatives for the acquisition of political power went far beyond the immediate objective. ‘The new economic activism, combined with powerful economic forces of price trends and labour supply, so altered industrial cost conditions as to endow Europe with a new industrial structure’ (Vries, 1976: 90). Fourth, the onset of the 16th century saw a proliferation of companies chartered by states to engage in long distance trade or establish companies. Chartered companies were commonly divided into two categories, trading and plantation companies. These divisions are hardly clear cut, as the same company might
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engage in trade, privateering and planting on a single voyage. Regulated companies were basically merchant guilds whose membership was restricted to professional merchants who paid a membership fee. In the 17th century, the English Crown began to grant charters for joint stock companies such as the East India, Royal Africa and Hudson Bay companies. These varied in their degree of private versus state control. The Dutch companies were the closest to being purely private organisations, where the Portuguese and French companies were to all intents and purposes state enterprises. English companies fell somewhere in between. Mercantile companies were, as a rule, granted full sovereign powers. In addition to their economic privileges of a monopoly on trade with a given region or in a particular commodity and the right to export bullion, they could raise an army or a navy, build forts, make treaties, make war, govern their fellow nationa and s coin their own money (Thomson, 1966). It had been conventional practice with the English Crown, given its strained financial resources, to have informal arrangements through which the regulated companies made significant financial and political commitments to the Crown, receiving in exchange powerful protection of their trade. Trade was viewed as an extension of warfare, with one country’s gain being another’s loss, so a strong company was regarded as the best way of protecting Britain’s interests—maintaining export prices and reducing import prices and carrying on that extensive economic war of ban and counter-ban (Supple, 1959: 243). This served as the model both for crown-merchant relations and for the operation of overseas commerce by privileged companies throughout the pre-Civil War period in England (Brenner, 1993: 59). This sort of quid pro quo came to typify arrangements between the monarchy and greater city merchants3; as a rule an intimate and symbiotic relationship became one of the strong pillars on which national
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power of the state came to be built. The organisations of the merchants also traditionally fulfilled several functions on behalf of the Crown: they acted as a quasi-official protective and representative agent abroad. Not only were they strategic sources and facilitators for collection of customs, they were, in those bellicose conditions, useful agents for the organisation of convoys and protection of shipping. These privileged companies, close to the crown, had been consistently extracting concessions in their charter, to exclude retailers, artisans, small producers and ship captains from their trade. They and London’s aldermanic court, the oligarchic body that essentially governed the city, were closely linked together through familial and commercial interests. This nexus of the court of aldermen, the customs farm, and the East India directorate was to have critical consequences for the evolution of the merchant community from the end of 1630s. By means of control of the directing key institutions in London, these top traders were able to play a major role in mobilising the company merchants behind their common interests in the maintenance of the traditional City constitution and their corporate privileges against a threatened revolution (Brenner, 1993: 91). Fifth, underlying all this was the search for power, the visible demonstration of which was the capability to wage victorious wars and to conquer colonies. The princes and monarchs believed that, if they were to possess strong and sustainable power, they should not only have the back up of fiscal resources but also of a strong industrial base built at the expense of other states. The Dutch grew rich at the expense of Spain and France, inflicting heavy losses on French industry and trade in the late 16th century. The English grew rich at the expense of Spain and France; the French at the expense of Spain. When Spain strengthened protectionism in the 1620s, this
Chapter 13â•…Economic Nationalismâ•… 217
… forbidding the importation of a great part of the product
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immediately harmed French merchants and manufacturers. The French responded with protectionism. A kind of militaristic co-ordination of state and economy started taking place. The most visible outcome of commercial competition between the two national governments of England and Holland were the commercial wars between them. England’s objective in all the three Anglo-Dutch wars was to destroy Dutch trade and shipping. The English Navigation Acts were designed to encourage English shipping in the face of powerful Dutch competition and established a framework for England’s colonial economy. Colonial exports as well as imports were required to pass through English ports on their way to or from other nations and had to be transported in English or colonial ships. These measures were intended to endow London with entrepo˘t functions (Vries, 1976: 237). William III, in declaring war against France in 1689, gave one reason as Louis XIV’s:
and manufactures of our kingdom, and imposing exorbitant customs upon the rest, are sufficient evidence of his design to so much depends. (Viner, 1969)
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destroy the trade on which the wealth and safety of this nation
Economic nationalism built on a strong fiscal foundation considered domestic welfare and economic stability as essential for security and survival, a kind of ‘benign mercantilism’, as Robert Gilpin has labelled it. Europe reached a stage when the consolidating activity of the past was assured beyond reversal and it became clear that the future lay not with disparate and subordinate territories, but with nation-states governed by powerful, if by no means unlimited, rulers. The nations on the Atlantic seaboard were looking beyond this; they believed that their
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… there was a fundamental difference between the mercantile system in England and France: though many of the measures adopted seem alike in method and principle, in origin they are different and in purpose different at least in emphasis ... The interests nurtured were those of the
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national interests lay in development of long-range and large-scale international markets through aggressive warfare. The aggressive culture that came to be moulded through competitive power struggles and through their encounter with other civilisations lay at the core of what we call imperialist expansion (Gerace, 2004: 74–75; Gilpin, 1975). This is the theme of the next part. The mercantilist policies adopted by European states were for enhancing economic power and were successful to the extent that they could enhance the surplus generating capabilities of trade and industry. The actual experiences were widely different, depending on two key factors. First, the quality of the bourgeois was important. For example, the richest and most influential sections of the French bourgeois in the late 17th century were not industrial entrepreneurs or ordinary merchants. They consisted of tax-collectors, financiers and lawyers who enjoyed the rich pickings of a bureaucratised society. Talent, enterprise and capital were continually drawn off from productive industry and trade and employed in ‘the dubious arts of a public finance that was often very private indeed in Character’ (CEHE, 1967: 529). (This was discussed in the previous chapter.) Second, 18th century France was full of inventions, yet the rate at which inventions passed into industrial applications was far slower than in England. Many French inventions were developed and applied in England and Scotland because their authors became discouraged by official obstruction in France (Ibid.). As Charles Wilson differentiates the two systems:
Chapter 13â•…Economic Nationalismâ•… 219
producers. Among the contrivers of the system, he (Adam Smith) thought ‘our merchants and manufacturers have been by far the principal architects.’ Nothing of the kind could have been said of French mercantilism. There was no parallel to the situation in England where the great companies, shipowners, woollen manufacturers, iron masters, hat-makers, sugar bribed to get their own way ... . (CEHE, 1967: 529–30)
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planters, and many other interests, lobbied, harangued and
A Bourgeois Century? As we have just discussed, the combination of fiscalism and mercantilism could not have come about except through strong bonds between business and polity. The bourgeoisie emerged strong during this period, but it was not a bourgeois century as many historians would like to characterise it. With close relationships that had come to develop between ruling political regimes and powerful business houses, it is natural to pose the question: did the 16th century mark the emergence of a bourgeoisie revolution in Europe? Was it not the culmination of a process that started maturing in the first three to four centuries of the second millennium? Bourgeoisie culture and a way of life associated with wealth reached the height in Italian city-states during the Renaissance. The new monarchies of western Europe had to turn to the merchant class for financial resources to fund their territorial expansions and empire building. On the face of it, the typical relationship between the House of Habsburg and the House of Fugger conveys the impression that the bourgeoisie had firmly entrenched itself in the seat of political power. Yet it would be wrong to come to any such conclusion. On the contrary, in some respects, it was more aristocratic in 1600 than it was 150 years earlier (Elliott, 1970: 46). The 16th century
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Nowhere was aristocracy itself so closely linked with the merchant class; merchants sat in the Commons, alongside the gentry, as Knights of the Shire; dukes and marquises married their sons to the daughters and grand daughters of London merchants and bankers; and big land-owners themselves were deeply engaged in trade and invested their money in docks, mines and real estate. (Rude, 1972: 79)
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monarch was, after all, little more than primus inter pares, his authority constantly open to challenge by nobles who might consider their own claims to the throne superior to his own. The nobles believed that the customary law—a kind of ‘aristocratic constitutionalism’—gave them a prescriptive right to act as advisors to the Crown. Even if the rights of the monarch were uncontested, he needed the loyalty and goodwill of the magnates to maintain his power (Elton, 1963: 305–24). Elizabeth’s fate at the beginning of her reign hung on the loyalty of a handful of peers—Pembroke and Norfolk, Northumberland and Shrewsbury—who between them dominated east Anglia, Wales and the North. The France of Catherine de Medici was effectively divided into spheres of influence, controlled by three great family networks—the Bourbons in the south and west, the Guises in the east and the Montmorency-Chatillon connections in the centre of the country. The mid-century political regimes in Europe were vulnerable institutions lacking a sound financial base and administrative support. It has to be conceded, however, that, over the course of the two fiscal and economic revolutions, the nobles gradually came to appreciate the critical importance of bourgeoisie and the two classes came closer to form the core elite. Speaking of aristocracy in the 18th, George Rude, says:
Chapter 13â•…Economic Nationalismâ•… 221
The kind of elite that came to be formed through the churning of the two processes, economic and political, played a critical part in the hegemonic roles that England and USA succeeded in assuming in the following centuries. (We shall discuss this in Part V.)
Notes 1. Wallerstein views the waves of expulsion of Jews during this period as a part of a process aiming to homogenise the populations of these states; these were not essentially ideological or religious. 2. For a brief description, see Vries, 1976: 88–89. 3. Historically, the Crown had granted the Staplers Company monopoly trading rights in wool, which was England’s main export commodity in the late medieval period. In turn the Staplers paid the custom and the subsidy, the prototypical tax on English trade, and performed a variety of important financial services for the Crown.
Part IV
A Boiling Cauldron
Trade networks and connections in the Indian Ocean had developed for centuries through dialogue and accommodation, unlike those created by the Atlantic powers in the 16th and 17th centuries, which were based on the extensive use of force and violence as they expanded into the western coast of Africa, Spanish America, the Caribbean, the Atlantic Europe and the Indies. The Portuguese and the Spanish led the way, followed by the Dutch, the English and the French. Religion may have been the excuse, but gold was the common motive. Behind these expeditions was a unique combination of state and private initiatives, as the business of war mingled with business across the seas creating a relationship impossible to disentangle. The acquisitive spirit became pervasive in business, polity and society. Werner Sombart identifies six fundamental types of ‘Capitalist undertakers’: the Freebooters (the ‘ruthless sea-dogs’ of England in the 16th century); the Landlords (capitalist farmers who turned to mining and the creation of ironworks, as in France in the early 18th century); the Civil Servants (promoters of enterprises such as Colbert in France); the Speculators (the men behind the South Sea Company); the Traders (middlemen turned entrepreneurs) and the Craftsmen, or the fabricans, who became manufacturers (Bell, 1978). In the power struggles among the Atlantic powers, Britain secured a competitive advantage mainly by giving freedom to business to explore new avenues of trade and to acquire and control, if need be, territorial possessions, in support of business ventures, with the promise of naval support whenever required. Britain succeeded in establishing herself as the dominant naval and trading power. None could equal the ‘adaptive efficiency’ of British polity and business. 224
Chapter 14
Setting the Tone: The Portuguese
P
â•… Portugal spearheaded the exploration ventures into the Atlantic, with Lisbon, the entrepot where the maritime economies of the Mediterranean and the Atlantic met, becoming the jumping-off point. When John I, the Grand Master of the Knights of Aviz, became the Portuguese king in 1384, he chose exploration and expansion in search of wealth, not unexpected for a resource-starved country like Portugal. Combined with this was a bunch of diverse motives: crusading zeal against the Muslims, the desire for Guinea gold, the quest for the mythical Prester John’s kingdom and the search for oriental spices. The blessings from the Pope boosted the morale of the Crown: the Bulls1 issued by him, often termed as the charter of Portuguese imperialism, gave a religious cloak to the aspirations of the king and of the Portuguese military nobility with their bellicose traditions of feudal aristocracy.2 Over the next two centuries, the cumulative effect of these Bulls was to sanctify the use of violence by the Portuguese—and the other Europeans who followed them—in their forays in the tropical world (Boxer, 1969: 20–23).
Voyage into the Atlantic Portugal’s ventures into the Atlantic Ocean were somewhat contemporaneous with Venice’s predominance in the 225
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Mediterranean and North Sea trade. For the Portuguese crown, Venice provided the model for overseas expansion. Throughout the 15th century, the Ottoman Turks were relentlessly pursuing their counter-offensive against the great tide of Christian reconquestia in the eastern and western Mediterranean, but Venice stood secure in her political empire founded on her commercial prowess. There were important elements of continuity, particularly in areas relating to trade control and monopoly, between Portugal’s policies and those pursued by Venice (Pearson, 1991: 77). The Portuguese built a network of coastal fortresses in north Africa, while in the Atlantic islands they developed a system appropriate to agrarian and territorial colonisation and settlement, an experience that seems to have fundamentally shaped their later policies in Brazil (Subrahmanyam and Thomas, 1991: 300). After they annexed the Islands of Madeira, the Canaries and the Azores in the beginning of the 14th century and explored the western coast of Africa, the way was prepared for the discovery of the Cape of Good Hope and the route to east Africa and India. The Portuguese imperial venture began as a confrontation with the commercial networks of Islam, and its capture of the Moorish port of Ceuta in north Africa also helped secure its trade routes. In 1440, Dom Pedro’s ascendancy to the throne of Portugal opened a period of intense activity along the Atlantic coast of Africa, highlighting the strategic advantage of maritime expansion as opposed to territorial imperialism and enabling Henry the Navigator to deflect the Sudan-Sahara traffic from the desert routes to the Atlantic. By the time Dom João II ascended the throne in 1481, Portugal had become the pioneer of the modern colonial system, controlling far-flung trading establishments. The whole of the new commercial life and even the capitalist system had their genesis in Portuguese economic policy at the end of the 14th and beginning of the 15th centuries.
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Entry into the Indian Ocean The first half of the 16th century marked the peak of Portuguese success in the Indies. Within four years of Vasco da Gama’s voyage to Calicut, Alfonso Albuquerque established a network of fortified bases from which to control the movement of seaborne trade in the Indian Ocean. The Portuguese defeated the Mamluks and Gujaratis in the Indian Ocean, and took control of many of the strategic entry points to the ocean. They took control of many of the strategic entries to the ocean, subjugated the small Muslim states of east Africa and conquered the Islands of Madagascar and Mauritius. By the 1550s, they had some 40 forts from Sofala in Mozambique to Macao, with Goa as the capital of their Estado da India (Boxer, 1965). Most Asian rulers with a stake in long-distance seaborne trade were taken totally by surprise. In 1505, the Portuguese founded their Indian empire officially. From 1515 to about 1560, the Portuguese were able to enforce a semi-monopoly in the pepper and spice trade, compelling the local traders to buy safe conduct passes from the Estado da India and to pay it custom dues. During the third phase, from 1560 to 1600, there were two separate historical developments. First, the pepper trade through the Red Sea and the Mediterranean began to revive, largely because the formidable maritime power of the north Sumatran Sultanate in Acheh frustrated the Portuguese attempt to control that trading route. Second, the government of Goa became involved in extending its commercial reach to east Asia, in Macao, Nagasaki and the Philippines, as it found it more profitable than the pepper trade; this perhaps explains the gradual relaxation of Portuguese hold on the Indian Ocean trade (Chaudhuri, 1985: 66). But it was not until the appearance of the Dutch and English that the Portuguese Empire was faced with new problems.
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Monarchial Capitalism The bourgeoisie played a subordinate role in the initial phases of Portugal’s entry into the Atlantic. It was the state that took the initiative, though it drew heavily on the resources and experience of the Portuguese and other European merchants. The Portuguese ventures were in many ways backed by the experience and resources of the European merchants. The Portuguese mariners, known for their navigational skills, had sharpened these with the technical innovations they had been adapting from the Italian and Hanseatic ship-building and navigation (van der Wee, 1990: 28). The Portuguese knew Italian trade practices. Many Genoese and Venetians settled in Lisbon had been involved in sugar planting on Madeira, and also in the Portuguese push down the African coast. Still others were active in the further Portuguese drive into Indian trade at the beginning of the 16th century (Curtin, 1984: 138). The early participation of Genoese merchants in Portugal’s overseas enterprises helped transfer to an expanding Atlantic world the techniques of colonisation first developed in the eastern Mediterranean (Elliott, 2006: 18). From the last quarter of the 15th century, with overseas trade and expansion fuelling a growing demand for artillery, Portugal became an active market for the cannon merchants of Europe. Portuguese kings imported Flemish and German gunners and gun-founders as well as guns. Later, the gold, ivory and black pepper of west Africa and the spices of the Far East were easily exchangeable in Antwerp for Flemish and German guns. (Cipolla, 1965: 32). It was a kind of monarchial capitalism, marked by royal monopoly over trade. The Crown, as the main driving force behind the expeditions, was intent on augmenting imperial revenues for gaining strength and status and it used trade as its primary tool for
Chapter 14â•… Setting the Toneâ•… 229
this purpose. The authority of the Crown was exercised through Vedores da Fazenda, who were the officials regulating the whole economic life as well as the general national life (CEHE, 1967: 229). Control over trade was all encompassing and extremely rigid. The entire African trade was required to be channelled through the Casa da Mina (House of the Mine), a crown office situated on the ground floor of the royal palace by the waterfront of the Tagus where the king could go to the extent of personally watching the loading and the unloading of the ships (Boxer, 1991: 30). In Casa da India (India House at Lisbon) all imports and exports to and from Asia were stored for registration, customs clearance and payment of freight (Boxer, 1991: 60–61; Pearson, 1991: 77). In Asia, all trade in spices, and a few other products were declared to be Portuguese Crown monopolies. The Crown reserved for itself the monopoly of valuable commodities: gold, slaves, spices and ivory, horses, carpets, English and Irish textiles, copper, lead, brass utensils, beads and bracelets. Less valuable items were generally left for the private traders but the Crown did not restrict itself to only high priced goods or luxury goods; it was very innovative in casting its net wider to exploit all possible sources,3 whether through a monopoly, a percentage of profits or as custom duties. The spice trade produced 27 per cent of the royal income in 1506 and some 39 per cent in 1518–1519, an amount that was more than the crown’s income from metropolitan Portugal (Subrahmanyam and Thomas, 1991: 328). Spices were declared a royal monopoly in 1505 and from 1506, the crown imposed a tight monopoly on the provision of ships for the passage to India, and on the trade in precious metals from Portugal and imports of pepper and spices (Chaudhuri, 1991: 71). Between 1510 and 1530, the Portuguese predominance in the re-export trade in African and Asian spices to the rest of Europe via Lisbon and
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the Antwerp staple market reached its peak. Half the revenue of King John III of Portugal came from this re-export trade.
Poor Fiscal Management The revenue from trade was intended to provide a solid fiscal foundation for the state, but the Crown frittered away the resources through conspicuous consumption in marriage dowries and pointless wars in north Africa. King John’s spectacular extravagances were achieved at the cost of letting his army, navy and many other essential services decline in penurious neglect. There was thus a gradual deterioration in Portugal’s military and naval strength, from the second-third of the 16th century and particularly during the last third of that century (van der Wee, 1990: 29). For most of the 16th century, Portugal was forced to depend to a large extent on money borrowed from merchant bankers against the security of future pepper imports. Over the long run, the fiscal balance for the Portuguese Crown turned negative (Curtin, 1984: 142). The liquidity problems coupled with several factors connected with costs and risks of long-distance trade forced the Crown to rethink its strategy. The Portuguese could not maintain the tempo of sailing ships that needed to be sent to India with regular frequency. A little over a quarter of the ships that sailed from Portugal for the Indian Ocean between 1500 and 1634 were lost at sea. The average number of departures for this whole period was only seven ships a year. Also, discounting for losses at sea, about a third of the ships that reached the Indian Ocean stayed there for the remainder of their useful lives (Curtin, 1984: 143). Understandably, the Portuguese trading-post empire became Goacentred rather than Lisbon-centred. The Asian Empire operated independently of the capital—self-financing and self-controlled.
Chapter 14â•… Setting the Toneâ•… 231
The Venetian model for expansion started breaking down because of the scattered nature of the empire and the strain on imperial resources. Portugal’s was neither a territorial nor a commercial empire. The Portuguese were not conquistadors carving out great inland empires. They lacked the strength and perhaps the motive as well. The Portuguese Empire was not geographically well defined, but was a maritime network of territories, establishments, goods, persons and administrative interests in Asia and east Asia, generated by or subordinate to the Portuguese crown (Subrahmanyam and Thomas, 1991: 304). The Portuguese could not develop essential conditions of national and political strength. Subordination of trade to politics proved her undoing. Paradoxically, the polity and society, though so largely dependent on trade and commerce, held the military, ecclesiastical and seigniorial classes in respect and displayed an open antagonism towards trade. While the Crown controlled and taxed trade, much trade was actually conducted by foreign merchants and financed by Jews. The Jews were forcibly converted to Christianity after their expulsion from Spain in 1492. When the Inquisition came to be enforced in Portugal in 1536, there was a ‘mania’ of accusations against these new Christians for petty violations of Catholic religious practices. Many were imprisoned, others emigrated and many found a haven in Seville, where their experience in foreign trade made them especially valuable. The force of counter-reformation was too strong; the state began to see commerce as ‘beneath the dignity of the royal estate’ (Kindleberger, 1996: 70). Though the Portuguese emperors liked to see themselves as ‘Lords of Conquest, Navigation and Commerce’, the reality was far less what it seemed. Support from Lisbon for countering the predatory activities of other European powers and preserving the already secured commercial privileges became lukewarm.
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Trade routes discovered and nursed by the Portuguese came under threat. Even the Cape route was attacked by Francis Drake, with Portuguese losses estimated at 11 per cent on outbound voyages and 15 per cent on return voyages (Phillips, 1990: 53).
Ascendancy of Private Traders As the 16th century wore on, the Portuguese state chose to adopt a different policy in Brazil. Its rights to vast territories were sold off to various captains; these essentially feudal lords in effect ruled these areas for themselves.4 The success of the Brazilian sugar industry from the late 16th century owed much to this very freedom from Crown control (Ibid: 80). However, when the Portuguese woke up to the benefits of developing trade through less crown interference, the leadership in trade had already passed to the Dutch. Trade on the Cape route and within Asia moved away from the state and this meant a great deal for the private traders and the large commercialised households, in alliance with their middle European and banker associates. The Fuggers, Welsers and other German and Italian financiers who had been craving for direct trade in spices with India managed to get an Asia Contract from the Portuguese king.5 They opened a number of factories on the coastal regions of India and sent their agents to look after their interest (Mathew, 1997: 233). It was calculated in the early 1580s that the captain-major of the Carreira da India (round voyage between Lisbon and Goa) made some 10,000–12,000 cruzados as a result, and each ship’s captain found himself the richer by around 4,000 cruzados (Subrahmanyam and Thomas, 1991: 330). However, in terms of overall value and volume, Portuguese intra-Asian trade was worth a great deal more than trade on the Cape route, though the returns from this trade accrued
Chapter 14â•… Setting the Toneâ•… 233
above all to private persons. A Dutch estimate of 1,622 puts the value of all Portuguese intra-Asian trade at around 50 million florins (Subrahmanyam and Thomas, 1991: 330).
A New Commercial Culture The Portuguese entry into the Indian Ocean marked the beginning of a new kind of commercial culture in dealing with the merchant communities of non-European origin. When their first major expedition of 13 ships under Alvares Cabral, which left Lisbon in March 1500, arrived at Calicut, it bombarded the town for two days to try and force the ruler to expel Muslim traders (Ponting, 2000: 520). This was their way of entering the established trading world; they set an example that the other European powers were to follow later. The Portuguese brought with them a new way of organising and conducting commerce, upsetting the conventions among the trading communities in the Indian Ocean. For more than a thousand years, the Indian Ocean trading world had been almost entirely peaceful and cosmopolitan (see Chapter 9). Cooperating together for profit, Asian trade diasporas before this time had operated with comparatively low protection costs, in spite of local piracy problems. Merchants travelled on ships that were often only lightly armed. Political authorities had coercive powers and sometimes extorted what amounted to protection payments (or their officials did so as a private matter), but trade was generally open to all (Chaudhuri, 1991: 64; Curtin, 1984: 137). In the Indian Ocean, in keeping with the Mediterranean tradition, the Portuguese could also have seized, say, only a few port towns, fortified them, and used them as bases to secure storage of goods awaiting shipment, either back to Europe or outward through the Asian trade network. The Portuguese could
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have operated peacefully, in keeping with the Asian way of doing trade, but they did not do so; they were placed at a serious disadvantage because they did not have the wherewithal to gain a competitive advantage over the Asian mercantile communities: the goods they had to offer were of poor quality.6 This was not a problem with the Portuguese alone; it was faced by all powers on the Atlantic sea board, for Europe then was a peripheral area. Economically, it was far behind the long established societies and economies in Egypt, Mesopotamia, Iran, India and China. Ever since the beginning of trade between the Mediterranean and Indian Ocean worlds, it was the west that wanted the products of the east; the west had little that the east wanted. So the west had to pay in gold and silver for its desires. This missing link was provided by Spain, through gold and silver from the Americas. As the primary objective of the Portuguese was to prevent the export of Malabar spices along the traditional Muslim sea route to the Mediterranean, they imposed a system for extorting protection money from the seaborne trade linking South East Asia, western India, the Persian Gulf and the Red Sea. It was in large part an attempt to force a monopoly over the trade in pepper, the most lucrative spice exported to Europe. Military coercion was used to develop a protection racket to earn income. Backed up by extensive naval patrolling and a string of forts around the littoral of the Indian Ocean, among them several of the great port cities of Melaka, Diu and Hormuz, the Portuguese Crown claimed to control and tax all other sea trade in Asia. No local, political power in the western Indian Ocean had ever formally sought to control the sea lanes of Asia, although Gujarati warships owned by great merchants occasionally had such pretensions. In course of time, the Portuguese way of dealing with Asian trading networks through the imposition of protection
Chapter 14â•… Setting the Toneâ•… 235
levy provided a powerful model for the Dutch and English East India companies when they set up their own trading organisations in Asia.
Notes 1. The first Bull (1452) authorised the King of Portugal to attack, conquer and subdue Saracens, pagans and other unbelievers who were inimical to Christ, to capture their goods and territories, to reduce their persons to perpetual slavery and to transfer their lands and property to the King and his successors. The second Bull (1455) is more specific; it summarised the conquest and colonisation accomplished by Prince Henry since 1419 and authorised him to subdue and conquest pagans who may be encountered in his further exploration in the regions between Morocco and Indies. 2. The moving spirit behind the Portuguese ventures was Prince Henry. An administrator of an important crusading order, the Order of Christ, and simultaneously, a member of the feudal aristocracy, holding certain lands from the crown on feudal title, he was an important merchant as well, investing his own fortune along with funds belonging to the Order of Christ in all kinds of commercial ventures, including privateering. He sponsored, between 1410 and his death in 1460, a number of voyages down the African coast. 3. Prince Henry made himself the concessionary of all trade along the west African coast, though he did not actually engross the whole trade to himself. He would license traders and adventurers to make voyages, on condition that he was paid a fifth or some other agreed share of the profits. Later, in the decade following Prince Henry’s death, the Portuguese monarchy experimented with a different pattern of sharing of trading profits without diluting the basic objective of maximising revenue for the Crown. While reserving to itself, the trading rights for a few valuable commodities, the crown granted away the monopoly of the trade of the African coast, for certain areas and in certain commodities, to private persons. 4. A small settler population controlled highly profitable export-oriented sugar plantations in the north-east. Their techniques, using slave labour, followed the pattern the Portuguese had developed at Sao Tome in
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Africa. Cattle ranchers in the dry backlands area provided food for workers in sugar production. Official revenue from Brazil was rather small, about 3 per cent of Portuguese public revenue in 1588 and 5 per cent in 1619; at that time, Asia provided 10 times as much (Maddison, 2007: 96). 5. In the first half of the 18th century, gold shipments from Brazil made Lisbon once again the focal point of the European economy, but most of this trade passed through Portugal into the hands of foreign economies more capable of providing manufactures, shipping capacity and financial and insurance services. The benefits of these economic impulses could never penetrate far beyond Lisbon (Vries, 1976: 144). This was somewhat akin to what happened to Spain during the 16th century (see Chapter 15). 6. When Vasco da Gama laid out the goods before the Calicut ruler—striped cloths, scarlet hoods, hats, strings of corals, sugar, oil and honey—the ruler and his court merely laughed at the collection. They refused to take any and insisted on payment in gold and silver for the goods the Portuguese wanted (Ponting, 2000: 518).
Chapter 15
Weaving a Pattern: The Spanish Imperial Machine
T
â•… The Portuguese were pioneers of the Atlantic expansion but the kings of Castile and other powers were close behind. The Castilian conquest and occupation of the Canary Islands between ad 1473 and ad 1493 was a response to the challenge posed by the spectacular expansion of Portuguese power and wealth. Following the precedent set by the Pope towards the Portuguese Crown, Spain secured from Pope Alexander VI papal bulls in 1493–1494 giving it the New World; this was to remain fundamental to Spanish claims to possession of the Indies.1 In medieval Spain, conquest and colonisation had been backed by a combination of state sponsorship and private initiative. The Reconquestia, a prolonged struggle over many centuries to free the Iberian peninsula from Moorish domination, established forms of behaviour that were easily transportable to distant parts of the world as the age of European overseas expansion dawned (Lomax, 1978). Apart from its tradition of territorial settlement and expansion, late medieval Castile also had a strong mercantile tradition, and it could have followed either route in its overseas ventures. But conditions in the Indies encouraged a territorial approach just as conditions facing the Portuguese in Africa and Asia did not. The Caribbean offered no equivalent of the lucrative 237
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Be sure that this island [Hispaniola] and all the others are as
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trading networks in the Indian Ocean. Columbus wrote on return of his first voyage in 1492:
much your own as is Castile, for all that is needed here is a seat of government and to command them to do what you wish … the inhabitants are suitable to take orders and be made to work, sow and do anything else that may be needed, customs. (Elliott, 2006: 18)
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and build towns and be taught to wear clothes and adopt our
Within 30 years of Columbus’ first American landfall, the conquest of the Aztec Empire by Cortez and his company of adventurers signalled that the European intrusion into the Americas would have a momentous significant difference in nature from the piece-meal colonisation of Europe’s oceanic periphery or Portugal’s hijacking of Asian trade. A tentative maritime reconnaissance came to be transformed into a vast over-lordship of an interior plateau; a unique combination of circumstances brought about the first great conquest by any European power in the outer world. Right from the beginning, entrepreneurial and seigniorial aspirations had been dominant. The colonisation of Venezuela in the early 1530s was actually undertaken by a commercial organisation, the Seville branch of the German merchant banking firm of the Welsers, with results as disappointing as those that would later attend the efforts of the English merchants in the Virginia Company (Elliott, 2006: 25). Cortes himself with his sugar plantations in his Cuernavaca estates and his promotion of long-distance trading ventures set a leading example (Ibid.: 21). However, given the vastness of the potential resources of gold and silver, the Crown could not remain indifferent to the ways
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in which those resources were exploited and developed, and had to play an interventionist role. The Crown looked upon the new possessions as a vast resource for augmenting its revenues. Fiscal considerations were upper-most in the policies and practices for the exploitation of the silver deposits and the safe annual shipment of the bullion to Seville. A Casa de la Contratacion—House of Trade—was set up in 1503 as a state regulatory institution to supervise sailings to the Indies. This was a procedure similar to what the Portuguese adopted through Casa da India in Lisbon to regulate and control Portugal’s Asian trade. State regulation had two aspects: first, in order to protect the fruits of its enterprise, the Crown had to guard the secrets of transatlantic navigation and also exclude foreigners from trade with, and emigration to the Indies. It was also necessary to provide armed escorts to counter the growing threat from privateers. Such escorts were provided to convoys of ships from the mid-16th century; second, shipments of gold and silver had to be channelled through a single port of entry where bullion could be properly registered and the remittances for the Crown set aside.
War Finance The flow of silver from the Indies through Lisbon had a longlasting impact on Europe. The silver financed the war ventures of the Habsburg monarchy, and its use strengthened the role of international financiers in the financial centres in Europe. Spain was continually troubled by the problem of financing its military and naval enterprises outside the peninsula. In the early 16th century, there were no public banks and no generally accepted currency except pure gold or silver. The wheels of empire had to be kept running through bills of exchange.
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As countries spent more money on war, the credit they demanded stimulated the business of international financiers and traders who arranged themselves into consortiums to take on the huge loans asked for by the Spanish emperor. The Spanish Crown employed the services of the leading banking houses of northern Italy, given their resources and expertise in financial matters. Habsburg dominance rested to a large extent on close alliances with the elites of Genoa, Florence and Venice.2 Though a free and independent state, Genoa functioned in practise, as if it formed part of the Spanish Empire (Kamen, 2003: 67). A significant group of Genoese traders and bankers were established in Seville, where they found themselves well placed to exploit the opportunity. Genoese merchants had already, by the later Middle Ages, defeated their Catalan rivals in the struggle for control of west Mediterranean markets and had entrenched themselves in the leading commercial towns of Castile and southern Spain. Later, the Genoese would offer the Spanish Crown their services, both naval and financial, and expecting in return a preferential status (Elliott, 1968: 59). As the precious metals and colonial produce made their way to the peninsula, it was to the foreign merchants and financiers that the bullion and profits went to, rather than to Spain. A dominant group of merchants from Seville, in collaboration with royal bankers and officials of the Casa de la Contratacion and ministers and officials of the Council of the Indies formed a closed and powerful interest group and fought tenaciously to preserve the monopoly rights over the Indies trade (Elliott, 2006: 110). The Habsburg monarchy had hoped to use their resources to finance their needs for war finance, but it soon became apparent that these Castilians lacked the resources and expertise to exploit the opportunity.
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Charles V and the Habsburg Emperor, wasted no time in searching for help elsewhere, and found it in the international business community led by the Genoese. Seville thus became a centre where merchants from all over started congregating. A complex international network evolved, uniting the trading elite of all countries, and the control over trade and finances passed over to the foreign merchant community. Without their help, the Spanish Empire could not have set up a network of international payments for trade and for war. Small groups of Castilian financiers had been present in Europe’s trade centres but they never developed the means required to handle royal contracts. On the other hand, foreign financiers such as those of Augsburg and Genoa employed a highly efficient system. In return for their loans, the Crown began from 1551 onwards to give permission for the export of precious metals, something that had till then been prohibited (Kamen, 2003: 294). Charles V used the precious metals—or the promise of their arrival from the Americas—to set up credit for himself with the bankers Augsburg, Genoa and Antwerp. The bankers, in turn, ensured that a high proportion of the gold and silver brought in became pledged to them. Charles V, that part of the precious metals he was entitled to, the ‘fifth’ levied as a tax on all mine production in America. But from 1523, and more frequently, from 1535, he also began to ‘borrow’—procure forcibly loans in the form of shipments that used to arrive for the Castilian merchants. The foreigners ended up controlling more than just money: they secured rights to key sectors of the economy. German financiers were given control of the mercury mines at Almaden in southern Spain, among other things. The foreign bankers’ hold over the Emperor can be seen from the size of their loans. During Charles V’s reign, he made over 500 contracts
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with financiers, borrowing nearly 29 million ducats from the Genoese and the Germans. The Spanish capitalists could come forward with only 15 per cent of the total, even though they had in theory the easiest access to the wealth of the new World. The bankers sustained Charles’s regime through their loans, and the Emperor had to do no more than find the money to repay them. At one of the worst moments of his career, in 1552, when the troops of Maurice of Saxony trapped him at the Austrian city of Innsbruck and he was forced to flee through the winter snow to Villach, Charles was saved by his bankers and by American silver, but he was forced to agree to the terms of a vital contract with his banker Anton Fugger. Even as they talked, ships laden with silver just arrived from America were leaving Spain for Genoa (Kamen, 2003: 88–90). The rich imperial country, as one Spaniard bitterly commented, had become the Indies of the Genoese.3 Spain and the Genoese depended on each other heavily, a position from which both were anxious to escape. Notable attempts were made by Philip II (1558–1598) and later by Philip IV (1661–1625) to do without the Genoese. In Genoa, an influential section of the oligarchy was also opposed to Spanish predominance, and in the course of the 17th century made strenuous efforts to emerge from underneath the Spanish umbrella. They never succeeded in doing so (Elliott, 2006). Thus it was the foreign financiers, particularly the Genoese, who dominated and financed the high tide of Spain’s empire. The Spanish peninsula functioned neither as an exporter nor importer, but merely as an entrepot, mainly of bullion trade. This vast commercial enterprise had the outward form of an empire dominated by Spain, but all essential arteries were controlled by non-Spaniards such as the Genoese in the 16th century, without whose help the great Spanish Empire might ever have come into existence. They were the vital link with the kingdom of Naples,
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where they dominated the shipping industry, the export trade, and the supply of food and the machinery of finance (Kamen, 2003: 297). In the assessment of the historian J.H. Elliott: Charles’s imperialism was made possible by deficit financing,
and it was the attraction of the American connection, and the bait of the American silver, which provided an important inducement to the great financial houses to advance money to the Emperor on such a massive scale over so many years … From 1553 the Genoese had gained the lead over German and Flemish bankers in advancing loans to the Emperor. The change was symbolic of the eclipse of the old financial world of Antwerp and Augsburg, and its replacement by a new America. (Elliott, 1970: 86)
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financial nexus linking Genoa to Seville and the silver mines of
Impact on Trading Networks and European Wealth The significant increase in economic activity in Europe in this period was the direct result of the opening-up of a new and expanding American market, which came to expect a growing quantity and variety of European commodities. America’s needs stimulated the growth of European industries, from shipbuilding to textiles, and the economic growth of 16th century Europe became closely tied to the expansion of the Spanish– Atlantic trade. Also, and important from the point of view of enlarging Europe’s global trade links with the east, it enabled Europeans to acquire large quantities of exotic and luxurious items, for which Asia insisted on silver in exchange. The immediate impact of American silver after ad 1500 was that Europe was able to use the phenomenal wealth exploited
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by Spain to buy its way into the long-established and prosperous trading world of the Indian Ocean. Asia was the wealthiest part of the world and wanted little from the west whereas the countries of the west wanted the products of the east. The only way the west could buy what it wanted was by handing over gold and silver. Under the Romans and again after the establishment of the wealthy Islamic Empire, there had been a steady drain of the two precious metals from the west to the east until supplies began to run out. It was the Spanish conquest and domination of the Americas that gave the Europeans access to gold and silver in undreamt of quantities and enable them to enter the Asian trading system.4 These developments led to a progressively globalising economy that the western economic powers would come to dominate. Between 1500 and 1650, something like 181 tons of gold and 1,600 tons of silver reached Europe officially from America, apart from large quantities of contraband. In the second half of the 16th century, American silver production, outpacing that of the Tyrolese mines, began to satisfy a silver-hungry Europe (Vilar, 1991). In the three centuries after 1500, about 85 per cent of the world’s silver production and 70 per cent of the gold output came from the Americas and was under European control.5 Europe retained little of this vast silver output. Spain itself had a copper currency. Most of the silver went to India and China and also to the Levant and the Ottoman Empire to buy goods. Much of the silver was shipped through Amsterdam and London in unopened boxes and then sent to India. The key role of silver in European trade can be judged from the fact that the profits of the Dutch East India Company fluctuated according to their access to American silver because this dictated how much they could buy in Asia. Almost all the silver imported into India
Chapter 15â•… Weaving a Patternâ•… 245
became currency—the total amount in circulation tripled in the 17th century. The gold and silver of the Americas was the link between the Atlantic and Indian Ocean trading systems. The American silver spent on defence and trade provided the specie that sustained the economy of half the globe. During the first half of the 17th century, Spanish coins became the effective international currency of Southeast Asia. Spain itself became a market for goods from China, where silver was worth twice as much as in New Spain. Chinese demand for silver was spurred mainly by the collapse of its paper money system. In 1436, the Ming government initiated a switch to silver as legal tender that took five centuries to be completed, raising silver price to record levels. As there were few good silver mines in China, the output of silver had failed to keep pace with the demand. The large quantities of American silver imported into China must account for the successful adoption of silver as the monetary unit in China. In a sense, the then Chinese monetary policy may have indirectly supported the financial foundations of both the Spanish Empire and the enemy Shogunate in Japan for its export of large quantities of silver from its mines for higher prices6 (Tracy, 1991: 347). In the early 17th century, the New Spain authorities informed Madrid that around five million pesos a year crossed the Pacific to Asia, a large part of which went straight from Manila to China, causing an official in Manila to comment that ‘The King of China could build a palace with the silver bars from Peru which have been carried to his country’ (Kamen, 2003: 292). This highly complex network of mutual obligations stretched across the continent from its starting point in Seville: the arrival of the bullion fleet there would bring a sudden upsurge of activity:
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…in the fairs of Medina del Campo, the counting houses of
Genoa, the international bourses at Lyons or Antwerp, for it meant a new influx of silver with which to lubricate a European absence of regular supplies of fresh bullion. (Elliott, 1968: 55)
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economic system all too likely to creak to a standstill in the
The global trade links that came to be built up by the Europeans with the help of American silver became links of exploitation at a later stage. During the conquest of the Aztec and Inca Empires, most of the readily available precious metals from the great religious and secular treasures of the empires were collected together, melted down and sent back to Spain. After the initial plunder, it took time to find other sources of wealth, the mother lode. This was the discovery in 1545 of the silver deposits at Potosi in the Viceroyalty of Peru. Development of mines required huge investments, transport over large distances and massive inputs of Indian labour. The logistics of silver production was most complex in Peru. The Potosi mine (in present-day Bolivia) was 13,000 feet above sea level. Mercury, which was required to process the silver, was discovered and developed at Huancavelica, but had to be moved 1,600 km to the mines; a two-month journey by mules. The industry was developed and financed by private interests, including foreign bankers, who made substantial remittances to Europe (Brading, 1984). The global commerce connecting the Atlantic with the Indian Ocean trade network was built on inhuman exploitation by the large enterprises that ran the mining industry. The workers had to stay underground for a week at a time in contact with mercury, a highly toxic element. The scale of exploitation was massive: the population of Potosi was about 160,000 (nearly all of whom were forced labourers), making it one of the
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largest cities of the world then—bigger than Paris, Rome, Madrid, Seville and London (Ponting, 2000: 502). The exploitation nearly wiped out the local population in a few decades, and by the end of the 16th century, the Spanish were forcing huge caravans of slaves to walk from Buenos Aires over the Andes to Potosi (Ibid.). By the end of the 16th century, Spain had become an integral part of a cosmopolitan network that included the two largest channels of Europe’s intercontinental trade—that to the Americas, whose trade in official terms was at least 10 million ducats annually, and that to east Asia, estimated at half the sum. Italians, Belgians, Germans and Portuguese new Christians became, by the 17th century, the key agents in a commercial chain that connected the great ports and cities of Europe with Africa, Brazil, Goa and the whole of Spanish America. The world’s markets were integrated by an international empire as vessels from the St. Lawrence, the Rio del, from Nagasaki, Macao, Manila, Acapulco, Callo, Vera Cruz, Havana, Antwerp, Genoa and Seville formed a commercial chain that exchanged commodities and profits, enriched merchants and globalised civilisation. African slaves went to Mexico, Mexican silver to China and Chinese silks to Madrid (Kamen, 2003: 296).
Impact on the Colonies The development of extractive economies had a pervasive influence across Spain’s American territories, distorting their growth pattern completely. With the focus on the silver export trade, its mining gave it a disproportionate influence over other types of economic activity in New Spain and Peru. It tended to concentrate wealth in a few hands, with spectacular fortunes being made and lost.
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Spain’s activities brought about the dissolution of the most powerful societies in pre-Columbian America, almost eliminated some of the weaker ones and, by the middle of the 17th century—after more than 150 years in the Americas— led to the creation of a new ethnic geometry and a distinctive Spanish–American culture. The infrastructure and organisation of the trading network was built meticulously with the primary objective of subordinating the interests of the new territories to those of the metropolis. Ultimately, this dynamic, a fusion of aggressive political and commercial culture would explode upon the world, creating a new military and geo-political configuration. It may be pertinent to observe at this stage that the seminal role in the evolution of commercial capitalism on a global scale was provided by this silver mining industry. The Spanish Empire was an international enterprise in which many people participated, but Spain itself could not capitalise on the initial stimulus it received from the conquest of America. The silver of the Indies was used extensively to finance the purchase by Spanish consumers of foreign luxuries and for financing religion-inspired wars against northern European powers. Very little was spent on domestic infrastructure. Spanish products for export to the Indies lost their competitiveness in international markets as a consequence of inflationary pressures partly attributed to the influx of American silver. When Spain’s domestic economy started failing to supply the goods required by its expanding colonial market, foreign manufacturers stepped in. Virtually, all aspects of the peninsular economy became closely integrated into outside markets and were often dependent on them. The nerve centres of trade, finance and the economy slipped into the hands of the outsiders. When market forces eliminated profits from American silver,
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the Spanish Empire collapsed and Spain quickly became a second or third rate power. Imperial power based on Castilian resources was a delusion. Outwardly, it was the form of an empire dominated by Spain, but viewed from inside, it was a structure in which all the essential arteries were controlled by non-Spaniards. Economic power is not necessarily associated with political power. As we see in the next chapter, the Dutch enjoyed their brief Golden Age of commercial dominance with no pretensions to political hegemony. The Spanish enjoyed more than a century of political hegemony and four centuries of empire, despite meager economic resources. The following observation captures pithily Spain’s imperial plight: Portugal supplied the early expertise in navigation, ships and
pilots; Italy supplied the ships, manpower and weaponry in the Mediterranean; Germans and Netherlanders provided soldiers and technology; Genoese, Flemings and Portuguese provided passed beyond the level of borrowing.” (Kamen, 2003: 508)
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financial expertise … (The achievements of Castilians) “never
Iberian Contribution Portugal and Spain could be described as monarchial capitalist polities, but both failed to build strong domestic economies despite the opportunities they had for laying the foundations for strong fiscal states. Wealth was brought to imperial coffers by state initiatives of the Iberian powers, but was wasted through conspicuous consumption, as in the case of Portugal, and through prolonged military ventures, as in the case of Spain. The drive for overseas exploration and expedition was a kind of joint business–polity venture in which the polity took the
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initiative but it was business that was successful in exploiting to the maximum extent whatever opportunities came to be available. The Portuguese merchant communities were, through force of circumstances, de-linked from the metropolis and set up their own self-contained empire based on intra-Asian trade and had to rely on violence in encounters with other civilisations, an example unhesitatingly followed by the other western powers that would follow them. Portugal stopped short of creating a network that integrated the Atlantic one with the much larger and the more vibrant network in the Indian Ocean and beyond. But this deficiency was rectified by the unique contribution of Spain. It happened, not because of a deliberate policy move, but through a combination of circumstances that were readily spotted by the financial and business communities hovering around Seville. First, financial merchants based in western Europe, centred around Antwerp (already strengthened enormously through the sale of pepper on Portuguese account), widened and deepened the circuit of finance by arranging the sale of gold and silver that first poured in through plunder of the existing sources. Second, mining ventures of dimensions that were enormous even y tod ’s standards were organised with ruthless efficiency; these were like the multi-national ventures of today in which businessmen from different countries invest. For more than a century this functioned smoothly, business succeeded, by moving silver all across the globe and helped create a globally integrated pattern of trade, the silver linking the Atlantic with the Indian Ocean network and covering the huge markets of India and China. Incipient commercial capitalism—which started when Portugal surfed the west coast of Africa—was to emerge as truly global commercial capitalism.
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In his pioneering study, Earl Hamilton assessed that while many ‘factors’ contributed to the rise of modern capitalism, chief among these were the discoveries and the ‘vast influx of gold and silver from American mines’. His main thesis of course was that trans-Atlantic flows boosted profitability for employers by triggering a price inflation, but Hamilton also suggested a causal connection between American treasure and the East India trade, arguing that Portugal, Holland, England and France were able to finance their trade expansion because of the vast influx of precious metals from Mexico and Peru and the ability of those countries to acquire the largest share of these metals. In all this, neither the Portuguese nor the Spanish polity could create conditions for accumulation of capital in their own countries despite their first-mover advantage. They were far too engrossed in their medieval dreams and military pursuits. But the polities turned out to be catalytic agents in having created conditions that enabled the other European powers, the Dutch and English in particular, to build on those foundations. We take the story forward in the next two chapters. Before we conclude, we refer to an interesting question often asked by historians: to what extent can we attribute the rise of the bourgeoisie to the financial benefits accruing from the Spanish Indies? A general proposition put forth by Hamilton was that, because of a lag in wages and prices, it inflated the profits of entrepreneurs and stimulated the development of capitalism (Hamilton, 1981: 344). This has been disputed on several grounds related to movements of prices and wages, but the fact remains that vast profits were made from intelligent entrepreneurship in America. We must concede, however, that when the inflow of pepper and silver was having its impact on the European economy, a group of very self-confident and assertive
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bourgeoisie was already dominant in several pockets of Europe. And this group was quick to take advantage of the developing opportunities.
Notes 1. The document drawn up on this basis in 1512 by the eminent jurist Juan Lopez de Palcios was used on all expeditions of discovery and conquest, including that of Hernan Cortes. The document, after briefly outlining Christian doctrine and the conquest and settlement of history of the human race, explained that Saint Peter and his successors possessed jurisdiction of the whole world and granted the newly discovered lands to Ferdinand and Isabella and their heirs, to whom the local population must submit, or face the waging of a just war against them (Elliott, 2006: 11). 2. In Genoa, the Habsburgs, since the 1520s, were closely allied with the great Spinola family. From 1528, the Doria family also drifted to the Habsburgs. The relationship with Florence was sealed by the marriage of Charles’s half-sister Margaret to the Duke in 1536. The Italian nobles were happy to collaborate with the powerful Habsburgs, particularly when they could obtain benefits and security for themselves (Kamen, 2003: 66). 3. The bitter comments of a Spaniard Suarez de Figueroa in 1617 (Elliott, 1970: 96). 4. Spanish American silver took two general routes to China and India: one, through the widely discussed Atlantic route (shipped from Vera Cruz and Portobello through Europe) and the largely ignored Pacific route (shipped out of Acapulco through Manila). 5. It is impossible to determine the quantity of silver retained in Spanish America instead of being exported, but it may have been as much as half. Silver, being the instrument for monetising, was used for meeting the requirements of domestic commerce. There was a continuous unauthorised seepage of minted and unminted silver into the local economies. This silver energised the internal trade circuits of Spain’s American Empire, and although a part of it went to the Spanish Crown in payment of dues and taxes or was siphoned off to Europe and Asia for the purchase of imports, enough remained to finance the church building and the urban
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improvements of the 18th century, which gave visitors their impression of opulence and growing prosperity. Growth and development was increasingly locked into the Atlantic economy (Elliott, 2006: 257). 6. After Spanish America, Japan was the world’s most important source of silver in the late 16th and early 17th centuries. Silver exports from Japan in the period 1560–1640 has been estimated at about 10,000 tons, perhaps two-thirds as much as that coming eastward out of Europe and possibly almost as much as arrived from America via the Pacific route (Flynn, 1991: 336).
Chapter 16
Showing the Way: The Dutch Interlude
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â•… The declaration of Independence by the northern provinces1 of the Low Countries in 1581 and their meteoric rise in the world economy has been hailed as one of the greatest miracles in bourgeois history.2 Even though the major wealth creating provinces in the south continued to remain within the Habsburg Empire, the merchant communities within the new Dutch Republic organised themselves as a force to reckon with. Up to the 17th century, the merchant communities in many parts of Europe were able to rule cities, more or less independent of superior control, and to direct far-flung federations of towns. In the 17th century, the merchant communities got their first chance to run an entire country. Starting from near-bankruptcy, with virtually no funds for the continued war against Spain, the decision-makers of the new republic needed the support of all the constituent cities and provinces. In this, a federal structure with a states-general, the provinces were sovereign and all 58 cities got voting rights within the seven provinces. Unanimity was required on issues such as war and peace or taxation. Within this political structure, the Dutch traders had virtually a free run.
254
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Bourgeois Culture and Its Evolution With lineages that can be traced to the medieval period, the bourgeoisie community was strong and in striking contrast to the weak polity that lacked resilience right from its inception.3 An urban culture provided the fertile base, while the absence of significant feudal relations4 helped create an environment in which political, economic and personal freedom came to be highly valued (Vries and Woude, 1997: 160). The growth of cities and their political powers accelerated after 1580. Before the revolt, the cities had to share power with the nobles and the clergy, but after the revolt, the clergy had been removed from formal political power and the nobles had also lost much o their influtnce. In 1581, the estates of Holland formally renounced their allegiance to King Philip II of Spain. The Dutch republic was governed by an oligarchy of some 10,000 persons who monopolised nearly all the important provincial and municipal offices (Boxer, 1965: 11–12). With a high level of urbanisation, the region gave the impression of an open bourgeois society. Amsterdam was the entrepot for the Baltic trade, the northern towns of Hoorn and Enkhuizen concentrated on fisheries and northern trade, Leiden housed the first Dutch University (1575), Haarlem was the main industrial city and Rotterdam was primarily a fisheries centre with an extensive river and sea trade as well. Each city could also count more or less on its textile and brewing industries. The culture that took form was different from the one that was developing in the other contemporary European countries; unlike the urban-centric culture in many European territories that did not permeate the countryside, the United Provinces had intensive contacts between city and country, and with
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great similarities in juridical position and social relations (Tilly, 1994: 199). A ‘precocious bourgeois culture’, as Jan de Vries has described it.
Economic Primacy By the early years of the 17th century, the Dutch were clearly the leaders in world commerce. In the maritime provinces of Holland and Zeeland, fishing had become extremely important from an early date, and later, stimulated by the process of reclamation that had gained great momentum during the Middle Ages, agriculture emerged as commercialised ventures on land reclaimed by urban bourgeois (Smith, 1998: 100). A canal system provided the region with a high degree of physical mobility. And as maritime trade expanded, the major ports assumed functions that served much of Europe and allowed them to draw agricultural resources from distant areas. The range of their industrial undertakings was also truly impressive. These included ironworks, coal mining, salt manufacture, ship-building, sugar refining, chemical production, brewing, printing, diamond-cutting and even the manufacture of chocolate (Barbour, 1950). Various cities were known for their specialties. Leiden produced textiles, Haarlem dyed linen and Liege manufactured arms. Glassware at par with Venice was produced and English cloth was finished in the Netherlands. The Dutch were using windmills and sophisticated devices in industrial production. What created this miracle within a short time was a combination of several factors. In the wake of the revolt, with religious persecution raging on the continent, the Dutch Republic turned itself into a haven for enterprising outcasts from the rest of Europe. The years 1492 to 1715 saw the greatest migration of skilled people in
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history. Given the religious warfare, persecution and zealotry all through 17th century Europe, the tolerant policies of the Dutch Republic were remarkable, almost unique. It had no established state Church. Its founding charter, the Union of Utrecht (1579), mandated: ‘Each person shall remain free in his religion and … no one shall be investigated or persecuted because of his religion.’ The state did not compel adherence to the Reformed Church, impose fines for non-conformity, or unish dissenters. Alongside the Calvinist majority, Catholics, Jews, Lutherans, Mennonites and Remonstrants were all permitted to establish private places of worship, to open seminaries and to print their own sacred and scholarly books. The Dutch Republic’s extraordinary religious freedom became the talk of Europe. Among its admirers was the French author Balzac, who wrote to Rene Descartes, the philosopher, in 1631: ‘[Is there another] county where you can enjoy such a perfect liberty … and where there has survived more of the innocence of our forefathers?’ The Dutch economic explosion was fuelled principally by Jews and to an even greater extent, by Protestants—s th fleeing persecution from Habsburg Spain. Take, for instance, the diamond trade. Before 1725, when diamonds were discovered in Brazil, virtually all of the world’s raw diamonds came from India. Jews dominated the business of transforming these rough diamonds from India into the multi-faceted gems that adorned the necks of Europe’s aristocracy. When Spain expelled its Jews in 1492, many of them settled in Lisbon and later in Antwerp. Lisbon became the entry point for almost every diamond destined for Europe, and Antwerp became the world’s pre-eminent diamond-cutting centre. But as the process of expulsion of Jews mounted in Antwerp in the 1550s, they began fleeing to the tolerant towns of Holland. They poured capital into the Dutch Republic, infusing bank reserves, fuelling Dutch colonialism
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and helped set up the Amsterdam stock exchange. By the mid 17th century, Amsterdam had replaced Lisbon and Antwerp as Europe’s diamond centre and the hub of the worldwide Jewish banking and trading network (Israel, 1998). But the Jews were small in number and a massive influx of Protestant merchants, skilled workers and industrialists in the 15th century played an even greater role in bringing what Max Weber famously called ‘the spirit of capitalism’ to the Netherlands. During the Middle Ages, Ghent and Bruges in the south Netherlands, with their long tradition of spinning, dyeing and weaving, had been flourishing producers of fine textiles. By 1500, Antwerp was Europe’s textile market-place and a major industrial centre. Although part of the Spanish Habsburg Empire, Antwerp, Ghent and Bruges were hotbeds of Calvinism, which was popular particularly among the working and merchant classes. As the persecution of Protestants increased under Philip II, these cities suffered a catastrophic exodus of Protestant skill and capital. Between ad 1560 and ad 1589, the population of Antwerp plunged from 85,000 to 42,000. Over the same period, Ghent and Bruges each lost about the half their inhabitants. Most of the émigrés moved to north Netherlands, bringing with them not just skill and experience but the most advanced techniques and technology for procuring raw materials. By the 1590s, most of Antwerp’s wealthiest Protestant merchants and industrialists had also resettled in Holland. Almost overnight, the Dutch Republic became dominant in an astonishing range of industries, from sugar refining to armament manufacture to chemical production. Most crucially, Holland replaced Antwerp as Europe’s leader in textile finishing and refining. With talent and technology taken straight from Antwerp, Haarlem became the centre where coarse linens from Germany were bleached and finished. Amsterdam dyed and dressed, semi-finished cloths
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…instrument of survival, a branch of war, a magnet for men
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imported ‘in the white’ from England. Leiden was revitalised by immigrants to become the largest manufacturing centre of the so called ‘new draperies’ of 17th century Europe (Vries, 1976, Chapter 3). Soon, Holland had completely cornered Europe’s rich trades, which had formerly been dominated by the Hanseatic League, the English and the Venetians. The Dutch sold their fine textiles for Spanish silver, with which they bought raw materials and luxury goods from the East Indies: pepper, sugar, spices, metals, coffee, tea, coral cotton, silk, wool and mohair. With their supply of silver, their more efficient ships and their unmatched trading networks in the Baltic and northern Europe, the Dutch quickly became, in Daniel Defoe’s words, ‘the Carryers of the World, the Middle Persons in Trade, the Factors and Brokers of Europe’ (Chua, 2007). Aggressive commercial expansion was their:
like minded in religion, profession and social status … During the first few decades of the Dutch Republic, many of its commercial activities wore the air of a crusade. The religion of a minority and the commercial aggression of a few combined with intense urban patriotism, to create, through war, a state and a nation for which neither language, race culture nor in Boxer, 1965, xxi–xxii)
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geography had made such provision. (Plumb’s introduction,
Long-distance Trade War was a regular part of the business of the Dutch trader; as owner of the state, he was involved in the whole war issue more directly than businessmen in other states, then and since,
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ostensibly controlled at least by monarchies or democracies. In order to stop conflicts among Dutch merchants, a group of Dutch merchants, burghers and ministers established the Dutch East India Company (VOC) in 1602; it was intended as a fighting force no less than a trading corporation and armed with sovereign powers. The company could conduct diplomacy, sign treaties, form alliances, maintain troops, install viceroys and make war. All of its agents, whether naval commanders or expatriate governors-general, had to swear double oaths of allegiance to the Company and to the state-general. From 1605, the main battles were with the Portuguese as a carry-over of the war in Europe and military costs took up more than a third of the VOC’s initial capital in the seven years to 1612. These high costs were sustainable because of the trade monopoly the company held at home and the large profits which could be derived from it. After some initial failures, in 1620, they captured Banda in the Malacca province, which gave them control over spice growing estates. They followed it up with the capture of the key city of Malacca in 1641, then Colombo in 1656 and Cochin in 1663. The main centre for the Dutch in Southeast Asia was Batavia on Java, from where they could control important sources of spices. The Dutch also had enough power to force the local rulers to sell only to them (Boxer, 1965). Such policies did not succeed with the great land powers such as China and India, or with the Japanese. In 1622, the Dutch destroyed over 80 junks off the coast of China. The Chinese refused to bow to Dutch threats, and cut them off from trading until 1727 when they were finally allowed to resume through the Port of Canton. Chinese merchants calling on Java kept the trade in their own hands. The Dutch were keen to trade with Japan but they were allowed to do so only under humiliating terms. The Japanese saw the Dutch as a useful counterweight to the
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Portugues , who had been trading through the port of Nagasaki from the 1540s. After the Portuguese were excluded, the Dutch were forced to withdraw to the small Island of Deshima just off the coast.5 They were allowed to visit the mainland once a year in order to pay homage to the Shogun. The Dutch stayed for more than two centuries, thriving like the Portuguese on trade by becoming part of the Asian trading network6 (Boxer, 1965). In the late 17th century, the Dutch were carrying large quantities of tin from Sumatra to China and camphor from Japan to India, which in turn met their requirements of iron and weapons. The complexity of the system can be judged from the fact that VOC controlled sugar estates on Java that were owned by the local aristocracy using Chinese indentured labour. The market for sugar was not in Europe but in Safavid Iran (Ponting, 2000: 530). In the Atlantic, the Dutch were attracted by the wealth of the Spanish and the Portuguese Empires. At first, most of the effort was put into raiding the great silver and treasure fleets that sailed from Havana to Cadiz. The key development was the formation of the West India Company (WIC) in 1621 combining, like the EIC, both state and commercial policy aims. The triumph over the territorialist power of Spain was the pinnacle of Dutch bourgeoisie might. The capture of the Mexican Silver Fleet by its mercantile company (the WIC) in 1628 dealt a severe blow to the Iberian power. In the 1630s, the Dutch captured the Pernambuco province. In 1637, they captured El Mina, the main Portuguese trading post for slaves on the African coast and began importing about 2,000 slaves a year into their part of Brazil. However, very few Dutch settlers had moved to Brazil and little effort was made to retain the colony, which passed back under the Portuguese control in 1654.
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In the control over the circuit of trade and finance, the Dutch were eminently successful. They loosened the Genoese stranglehold over its finance (see Chapter 15) and then stepped in as the arbiters of European high finance. Iberian dependence on Dutch-controlled trade networks became greater than ever. By 1640, Dutch ships carried three quarters of the goods delivered in Spanish ports, and by 1648, before the Peace of Munster, they carried most of Spain’s silver (Braudel, 1984: 170).
Competitive Resilience Undoubtedly, the businessmen were the ruling class in the Dutch Republic. The polity was subservient to the merchant class. Typical of the unabashed profiteers was the msterdam merchant, who in 1638, told the stadtholder to his face that not only would he continue to trade with enemy Antwerp but that, if he could make a commercial profit by passing through hell, he would risk burning the sails of his ships in doing so (Boxer, 1965: 126). An intriguing question, often raised, is why, despite having a strong entrepreneurial class, the Dutch could not establish for long its superiority over other nations. It was precisely at this moment of triumph, as Arrighi argues, that the winning capitalist logic began to show its limits. The treaties of Westphalia (1648) institutionalised its triumphs, but it set free, at the same time, the energies and resources of the territorialist powers of Europe to challenge the commercial and naval supremacy of the Dutch. Just as, in the preceding period of struggle, the Dutch had effectively mobilised their superior command over mobile capital to neutralise Iberian territorial supremacy, so now the English, the French and the Iberians themselves were freer than ever to mobilise their superior command over land and labour to undermine Dutch commercial
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supremacy (Arrighi, 1994: 203–04). This supremacy was most vulnerable in the Atlantic. For unlike, in the Indian Ocean, this could not be maintained simply by controlling trading ports, as the Dutch had long been accustomed in doing during their assault on Portuguese supremacy and in earning profits through intra-Asian trade. In Atlantic trade, control over production areas was at least as important as control over trading ports, but the Dutch Republic was not able to support a military establishment on a huge scale and over a long period of time as Britain was from the late 17th century onwards (Speck: 173–195). The growth of a ‘fiscal-military state’ in the Netherlands reached its limits; the state could not indefinitely maintain a high level of expenditure just by floating new loans, as payments of interest tended to account for a large part of the budget. The Dutch Republic was in the end, in no position to emulate the political and military power of Britain in Europe or overseas, or to restrict encroachments on its dominance in world trade by continental mercantilist states like France, Sweden, Denmark or Austria. As a result of its failure to keep its trade networks intact, foreign demand for Dutch goods and services stopped growing and in the last decades of the 18th century fell into a decline (Davids and Lucassen, 1995: 451). With their failure to do so, the Dutch lost out in the competitive power game. The Dutch were primarily focused on the logic of immediate ofi s and they wouldt shun ventures tsat took time to mature. Having known about the extraordinary labours and the considerable expense which the Spanish had been obliged to devote to the establishment of commerce and government in new unknown territories, they preferred to seek out countries which could be exploited rather than settled and developed. Their attitude was somewhat akin to that of the English merchant adventurers who promoted the Virginia Company
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for settlement in America, but soon developed cold feet, for the p ofits they could see mn the horizon were uncertain, and in any case, did not look in any way comparable to what they had been used to in their Levant trade (Brenner, 1993: Chapter III). The colonisation of suitable regions was envisaged in the 1621 charter of the Dutch WIC; this was sponsored by the territorialist bloc as opposed to the capitalist component of the Dutch dominant bloc. But, from the first, the WIC started seein itself as an offensive weapon against the roots of Iberian power rather than as an agency for colonisation. In efforts to conquer all or parts of Brazil, WIC showed little patience; the costs escalated over and above commercial profits, and the company gave it up in preference to greater specialisation in commercial intermediation (Boxer, 1965: 54). In the 17th century, the exclusive profit orientation of the Dutch state gave it a decisive competitive advantage in the struggle to appropriate the spoils of the disintegrating Iberian territorial empire. But as soon as England followed the Dutch path of development by becoming more capitalistic in structure and orientation, as they did from the late 17th century onwards, the exceedingly lean structure of the Dutch state was transformed from a decisive competitive advantage into an insurmountable handicap. In the ensuing struggle for world commercial supremacy, the competitive advantages started shifting to those states, England in particular, who had been developing strong military strength to support their territorial ventures. There was nothing that Dutch capital could do to stop the English from fully exploiting this competitive advantage at the expense of the Dutch themselves. Interestingly, the surplus that Dutch bourgeoisie was accumulating went to finance English national debt. It is through these means that they enjoyed a free ride on the profits of expanding profits of the English Atlantic trade.
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Business–Politics Disharmony Ironically, the decentralised structure of the government that had facilitated economic growth in the Golden Century became a great obstacle in the changed circumstances of the 18th century. At a time when foreign competition was more effective, resilience in the political response to new situations was extremely vital. It was hard to meet the requirement of unanimity under the Constitution, and consequently, factions of the regents could prevent policies by holding back their money for new loans and by forming coalitions. Amsterdam was influential but its interests did not always coincide with other powerful factions of the ruling class. Cities overwhelmingly shaped the destiny of the Dutch state, for they both contained and distributed the capital necessary to maintain the Republic’s integrity in the face of the foreign incursions. But contradictions at times were so strong that one could hardly speak of one ruling class. The result was a state and a ruling class that reflected the divisions in economic, financial, institutional and political aspects (Tilly, 1994: 212). In the Dutch state, even the smallest province had the same rights and powers as Holland, so decision-making over war and peace was complicated by conflicting interests of urban elites of different cities. Amsterdam, together with other cities was primarily interested in trade, generally regarded war as harmful. On the other hand, Leiden, specialising in cloth, and Harlem, renowned for finishing and bleaching of textiles, feared competition from the southern Netherlands and were at the core of the anti-peace party. Again, there was a contradiction between the European carrying trade and river trade on the one hand, and colonial trade, on the other. Carrying and river trade suffered heavily from trade restrictions imposed by Spain, Portugal
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and the Republic and the raids of the privateers. But the colonial trade gained from the opportunity to attack Spanish and Portuguese possessions in the east and in the Americas. With a continuous shifting of coalitions in the republic, its efficacy was seriously limited because conflicting local interests played a large role in decision-making.7 At the same time, the state’s revenues, which enabled the republic to maintain its position visà-vis foreign competitors, were heavily dependent on the trade and wealth of cities. As a state, the Netherlands could never disentangle itself from its medieval past. It never forged, as did its commercial rivals, a highly centralised state system capable of quick and decisive action. This is why so many Dutch historians have come to regard the rapid extension of Dutch power between 1580 and 1640 as a miracle. The miracle lies in the fact that, in spite of intense rivalry between state and cities, and the constant obstacle of entrenched rights and privileges, the Dutch were able to mount great navies and armies and pay for them mainly out of taxation. And this was achieved largely through the dedication of the Calvinist oligarchies, which possessed a strong and viable sense of their own destiny as a class and as a nation (Introduction by Plumb in Boxer, 1965: xxiii).
Notes 1. In the Middle Ages, the territory roughly covering modern Belgium, Luxembourg, north-west France and the Netherlands was known as the Low Countries. In the 16th century, it was part of the Habsburg Empire. For a time, southern Netherlands came under the authority of Catholic Habsburgs while the Protestant-dominated northern Netherlands, consisting of seven provinces located north of the river Meuse, became the United Provinces of the Netherlands while the 10 southern provinces remained under the rule of Spain.
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â•… Unable to contain galloping military expenditure, Charles V, the Habsburg Emperor, had continued to rely far too long on the wealth of the merchants of the Low Countries, the most prosperous regions of his kingdom. Willingly, they stretched themselves up to a point, for, under the rule of Charles V, they had been enjoying unrestricted trading rights within his kingdom. By 1559, the swell of resentment that was brewing up against continuously rising impositions joined the rising tide of Reformation Calvinism sweeping with intoxicating force and ferocity, across the Low Countries. Philip II, succeeding his father in 1556, did little to assuage it; in fact, his demand for absolute loyalty to the Roman Catholic Church sparked off a chain of fanatical and bloody wars, making him the victim of his own ambitions. 2. Immanuel Wallerstein characterises it ‘the hegemonic power of the capitalist world economy’, the ‘first truly global empire’. 3. The bureaucratic centre (The Hague) of the new state was separate from the economic and financial centre (Amsterdam). There was also a distinct traditional centre (Dodrecht or Utrecht) and cultural centre (Leiden, site of the state’s first university). One of the weakest places in the Republic was chosen to house the central government. Some institutions and functions, such as navy, minting and taxation, were even more decentralised as compared with the period before the revolt. Police, civil and criminal justice likewise fragmented. Urban oligarchies suffered very little constraints from above. Stadtholder William of Orange assumed a leading position, yet there was no Dutch nobility to support his claim, and decision-making was largely left to the cities. The stadtholder, who was at once an official of the states-general and of each of the estates of several provinces, had some ‘sovereign’ appointment rights; he could, for example, appoint magistrates from a list of nominations drawn up by city councils. The prince was generally supported by the nobility in the inland provinces, but he had major problems with the trading cities. They had no interests in the dynastic policies of Orange (Tilly, 1994: 201–02). 4. The United Provinces had not been included in either the Roman or the Carolingian empires, and partly as a result of this factor, feudal social relations had not taken firm roots (Vries and Woude, 1997: Chapter 2). 5. The island measured 82 paces by 236, and was linked to the mainland by a causeway guarded by a fortified gatehouse. They were spied on by their Japanese servants and controlled by a 150-strong official interpreter corps.
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Just one ship a year was allowed to call and its officers were usually beaten with sticks as if they were dogs. The EIC told its agents to bear the conditions and were ‘to look to the wishes of that bold, haughty and exacting nation, in order to please them in everything’ (Ponting, 2000: 526). 6. At first, the Dutch traded silver from Japan to China, but after the ban on silver exports in 1668, they concentrated on silk, porcelain and lacquerware, which they traded for Indian cotton and Bengal raw silk (Ibid.: 525). 7. For example, Zeeland, having a great interest in the WIC, tried to convince the others to send massive amount of money to support the company in coping with the Pernumbuco revolt in Brazil. Holland and Amsterdam finally agreed to do so, in exchange for Zeeland’s consent to establishing a peace with Spain. Similarly, negotiations were necessary in the following years: Zeeland would sign the treaty with Denmark that was so important for the Amsterdam Baltic trade and Holland (Amsterdam) would continue to support the WIC (Tilly and Blockmans, 1994: 206).
Chapter 17
Not in a Fit of Absentmindedness: Britain’s Forays1
S
â•… Spain was a stimulus and exemplar for the English foray into the Atlantic. England had precedents for empire building in her backyard; for several decades, she had pursued a policy of aggressive expansion with her Welsh, Scottish and Irish neighbours. In medieval England, privateering was a favourite pastime and the English kings had turned a blind eye to the piracy ariginating from ehe C]nque Ports (the five ports of Hastings Hythe, Dover, Sandwich and New Romney) probably because their piratical activities honed the skills of sailors needed by the king during wars. As the Cinque Ports’ depredations increased, an antipiracy statute was passed but failed to suppress piracy. In 1544, in his war with France, Henry VIII gave blanket authorisation for privateering and allowed privateers to keep all the loot they seized (Thomson, 1966: 23). In keeping with the long medieval tradition, the Elizabethan Sea Dogs (‘England’s Forgotten Worthies’ as J.A. Froude recalled their activities in his 1852 Westminster Review article)— Francis Drake, Thomas Cavendish, George Clifford (the 3rd Earl of Cumberland) and Walter Raleigh—engaged in all kinds of violent activities directed against Spain in the New World. Economic, social, religious and strategic motives, reinforced by a deep hostility towards Spain, fired the ambitions of these 269
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entrepreneurs. Projects for trade, plunder and colonisation proliferated during the period from 1578 to 1584. In fact, England gained naval superiority over Spain largely through the action of the Elizabethan sea dogs (Andrews, 1984). These piratical ventures were an expression of an obsessive pre-occupation with the silver of the Indies as the key to Spanish power. The questions posed by Hakluyt in his The Discourse on Western Planting, reflected the mood of the age: With the great treasure did not the Emperor Charles get
from the French King the Kingdom of Naples, the dukedom of Milan and all his other dominions in Italy, Lombardy, Piedmont and Savoy? With this treasure did he not take 1970: 90)
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the Pope prisoner? And sacked the See of Rome? (Elliott,
A provocative argument was in favour of state support for colonisation, but foreign policy considerations kept Queen Elizabeth away from direct involvement, though she showed an unprecedented moral support by being an investor in several of these ventures. Maritime activity was thus left in the hands of private adventurers who pursued their own interests with little effective control by the state. Links between trade, privateering and colonisation, came to be closely formed during this period (Ibid.: 64). Clifford, the 3rd Earl of Cumberland, sent out 12 ventures to the coast of Spain, the Azores and the Caribbean, in search of honour and profit; behind such prominent promoters were hundreds of small investors such as butchers, inn-keepers, shipwrights and farmers (Appleby, 1998: 67). The real significance of these enterprises lay in the evidence they provided for the development
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of a powerful syndicate linking prominent city merchants with leading naval officials and well placed courtiers. Before 1630, the entire English operation in the Atlantic was a ‘predatory drive of armed traders and marauders to win by fair means or foul a share of the Atlantic wealth of the Iberian nations’ (Andrews, 1984: 356). All this was in the European tradition of the union of warfare and trade; a Drake, a Fenner, or a Hawkins, who lived from maritime plunder, can hardly be distinguished from some of the leading German military enterprises. And they all followed in the footsteps of the ‘Portuguese Da Gamas, who traded in spices in India in one generation and crusaded in Ethiopia in the next’ (Brady, 1991: 153).
Colonial Ventures In this background, several moves for colonisation developed in quick succession in the 16th century; all these were a unique blend of public and private interests. In the Caribbean Islands, private entrepreneurs developed extensive plantations, getting finances from metropolitan sources and slave labour from Africa. The Royal Navy was always visible as a partner with the merchant marine. Enterprising individuals were encouraged and given charters by the state, together with the authority to exercise some sovereign powers in any encounters with any other sovereign entity. This mode was most successfully exploited by the EIC. The settlement colonies were quite different. The American settlements originated in the drive for material betterment combined with the quest for freedom from religious persecution, and even after they gained independence in 1776, American merchants maintained very close links with their trading partners in Britain.
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Role of the Navy The same men who administered the navy as ‘Officers of the Admiralty’ and commanded squadrons as admirals and captains were also merchants, ship-owners, privateers, ship-builders and naval contractors. The fleets they put out were normally a mix of royal and private ships. The royal navy was so much under the control of the merchants and ship-owners that it was in great measure absorbed into their private naval warfare (Rodger, 1998b). For the success of this strategy in naval warfare, a proper balance between public and private partnership had to be maintained. Philip II, for example, raised most of his fleet through a contract system. Spanish royal power burdened the merchant fleet so much that it came to be steadily weakened as a commercial force and could not be turned into an effective instrument of war. By contrast, the English system created a fleet eminently adapted for defensive and piratical war. This public–private partnership that was the genesis of the English navy, took a different form by the middle of the 17th century. When geo-politics extended the navy’s area of operation, what emerged was a broad division of responsibility between public and private. Merchantmen and men-of-war were spreading out to different parts of the globe but a core fleet remained in European waters for engagement with European rivals.2
Caribbean Plantations The agricultural settlements in the Caribbean financed by joint stock companies, syndicates and individuals symbolised the beginning of the colonies, as English settlers worried by the economic crisis of the early 17th century descended on these islands
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(see Chapter 13). Trading connections in rum, foodstuffs, construction materials, sugar and slaves contributed to the perception of the islands as the hub of the empire. These islands were the backbone of England’s seaborne empire and the primary location of capital accumulation in the Americas (Beckles, 1998: 232). A few sub-tropical commodities raised by slave labour3 made agricultural colonisation of the new World profitable. There was no dearth of capital and credit because English and Dutch merchants and financiers were eager to do business with the sugar planters.4 By 1660, the African slave trade was the lifeline of the Caribbean economy. The planters had brutal labour management policies, supported by the state. The slaves were kept subordinated by militia regiments supported by government troops.
Triangular Trade The economic order centred on the slave plantation complex, known as the Atlantic system, came to occupy a central place in the development of what ultimately became the British Empire. The trans-Atlantic trade would have been a heavy deficit for England had it not been for the slave business, which made possible a convenient triangular traffic of cheap manufactured goods to the African coast, from where slaves would be shipped to the Caribbean Islands. On the third stage of the journey, sugar from the Indies would be despatched to Europe. As Eric Williams argued in his classic study, this circuit of trade through which British manufactures were exchanged for African slaves, African slaves were exchanged for American tropical products and these products were then exchanged for British manufactures, generated a vast reservoir of mobile capital. The surplus from the Atlantic slave economy amounted to
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about £4 million a year, or over five times the amount that the English landlords gained from their Irish estates and 10 times the profits of the EIC (Ponting, 2000: 653). England secured this critical gain by breaking the back of Dutch commercial supremacy in the Caribbean islands after the Dutch wars (1652–1674). The takeover of this so-called triangular Atlantic trade from the Dutch became as significant for England, as Levant trade had been for Venice and Baltic trade for Holland. The value of Caribbean slave agricultural production was so great by 1750 th the B tish laced a l e fleet permanently in the waters off these islands, creating a permanent pool of ships that could be despatched to more distant waters in the Caribbean or the east (Rodger, 1998b: 169–83). As the historian Christopher Bayly observes, ‘It was European ships and commercial companies, not the Asian or African producers of slaves, spices, calicoes, or porcelains, which were able to capture the greatest “value-added” as world trade expanded in the 18th century’ (Bayly, 2004: 64). Britain’s dominance in the Caribbean promoted the transfer of Europe’s entrepot trade from Amsterdam to England’s port cities. Just as, in the late 16th century control over Baltic supplies of grain and naval store had brought entrepot trade to Holland, so, by the late 17th century, control over the Atlantic supplies of tobacco, sugar, cotton, gold, and above all, of the slaves who produced the bulk of these supplies, helped divert traffic from Amsterdam to English entrepots (Arrighi, 1994). Also, as Hobsbawm has noted, this shift was not merely geographical but structural. The traditional pattern of European expansion—Mediterranean, based on Italian merchants and their associates, Spanish and Portuguese conquerors; or Baltic, and based on German city states—had perished in the great economic depression of the 17th century. With the expansion of
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In the Caribbean, the sources of the two of the most important
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Atlantic trade, the western maritime powers, particularly Britain, started intensifying and widening their relationships with the rest of the world (Hobsbawm, 1968: 52). Second, production, trade and consumption of key consumables such as sugar, coffee, tobacco brought about what the Dutch historian Jan de Vries has described as ‘industrious revolution’. Merchant capitalists in many societies became aware of potential markets and new products and new producers and began to link them together. From the beginning of the exploration in the Americas, operation of mining and its exploitation had given the Europeans a competitive advantage in world trade. The expansion of slave production gave a second great advantage. As the historian Christopher Bayly observes:
items of ‘breakfast’, brutality and subjugation were the order of the day. This forced and violent industrious revolution swelled the pool of European armed shipping and honed Spanish, Dutch, French and British techniques for projecting their power across the world … Europe and the North American colonies were information-rich societies in which inquisitiveness and and, later, world conquest. (Bayly, 2002: 204–05)
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cupidity turned information into tools for world exploration
Priests and philosophers were distressed by what was happening in the Atlantic America, but they found a new way of looking at business, putting a gloss over what was happening. There was a fundamental change from medieval thinking; lust for money and possessions and power had been condemned by a long line of religious writers who attacked glory-seeking as both vain and sinful (Hirschman, 1977: 10–11). By the 16th century, commercial and related private activities came to acquire legitimacy and
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prestige, virtually declaring their independence from any moralising precepts and rules except those that served their interests for untrammelled pursuit of wealth and its accumulation. Political philosophers accepted the reality and rationalised all that was happening, taking the sting out of commerce.
Long-distance Trade In the mid-16th century, English trade was overwhelmingly north European, by the later 17th century it became global. In entering new and long distance routes, English merchants encountered non-commercial risks. First, they were cutting into the established interests of European rivals, notably the Spanish, Portuguese and the Dutch. Second, such long-distance trade brought English traders into contact with societies that were little understood. As a result, trade and military action came to be closely related. As the Crown could not always provide the military and diplomatic shell, the trading companies were permitted to take on these military and diplomatic functions. The territorial area covered by the trading companies expanded during the Stuart Period. They were not simply passive traders, but frequently engaged in plunder and piracy; they were empowered by the state to have coercive power. The merchants themselves conducted trade and policed the trading system. Protected by guarantees of law at home and attracted by freedom from laws abroad, ‘the company merchants resembled Spanish conquistadors more than they resembled the Fuggers of Augsburg or the Strozzi of Florence’ (Brady, 1991: 155). They lived in two different worlds: at home, the growing security of property protected their accumulations, while the wider world afforded release from the restraints at home.
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… gave the Company criminal and civil jurisdiction over all
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The principal threat to English trading interests came from other European powers. Mercantile companies were, as a rule, granted full sovereign powers. In addition to their economic privileges of a monopoly on trade with a given region or in a particular commodity and the right to export bullion, they could raise an army or a navy, build forts, make treaties, make war, govern their fellow nationals and coin their own money. Under its 1670 charter, the Hudson’s Bay Company was granted ‘the absolute right to administer law and to judge all cases, civil or criminal’, on the spot. It was empowered to employ its own armies and navies, erect forts and generally defend its fiefdom in any way it chose. And the most famous of all mercantile companies, the English EIC, was in 1661 granted a new charter that:
persons belonging to the said Governor and Company or that shall live under them; it empowered the company to make war or peace with non-Christian princes or people, and it munitions from England.
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authorised the company to erect fortifications and to export
These mercantile companies, as state-created institutions, were endowed with nearly all the powers of sovereignty, and were authorised to exercise it, in the pursuit of economic gain and political power, for both the state and private persons. With them, today’s theoretical and practical distinctions between economic and political, between state and non-state actors, public and private, property rights and sovereignty, were meaningless. Speaking of the EIC, Edmund Burke said, ‘[it] did not seem merely to be a company formed for the extension of the British commerce, but in reality a delegation of the whole power and sovereignty f this kingdom sent into the East’ (Thomson, 1966: 32).
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In a sense, a mercantile company became the instrument through which the state marketed and internationalised coercion to extend trade. It fully exploited the advantage, for as long as it could, of denying the responsibility and accountability for its consequences. The company engaged in piracy, extortion, subversion and war in contradiction of laws in the European state system. This division of responsibility between the state and the market helped both the parties; the state could turn to these non-state actors for achieving their aims when they felt politically constrained from exercising military power directly. The chartered companies, acting as organs of state policy, had brought about significant changes in the global economy, but their essentially mercantile purpose was too restricted to bring the colonies effectively under control and to harmonise the production and commercial requirements of the metropolitan and colonial countries. It was the English political system that grappled with this contradiction and succeeded, through gradual steps, in resolving it without injuring the substantive interests that the companies had built up. In the competitive power struggles, the rival companies faded out over the 18th century. As the history of these rival companies show, they were at a serious disadvantage as compared with their English rivals, which had been functioning on a platform of close collaboration between state and merchants. The EIC played an important part in tying together the city of London, the state and the empire in a series of self-supporting relationships that enabled resources to be mobilised at home and abroad, helping to facilitate the emergence of Britain as the greatest financial, imperial, industrial and military power on the world stage. Before 1756, the company (see Chapter 13) provided critical support to the British state because of the role it played in the creation of the national debt, stock market and the system of
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credit. The company increasingly featured in the strategic calculations of ministers and politicians. Besides being a financial prop, the company’s maritime service provided a large reserve of sailors and officers that could be drawn upon by the navy whenever required. Sporadic attacks that were mounted on the East India monopoly during the first half of the 18th century died down. With steady expansion and profitability, the company had established itself at the very heart of the imperial Britain. This specter of any damage to the EIC was sufficiently frightening to convince several generations of ministers that they should offer extensive support to the company whenever it ran into financial difficulty (Bowen, 2002: 17). The Dutch companies, though autonomous, were victims of a slow, procedure-ridden, decision-making structure at The Hague. They made steady losses from 1726 and grew weaker; at the end of the War of American Independence, they no longer owned any ships. In France, the structure for the mercantile company adopted by Colbert in imitation of Spain made it virtually a government institution. Political concerns had priority over business interests (Pearson, 1991: 95). These companies faded out by the end of the 18th century. The contradiction between granting sovereignty to nonstate actors and disclaiming state responsibility for their actions emerged as a major issue of political governance within the English colonial system. This first came to a head in the English colonies. From the beginning of the 17th century, the Virginia Company had been placing restraints on the royal governor, but, in 1629, the commercial company resolved this contradiction by converting itself virtually into an independent provincial government. The English state progressively withdrew the sovereign powers it had granted to the EIC; the English polity became seriously concerned that it could not leave the entire
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subcontinent of India under the governance of a commercial organisation. In 1784, Parliament enacted the Pitt Bill placing the company under a Board of Control. In 1813, the company’s charter was renewed but its monopoly was limited to China and the tea trade. The company’s monopoly was ended entirely in 1833. It was directed to wind up its commercial affairs and was required to function solely as the agency through which Britain governed India. The Hudson’s Bay Company was deprived of its sovereign powers once Britain determined that the establishment of effective sovereignty in Canada was required to stem US expansionism (Thomson, 1994: 67).
American Settlements Settlements in America were usually financed and organised by a private enterprise.5 During the first quarter of the 17th century, English traders, for the first time, sought systematically to establish commerce with the Americas. Important city merchants had already opened up new trades with Russia, Turkey, Venice, the Levant and the East Indies that highlighted the Elizabethan expansion, and in each case, created the crown-chartered monopoly company. But the entrepreneurs behind the American colonial companies of this period could not demonstrate either organisational ability or financial success. Their fledging attempts at planting colonies required a good deal of investment to keep them going, but few merchants were prepared to wait (Brenner, 1993: Chapter III). There were other profitable adventures: raiding and plundering the Spanish settlements. The English adventurist merchants were ready to invest in long distance projects, even in politically volatile areas, once the returns were good. The opportunities for profit in the privateering war against Spain and from the Levant and later the east Indian
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trade made the English merchant communities somewhat cool to the American colonising ventures. By the end of 1620s all the main companies had collapsed and the great city merchants had entirely forsaken the American trade. The dissolution of the Virginia Company in 1624 effectively ended company control throughout most of British America. A large number of colonial societies were founded, mostly by men born outside London and, in many cases, the younger sons of minor gentry or prosperous yeomen. These men became colonial entrepreneurs, starting up plantations and providing the most important source of motivation, capital and organisation for the colonisation movement. Economic dislocation, political upheaval and religious strife in the middle decades of the 17th century encouraged further emigration from England to North America. By 1759, the 13 mainland colonies that later rebelled had a population of around 1.25 million, in addition to some 340,000 African slaves. These colonial societies differed markedly from each other, but shared certain fundamental features. English law and custom made clear provision for individual colonies to be granted or leased by the monarchs to prominent people. These individuals were designated royal proprietors, with authority to appoint governors. While colonists sought free trade in slaves and other colonial imports, they none the less insisted upon the preservation of a protected metropolitan market for their products. The American settlements were not colonies, being qualitatively different from the Caribbean islands, Mexico, Peru and maritime Brazil. For the settlers, the West was in a state of nature. The colonial British government had indicated in 1763, a line along the spine of the Appalachians, dividing the continent of America into two distinct worlds: east of the line, men and women would be governed as members of the British nation, enjoying the status
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of subjects. The west would be a region off-limits to subjects, left for the native Indians to inhabit. The British were not deciding politically to leave the Indians to work out their own future; they were forced to put a halt to their colonial ambitions because of the acute financial constraints caused by the Seven Years’ War. Speculators were vying for lands west of the mountains, forming companies and despatching surveyors, as if the Proclamation Line did not exist. Traders who had sustained losses during the Seven Years’ War claimed that they were entitled to land in the west. They formed land ventures, the most famous of which was the Mississippi Company. The line required the colonists to behave as deferential subjects, but, far from doing so, the frontier inhabitants of Pennsylvania, Maryland and Virginia were in a spirit of frenzy, starting out to kill Indians with abandon (Griffin, 2007: 51). In those years, the ideas of ‘frontier’ and ‘revolution’ enthralled Americans; they elevated the likes of Tom Quick, who had pledged to exterminate every Indian he came across, to sacrosanct status.6 Speculators realised that, for their schemes to work, they had to cultivate influential friends. Many seemed to be forthcoming: Benjamin Franklin and his son, the governor of New Jersey, William Franklin and wealthy Virginians such as George Washington, a member of the Mississippi Company and an advocate for veterans’ claims to the Illinois country. The Indians saw their hunting grounds taken over, their relations slaughtered and posts and settlements arising in their lands. Wealthy speculators using powerful connections grabbed land in an attempt to formalise the informal process of development and beat squatters. Speculative ventures measured land in thousands and tens of thousands of acres, newer western syndicates spoke
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in terms of hundreds of thousands and millions of acres. These companies tended to be trans-Atlantic in composition. Benjamin Franklin worked in London as an agent for a number of speculative concerns, as did Samuel Wharton of Philadelphia. Virginians also hired a London agent; these agents worked through their connections with the Board of Trade (Griffin, 2007: 56). With political consensus and religious tolerance, the settlers, right from the beginning, were free to unlock the door to economic growth and prosperity and create their own future. The bourgeois in new America was in every sense a replica of its counterpart in Europe. The raw grabbing instinct came out in all its crudeness during the extension of the American West. The settlements pushed westward over the Appalachians into the lands up to the Mississippi. By 1850, the United States (US) had become a massive continental power at the expense of the native Americans. Settlers and the US army pushed them westward, time and again, in different parts of the country as the pressure for more land mounted. In a series of brutal wars, the tribes on the Great Plains were defeated and removed from all the best land. By 1900, there were no more than 150,000 native people alive in the US as against over five million in 1500 (Ponting, 2000: 691).
Atlantic Slave Economy American independence did not fundamentally alter the nature of the Atlantic economy. Slavery remained central to the economies, particularly in the southern states and in Brazil and Cuba.7 By the late 1850s, Alabama, Mississippi, Louisiana and Georgia produced four-fifths of the American cotton crop, all with slave labour. The export of cotton to Britain became central to the Atlantic economy and slavery became the basis of the
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wealth of the south.8 The Atlantic slave economy, production of raw cotton in America, the mechanised textile mills in Britain and forced impoverishment of India’s economy were all linked together. The way in which the slave-based Atlantic economy provided a market for British industry was indisputable.9 In the matter of supply of raw cotton to the developing British industry, the link to the slave economy was direct and on a largescale. The English cotton textile industry began to develop in the early 18th century once protective legislation shut-out the competition from high quality goods brought back by the EIC. The Atlantic economy provided access to an almost unlimited supply of land and a large supply of forced labour to keep cotton production costs to a minimum. In 1790, the US produced just 1.5 million pounds of cotton. The invention of the cotton gin in 1791 improved processing and by 1800, production reached 35 million pounds. During that period, the price of raw cotton fell by two-thirds. American commercial life came to be centred on the ports of Philadelphia, Boston, New York and Charleston, which were comparable in sophistication and efficiency to their counterparts in western Europe. With its self-confident mercantile elite, the New World succeede in building upon a strong agricultu al and plantation base an exce le t finan ial infrastructure and a diversified industrial base. The two economies came to be closely interconnected; the Old North was functionally a part of Europe’s leading commercial region. In fact she turned out to be the ‘indispensable sleeping partners of Europe’s expans n into Afro-Asia’ (Darwin, 2007: 245). This enabled her later to step into the shoes of Britain as a hegemonic power, when her supremacy came under challenge in the 20th century.
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Hegemonic Foundations The 17th century British state was somewhat non-interventionist and it exercised only a light touch on the development of overseas enterprise. Government had inherited from the 17th century predecessors, a legacy that had established the outline features of overseas enterprise through legislation, granting monopolies and privileges to a variety of trading companies and territorial proprietors. The state exercised little direct control over overseas possessions and made few efforts to direct or control the course of expansion. As the 18th century progressed, the motivations of states involving themselves in warfare changed, though some constants remained. States now struggled for discrete advantages, not to destroy other states or regimes and not to decide great issues of religion or ideology. The most common rationale for war was acquisition or retention of territory and the struggle for wealth. While dynastic considerations ranked high, precipitating several wars of succession, rulers recognised that commercial wealth could be quickly translated into military power (Lynn, 2000). Monopolies and a navigation system had enhanced national, financial and maritime power. Expansion of trade continued uninterrupted. Between the reign of Elizabeth and William of Orange, commodity exports grew at a mean annual rate of 1 per cent per annum, but, from 1688 to 1815, that rate went up to about 1.5 per cent, with the share of exports to GDP moving from around 8 per cent to around 15 per cent. More significantly, and over two long upswings in production (1700–1760 and 1783–1802), the shares of the increment to industrial output sold abroad came to around 45 per cent (O’Brien, 1998).
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English merchants were able to forge an extensive global trading network, which went hand in hand with the application of military and naval power. New possessions were acquired, frontiers were extended and markets were established. Commerce beyond the realm, supported by state power, reinforced a more productive division of labour both within the kingdom and between the kingdom and its empire overseas. Over the century, the pace and pattern of metropolitan economic development was that of an expanding empire in which the British economy was increasingly embedded. The international economic order that was emerging was anything but liberal. The 18th century created the fusion between public and private powers that was at the core of the hegemonic supremacy in full display from the beginning of the 19th century. By the second half of the 17th century, England was appreciably more of a maritime and imperial power than it had been at the beginning. Powers with commercial or colonial interests were tied to the maintenance of navies, though Britain and the Dutch Republic regarded the navy as more important than military strength. The British navy dwarfed all others with 174 ships (1785); what could match them was the combined fleet of other powers (Hufton, 1980: 94). Britain successfully used the navy in wars with other nations. What is significant is that in the circumstances that led to these wars, the interests of private business entrepreneurs and those of the British polity were inextricably intermixed; the lead was taken by one or the other depending on the context and circumstances. Spain, Portugal and the Dutch Republic already had colonies whose existence or extension was often justified by actual or potential trade with the mother country. There was widely diffused approval across social ranks for the state’s foreign and commercial strategy. Though the political system was controlled by the landed classes, the peers
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in the House of Lords and the representatives of the gentry in the Commons regarded matters of trade, being linked to the expansion of empire, as one of national importance. Over the 18th century, the nation’s culture was gradually re-ordered to sustain a strong imperialistic impulse, making it easier for the government of the day to appropriate the money it required to confront Britain’s rivals for trade and empire. Ministers of the Crown responsible for formulating the strategic, foreign and imperial policies represented no material interest that could be plausibly separated from the concerns and aspirations of British merchants and export industries located in several regions. On the contrary, by fostering accumulation of wealth through the progressive integration of Britain into the world economy, it drew the social elites together. It was fortunate for merchants that, for strategic as well as commercial reasons, aristocrats saw no good reason to separate naval support for global trade and the acquisition of a maritime empire from Britain’s strategic interests as a European power (O’Brien, 1998: 72). Despite differences among merchants, the close co-operation between merchants and ministers, the links between merchants and navy and the involvement of merchants in the extension and governance of the empire came to be recognised as valuable and normal by the Court and the aristocratic governments alike (Baugh, Blue Waters Policy, IHR, 1988). In the power struggles among the European nations, Britain secured a competitive advantage over her European rivals. The core of her strategy lay in giving freedom to business to explore new avenues of trade and to acquire and control territorial possessions, with the full assurance of naval support from the state. The vigorous pursuit of a mercantilist and imperialist strategy, decade after decade, war after war, represented the most significant and enduring economic outcome of the
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Glorious Revolution of 1688. It is not that the other major powers were passive, but none could equal the ‘adaptive efficiency’ of British polity and business. Although the overseas footholds established by the British were often uncertain and sometimes short-lived, they gradually began to constitute an empire whose chief characteristics were its diversity and widely scattered distribution. For all the obvious importance of trade and settlement in the Atlantic world, activity in Africa, India and the Pacific region was increasingly recognised as defining the full extent of British overseas ambition. Throughout the 16th and 17th centuries, statesmen and commercial commentators had understood that national prosperity was essential to international ascendancy. After the end of the Seven Years’ War, in 1763, the British began to view the empire as a global one, and this found expression in their outlook, strategy and resource calculations. Elite politicians, economic writers and others realised that the empire’s fate depended on sound fiscal administration and manufacturing capacity and this collective understanding informed imperial policy making. Imperialism and everything that this emotive label connotes, must be ranked as a major factor pushing British industrialisation and the British economy ahead of its European rivals between 1688 and 1846. Power, as mercantilists long insisted, really mattered. In the next century as well, it was her skill in keeping a balance between business and polity that enabled Britain to maintain the status of a dominant power.
Notes 1. ‘We seem, as it were, to have conquered and peopled half the world in a fit of absence of mind,’ J.R. Seely told his Cambridge audience in 1981 (Seely, 1883: 16).
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2. The Elizabethan naval effort had depended on an alliance between the Crown and the owners of armed merchant ships. By the 1620s, though, there were tensions in this relationship and a greater reluctance to lend ships to the crown service, partly because there were increasingly more lucrative prospects than warfare for armed merchant ships. During the 16th century, a royal bounty was paid to those who built ships of 100 tons in return for some obligation to serve the Crown in war-time. Gradually this bounty was withdrawn, with the separation of the merchant and Royal Navy and with changes in ship design necessitated by increased specialisation of functions. These state ships were committed to the defence of trade, eventually taking over this role from the merchants themselves. This reliability of naval convoying in the Mediterranean clearly contributed to the growing importance of English shipping in those trades in the Restoration Period. Although privateering continued, it was of reduced military significance and by 1660 the divorce between the state’s military fleet and the merchant marine was clearly established. 3. The organisation of staple production in the formative years depended upon the labour of thousands of British indentured labourers. Unlike the islands acquired by the Spanish in the Greater Antilles, the Lesser Antilles lacked a large indigenous population which could be reduced to servitude. Promoters of empire in the first half of the 17th century published many polemical works, the main theme of which was the need to develop a labour market in the colonies which would rid England of potential troublemakers. During the 17th century, more than half of all white immigrants in these colonies were indentured servants. â•… Indentured servitude had to be rapidly dispensed with as unsuitable for sugar production. The more venturesome of the British planters obtained considerable Dutch technological and financial help. Large profits in sugar during the mid-century meant that the successful sugar planters could absorb the high cost associated with slavery. Sugar came to mean slaves, and in the Lesser Antilles, as in Hispaniola and Brazil, it meant African slaves. 4. The Restoration of 1660 enabled a group of courtiers led by Prince Rupert and James, Duke of York, to form a company of Royal Adventurers into Africa (commonly called the Royal African Company), which was given monopoly trading rights in western Africa for 1,000 years. Set-up specifically to trade in gold, the charter allowed some permissiveness to trade in
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slaves, which eventually became its primary business. In order to establish its base, it dispatched a naval expedition to Africa, under Sir Robert Holmes
which established a fort on James Island in the Gambia (1661). In
1662, it undertook to supply 3,000 slaves to the West Indian colonies. The shift of emphasis was confirmed in the new charter of 1663 which, for the first time, explicitly mentioned the slave trade among the company’s interests, though gold remained the main object of trade. Though the company started on an ambitious note, it could not hold its own against the Dutch onslaught, as the Dutch virtuaplt drove them out. As the company was ruined, it replaced itself with a new company of Gambia Adventurers, a group of private traders licensed by the company, which again converted itself into a new Royal African Company in 1672. By parting company with Royal Adventurers, the new company was dominated by merchants rather than by courtiers, though James, Duke of York (and later as King) remained as titular Governor. â•… The new Royal African Company traded mainly in slaves, it undertook to supply 5,600 slaves annually to the West Indies and Virginia. It benefited from the decline of the Dutch trade after the Third Anglo-Dutch War of 1672–1674. Although there was competition from French and Danish, the English were the leading traders in Guinea, though, in gold trade, the Dutch still had the largest share. The English were shipping the most slaves. The company got into financial difficulties through an overextended debt, which was aggravated further with the Anglo-French War of 1689–1697. The political situation changed after 1688 when monopoly in trade was being frowned upon, with an Act of 1698 ending the Royal African monopoly, and African trade was open to all English merchants, though on payment of 10 per cent levy on goods exported to Africa to subsidise the company’s operations. The 1698 Act was valid only for 13 years, after which trade became totally free. Free trade delivered larger number of slaves and stimulated a shift of its main centre away from London to Bristol and other outposts (Canny, 1998: 241–63). 5. The settlement of Jamaica was exceptional; it was a state enterprise, as the island was seized from Spain in 1655–1666 by Cromwell’s Republican army. 6. In 1889, Pennsylvanians gathered in his home town to erect a monument topped with a nine-foot-tall obelisk dedicated to ‘the memory of Tom Quick, the Indian slayer, the Avenger of Delaware’ (Griffin, 2007: 6).
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7. In total over three million slaves were taken to the Americas after 1807, mainly to Brazil and Cuba and this level was twice that of the 17th century, though less than during the height of the trade in the 18th century when it was dominated by Britain. Profits from the slave trade rose during the 19th century as prices fell in Africa but increased in the Americas (Ponting, 2000: 698). 8. Most of the ‘Founding Fathers’, including Washington, Jefferson and, in total, eight of the first 12 presidents were slave owners. There were no ban on slave imports before 1808, and more slaves were imported during this period than in any other two decades of the American history. The number of slaves rose from about 700,000 in 1790 to over four million by 1860. 9. A central feature of the Atlantic world economy was the sale of goods in Africa to buy slaves and the provision of clothes and goods for the slave workers in the Americas. By the 1770s, exports to these regions had risen seven fold since the beginning of the century, were as large as those to the whole of Europe and six times bigger than those to Asia. The Atlantic slave economy was therefore a key part of the British economy and one where Britain faced little competition and certainly far less than in the highly competitive markets of Asia, It provided a major market for exports and was the most dynamic market available whether for iron and cotton goods traded in Africa for the slaves or the tools they used for plantations.
Part V
Towards Global Hegemony
Europe used the period from ad 1500 to ad 1750 to catch up with the wealthier areas of Eurasia, in particular China and India. In ad 1000, Asia, Africa and Latin America taken together accounted for 82 per cent of the world’s population and 83 per cent of world income. By ad 1700, their share in world income had declined to 66 per cent. During the period from 1000 to 1700, China and India together accounted for half the world’s population and as well as income. But Western Europe, Eastern Europe, North America, Oceania and Japan saw their share of the world’s income rising from one-sixth in ad 1000 to onefourth in ad 1500 and one-third in ad 1700 (Nayyar, 2008). A global economy of sorts had come into existence in the 16th century. Once America had been connected to Eurasia and Africa, American silver helped Europe to buy much larger amounts from South and East Asian producers of textiles, ceramics and tea. But Europe, despite becoming a great maritime entrepot, had no decisive advantage over Eurasia. This changed when the European fight for dominance among themselves spilled over into the Indian Ocean, East Indies and the Sea of China. Western business and political entrepreneurs were quick to spot the chinks in the power structures of the great empires of the region. The winner in his race was Britain, which achieved global commercial supremacy. But this global hegemony of the 19th century was shaken by the traumatic geopolitical and economic developments of the 20th century, leaving the stage to the United States of America to emerge as the dominating superpower that it is in today’s globalised world. 294
Chapter 18
Chinks in the Armour: Empires in the Eurasian Landmass
F
â•… For nearly all of world history, the richest and most developed societies have been in Asia, and Europe was a peripheral area. It was the west that wanted the products of the east; Asia wanted little from the west so it took payment in cash. Under the Romans and later during the Islamic Empire, this trade drained the west of precious metals. It was the European conquest of the Atlantic world of the Americas that gave Europe access to phenomenal sources of gold and silver and enabled them to buy their way into the Asian trading system. During the 16th century, the Portuguese were the only Europeans to trade with Asia and until the 1630s, they sent on an average just seven ships a year to the east. A third of these were lost, only four made the return journey and one or two stayed on to trade within Asia. At the peak of the Dutch trade in 1735, they sent not more than 30 ships, mostly small. On the other hand, Constantinople, the capital of the Ottoman Empire, received around 4,300 ships every year in the early 16th century. In the 1570s, the customs revenues of the rulers of Gujarat alone were over three times the value of all the Portuguese trade in Asia. The linked trading world of the Indian Ocean, India, Southeast Asia and China was based on 295
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a huge internal market,1 highly commercialised economies and trading patterns established for more than a millennium. By the beginning of the 16th century, European trade was far greater than what it had been 500 years earlier, but it was still very small by Eurasian standards. Europe was still a marginal area within the Eurasian world. As we noted in the preceding chapters, the Indian Ocean trading world had always been highly cosmopolitan and it remained so after the arrival of the Europeans. European historians often assert that Japan was closed to external trade after 1640, apart from the one ship that the Dutch were allowed to send to Nagasaki every year (see Chapter 16). In fact, Japan had an extensive foreign trade; in the 1880s over a hundred ships were trading every year between Japan and China. In the 17th century, there was a major revival of Indian trade with the Gulf and a movement of Hindu merchants, mainly from Gujarat, overseas. Merchants from the Coromandel Coast controlled the trade with Thailand, where they undercut European merchants and exchanged Indian textiles for precious stones and other exotic goods. The competition was so fierce that the Europeans withdrew all their trading factories from the area before the end of the 17th century. By the early 18th century, Bangkok was Asia’s largest centre for the construction of junks, and the Europeans also came to rely on Asian ship-builders. The ships that brought Chinese goods to Europe in the 18th century were nearly all built in India (Ponting, 2000: 526ff). Overall, the European impact on Asia was very limited and far from revolutionary in the two-and-a-half centuries after 1500 (Ponting, 2000: Section 17.12). While Europe could impose its will easily on the Americas because of its technological superiority and the unexpected impact of Eurasian diseases on the population (Williamson, 1996), it had a very small impact on the great land empires of the Ottomans in Turkey, the Safavids in
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Iran, the Mughals in India and the Manchus in China. The most that the Europeans could establish were a few trading posts along the coast. But European merchants enforced on these empires a trading pattern that was biased towards them and Europe’s manufacturers, using opportunistic policies backed by the political regimes back home. Russia’s occupation of Siberia and its armed invasion of the east was the first such entry by a western power into the land mass of Eurasia. No European power could think of having its way through direct military confrontation in Turkey, Iran, India and China. While the revolution in warfare technology reshaped the character of the European state system, it had a very destabilising impact on the Eurasian system as well. The great Ottoman revival from the 1420s, its capture of Constantinople and control over most of the Balkans by the 1480s was largely built upon its success in the use of the new weapons. This technological revolution was also to a very large extent instrumental in the rise of two other major empires, the Safavid in Iran and the Mughal in India. In Japan, gunpowder weapons played a major part in the re-unification of the country in the late 16th century. We highlight in this chapter how the European powers managed to penetrate and establish their presence in the hearts of these empires, by taking full advantage of the weaknesses in internal governance and in naval warfare; in all these, the instruments of trade and state support went hand in hand.
Russia Marches into Siberia From the middle of the 16th century, Russia embarked on a massive colonisation of Siberia and parts of the east to expand her resource base. It was a long process and not until the late 19th century did the Russians finally secure control of central
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Asia. For centuries, the principalities in Russia had drawn their wealth from the sale of furs to Western Europe, but the largescale killing of the fur animals and clearance of land for agriculture made these animals almost extinct. Fur traders then crossed the Urals into Siberia in the late 16th century, using the shallow Siberian rivers (Ponting, 2000: 620–25). The Russian movement into Siberia brought them into contact with the Chinese. By the 1660s, the Chinese were building forts and roads across the region to contain the Russians. The Russians were only allowed to hold an annual trading fair at which they could sell furs to the Chinese in return for silk and cotton goods and later in the 18th century, tea. Although, by the late 18th century, Russia already controlled a land mass greater than that of any other power in the world, it had little success in extending its power against the Muslim states in central Asia. During the 18th century, the central Asian states were able to expel nearly all Russian merchants and force them to trade only along the frontier. Russia’s rulers, like those of Spain, retained the spoils of conquest for personal and dynastic advantages even though their colonisation did not yield the glittering wealth that helped fund the ambitions of the Spanish Habsburgs. Unlike in Western Europe, the Russian merchant was generally held in scorn; in the 16th and 17th centuries, he had to conceal his wealth till the monarchy introduced laws protecting private property. Native entrepreneurs lacked initiative; they were too dependent on state initiative and foreign management and foreign money. The Russian middle class did not seem to have the capacity to participate in economic activity involving more sophisticated forms as the business class from Western Europe had been doing; it did not have a bourgeoisie like its counterpart in Western Europe. Its outstanding characteristic was an intense nationalism
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coupled with fear of western influences and deep loyalty to an aristocracy whose protective tariff policy enabled this class to withstand foreign competition (Pipes, 1974: 217–19).
The Ottoman Rise and Crisis The Ottoman Empire was the western vanguard of the Islamic expansion that started with the capture of Constantinople (1453). It was the last of the great empires to dominate the original heartland of civilisation in Southwest Asia and was the only one that united that area with the Mediterranean and the Balkans. It controlled the three great sea routes (from the Bosphorus to the Black Sea, from the Levant to Mesopotamia and the land routes to the central Asia and the route down the Red Sea to the Indian Ocean). It also commanded the three main cereal bowls—Mesopotamia, Egypt and the Black Sea region. While Spain was establishing its dominion in the Americas, the Ottomans had carved out, against much tougher opponents and on a far greater scale, a vast tri-continental empire. For the Ottomans, the perennial danger was the possibility of having to fight a war on two fronts—with the Safavids in the east and the Habsburgs in the west. During the 1560s, the peak of the Ottoman strength, the Habsburgs were pre-occupied with wars against European rivals. But after the war of 1593–1606 between the Habsburgs and the Ottomans, the Europeans agreed to a peace treaty. The peace was renewed several times up to 1663. After this, faced with Habsburg and Romanov expansion, the Ottomans lost their privileged status as an early modern superpower in Southeast Europe and became aloof from the web of intra-European diplomacy (Darwin, 2007: 139). Instead of pursuing a ‘mercantilist’ policy of protecting their own producers and merchants, as the Europeans had done, the
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Ottomans seemed to perversely favour foreign interests, allowing European merchants to penetrate their empire deeply and giving them trading privileges that were abused. Ottoman sea trade also started passing into the hands of European merchants. The Ottomans lacked the political will and leadership to transform themselves into a nation state along the lines of European mercantilism. The empire managed to stay in one piece, but became ‘Balkanised as an economic unit’ (Darwin, 2007: 140).
Safavids: Weak at the Core The Safavids were a tribal confederacy cemented by allegiance to a religious leadership dedicated to Shi’ism, the dominant form of Islam on the Iranian plateau, and born out of opposition to the external military rulers, the Mongols and their successors. The Safavid Dynasty ruled Iran for over 200 years between 1501 and 1722. The major problem for the empire was to create some central political structure, and rebuild the economic and social infrastructure that had suffered under the Mongol invasion. It was the constant challenger to Ottoman dominance in eastern Anatolia, the Caucasus and Iraq for a further century. The empire, the core of which was greater Iran, promoted a vigorous commercial revival under Shah Abbas (1588–1629). It improved trade routes and caravan sarais. Iran’s principal export of raw silk was a royal monopoly, with Armenian Christian merchants as her agents (Darwin, 2007: 81). It had great commercial centres within its territory, with an Indian mercantile community of some 20,000 by the end of the 17th century. The cloth markets were larger than the famous Blackwell Hall of London. Urban merchants were generally successful in keeping themselves as a separate group. Abbas was strong enough to destroy
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the Portuguese settlement of Hormuz in 1622 to promote his own great emporium at Bandar Abbas. Although the Dutch and French merchants were important in Iranian trade, it came to be dominated by the English by the end of the 17th century. Ultimately, however, this great agrarian empire with a flourishing commerce under royal control and a unifying high culture fell victim to the general weakness of its central government. Safavid rulers based in Ispahan had been no more successful than the Mughals in achieving an empire of fixed territorial boundaries. In 1722, Mahmud, the leader of the Ghilzais, the dominant tribe in the southern Afghan lands, captured Ispahan and seized the throne. Both Russia and the Ottomans rushed to exploit the Safavid collapse. The Safavid claimant, Tahmasp, recruited Nadir Kuli (1688–1747), a Khorasan warlord. In 1736, Nadir declared himself Shah. In 1747, after his assassination, Ahmad Shah Durrani, one of his Afghan lieutenants, carved out an inheritance from Nadir’s Indian and Afghan conquests, with his empire stretching from Khorasan to the Ganges and from Amu-Darya to the Sea of Oman. But the Afghans were pushed back to the Afghan highlands with the loss of Multan (1818), Kashmir (1819) and Peshawar (1834) to the British. The careers of Nadir and Ahmad Shah coincided with the dramatic rise in the economic importance of the commercial corridor that stretched between north India and Russia and far away westward towards Meshed and Iran. This round of empire building was aimed at controlling the commercial wealth of the region. It is ... possible to imagine the scenario of which Nadir and
Ahmad Shah may have dreamed: a Greater Iranian Empire along Manchu lines, in which nomadic warrior elite was agrarian state. (Darwin, 2007: 153)
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transmuted into the hereditary administrative class of an
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Nadir and Ahmad Shah failed for various reasons: the agrarian base was too narrow, tribal confederations were inherently instable, but, above all, because they posed a serious challenge to the British in India, who wasted no time in eliminating this threat.
India and the Mughal Empire The short-lived world empire that Tamerlane had constructed between 1380 and his death in 1405 fell apart in the 15th century. The old imperial centre in Turan was under continuous attacks from steppe warrior-nomads, and the Turko-Mongol elite, its ruling class, were in search of an empire. Babar, one of the ruling princes from Samarkand, descended on the north Indian plateau, defeated the ruling Muslim Dynasty and made himself master of north India. Babar’s grandson, Akbar, through a series of territorial conquests, brought almost all the subcontinent under his rule by the early 17th century. The size of the empire placed limitations on the efficacy of the central power, so Akbar placed emphasis (continued by his successors) on widening the elite class as much as possible, though force and effective use of gunpowder were never in doubt. In the Mughal regime, power of the state and the power of the ruling elite were essentially indistinguishable. Akbar’s empire was built on the prosperity of the country’s trade as well as of its agriculture. A great revenue stream could be organised through a new and ubiquitous rule of regular revenue assessment, preventing the emergence of a decentralised feudal system. Akbar’s revenue collection was 25 times that of James I of England (Ponting, 2000: 549). With a population of 60 to 100 million, and a ‘fertile crescent’ of rich alluvial land, the Mughals presided over a larger and wealthier economy than the Ottomans or the Safavids (Raychaudhuri and Habib, 1982).
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The Mughals were a stimulant to both internal and foreign trade. They had brought with them the central Asian tradition of protecting and promoting trade (central Asian rulers were the guardians of the Silk Route.) Trade was regarded as vital, since the empire needed bullion and bullion was not produced in India. There was a huge influx of gold and silver from the Americas as Europeans bought the products that India made and traded. Exporting large quantities of food stuffs, cotton textiles, tobacco, sugar and indigo, especially to its Ottoman, Iranian and Uzbek neighbours, Mughal India was a major trading power. Trade was highly profitable, as evidenced by the great wealth of merchants and their impressive presence in virtually every part of the country (Raychaudhuri and Habib, 1982: 188).2 The Gujarati merchants could buy up an entire ship’s cargo or supply the entire annual investment need of the European companies (Ibid.: 189). Traders exerted a fair amount of influence on the ruling class, directly and indirectly (Ibid.: 190). How much influence the merchants could exert over the imperial policy was shown clearly in 1619 when the Surat traders resisted English attempts to buy textiles for the Red Sea market and were fully supported in this by the emperor and his officials. The amirs were no doubt worried by the thought of English encroachments in the Red Sea market. There were, however, numerous instances of exactions, legal and illegal.3 Traders, unlike the peasants, were able to exert influence through contacts, bribes, organised action and, most important, the spendthrift amirs’ dependence on them for credit. But while the merchants flourished, the peasant community was reduced to bare subsistence because of the Mughal State’s insatiable appetite for resources. The bulk of the realised revenue—estimated at something between a third-and-half of the gross national product— went to the emperor and the mansabdars. Thus an infinitesimal
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proportion of the population disposed of the bulk of the agricultural production (Raychaudhuri and Habib, 1982: 7–19). Aurangzeb’s reign (1658–1707) was the climax of the Mughal Era, and his death signalled the Dark Age of imperial collapse. Several destabilising forces were also at work, with a sort of double coincidence in the way the Mughal Empire’s decline began when the European powers were aggressively penetrating the Indian Ocean trade. Mughal prestige was shattered by the invasion of Nadir Shah in 1739. Trade and agriculture declined together and economic failure echoed political disintegration. By the last decades of the 17th century, significant changes were apparent in the patterns of European commercial activity in the Indian Ocean. So far, European profits had come from participation in the internal maritime trade of the Indian Ocean. Now, increasing profits were earned from cargoes picked up from producers in the region and dispatched to European consumers. The range and quality of Indian cottons and their relative cheapness gave them an enormous advantage in European markets. By the later 1600s, the English and their EIC had given up the old obsession with spices and were concentrating on the import and re-sale of Indian textiles (Ibid.: 401–02). European trading companies now became masters of the international of the Indian Ocean and redirected it to supply markets outside the region with Asian and African goods. At the same time, there were several changes in the markets as well. Among these was an increase in the flow of gold and silver from the Americas, and rising demand in Europe and Americas for goods of mass consumption (see Chapter 15). The integration of maritime India into international trade was hastened by the Industrial Revolution, which sucked in unprocessed raw materials. In the first half of the 19th century, commodities replaced the exotic and glamorous cargoes of the previous centuries as
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the main objects of European commercial activity. In Britain, for example, during the late 18th and early 19th centuries, the development of a cotton textile industry based on imports of raw cotton from North America severely reduced imports of south Asian textiles. In coastal India, a distinctive type of mercantile capitalism had grown-up to finance and manage the production and distribution of textiles and other commodities. Successful south Asian merchants retreated from direct participation in foreign trade to concentrate on the domestic markets, and as agents and financiers for European enterprise in south Asia. As a result, the economies of the Indian Ocean system became dependent upon those of Western Europe. At the same time, European political control was expanding rapidly and the economies of the region were laid open to the ambitions of European entrepreneurs. From the 1830s, European capital in the Indian Ocean region was directed towards the control of the raw materials as well as trade, and marginalised independent action by local merchants, shippers and investors. Rivalry among European powers spread to the Indian Ocean, while provincial governors and warlords set up petty states as Mughal imperial authority waned. But mercantile activity flourished despite all this; the Safavid collapse and weakening of the Ottoman Empire had put the spotlight on the economy of south Asia. The agricultural economy was still prosperous and the source of much mercantile capital and profit. By the last decades of the 18th century, the British EIC was extracting a valuable agricultural surplus and indigenous capital from its south-Asian possessions. It had found more profitable markets for Indian textiles and forced open a market for opium in China, just as Britain’s textile mills started took over the European and American demand (see Chapter 19).
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For the British merchants, the desire to trade was replaced by the desire for territory, marking a shift in their perception about the reasons for being in the Indian Ocean. The independent European trade, the European military and naval officer and the errant company servant were quite prepared to use force and the claim of national interest to further their financial interests in a way that was quite foreign to the world of the Indian Ocean. The principal export of pre-industrial Europe to the rest of the world was the use of systematic violence in the use of trade (McPherson, 1993: 207).
China Gets the Manchu Dynasty China experienced a long period of internal stability between 1400 and 1550 when the power of the Ming was at its height (see Chapter 6). From the mid-16th century, it faced a threat from the Mongol power along the northern borders and a serious fiscal crisis. Until 1590, the state’s revenue had been just adequate to cover expenditure, as it could draw on the huge reserves built up from trade and silver from the Americas. However, this was not enough to fund the long and very expensive war in Korea in 1593–1598 caused by the Japanese invasion. The attempt to levy new taxes and increase existing ones sparked revolts in the countryside and the cities.4 China appeared to be heading towards another period of disunity or a new regime. Instead, she was conquered by the Manchus, another group of nomadic people from the steppes, who established themselves firmly by the 1680s and ushered in a period of great internal stability and prosperity. Until the end of the 18th century, China was highly stable under the rule of three long-lived emperors, and China’s influence in central Asia grew on a scale not seen since the Tang, a
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thousand years ago. Throughout the 18th century, the rulers supported an agrarian economy in which commerce had an important role. Commercial activity came to enjoy a recognised and accepted place (Wong, 1997: 136). In the 18th century, the population more than doubled to 330 million. Direct state intervention in the economy was very low. There were no restrictions on foreign trade by Chinese merchants. Chinese merchants controlled tea production and its exports to Europe, mainly through the EIC at Canton. Industrial production was as high as in Europe. China’s industrial and merchant families were tightly organised around a mixture of family and share partnerships, as in Europe. Many of the cities were governed by groups of wealthy merchants and industrialists supported by banks. Taxation probably took no more than 5 per cent of China’s wealth, yet the government had a massive surplus because of the huge wealth generated by the economy. Towards the close of the 18th century, China started facing major problems of food supply and a rising popular discontent. This was the beginning of European interest in China. In 1793, the first British mission to China arrived in Peking with the aim of opening up trade. The British EIC tried to interest the Chinese merchants at Canton in English woolens and cottons but the Chinese refused to buy them because their industry could meet internal demand, and it products were judged to be better. The problem for the Company was the growing European demand for tea: from 13,000 tons in 1720, exports had gone up to 360,000 tons a century later. Even with the revenues from India’s taxes, the Company was not in a position to pay for all the Chinese goods that Europe wanted when so few European goods were in demand in China. So the Company moved into
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the business of pushing opium from Bengal into China, despite the Chinese government’s frequent bans on the opium trade (in 1796, 1813 and 1814). As opium became the principal source of revenue for the British Empire in India, the British government decided to back the merchants, the Company and the opium trade. Taking advantage of the weakness of the Chinese government in the late 1850s and early 1860s because of internal problems, the European powers grabbed several concessions and privileges that weakened an already disrupted Chinese economy. European textiles were exempted from custom duties and dumped in the Chinese market to help pay for imports from China. However, although the European powers and Japan managed to cripple China partially, they still did not control the country, its politics or economy. Chinese history in the first half of the 20th century was largely shaped by the desire to escape from the restraints placed on the country by outsiders.
Britain’s Navy Enters Unopposed During the two-and-a-half centuries since Columbus, the world balance had changed very little. The end of Safavid rule in Iran did not affect Europe. In India, European settlements were still confined to a few coastal cities. The European impression on China and Japan was even smaller. Nowhere had European armies fought any of the great Eurasian states outside Europe—their only victories had been against the indigenous peoples of the Americas. The Asian empires were strong in land warfare. China under the Manchu emperors successfully solved the logistical problems central in managing steppe warfare, which was considered the supreme strategic
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[…] cooperation of states and mercantile elites and, in
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threat by all Chinese dynasties. In order to wage war with the Zunghars, there was a massive transfer of resources from eastern to western China. This great demographic and agricultural expansion was driven by a military goal. There was a parallel with the British Navy, with organisational factors in each case proving a crucial pre-condition for campaign success (Black, 2007: 142–43). What had changed between 1500 and 1750 was that the European powers, particularly Britain, successfully combined trade and politics and deployed it effectively through their naval force in their drive for economic supremacy in the Indian Ocean and Chinese waters. But the Asian empires were crippled by their lack of naval strength. Military historian Jeremy Black has argued that this happened because, between 1660 and 1815, these states lacked the cooperation between trade and polity that was essential to build up naval power. In the 15th century, the Chinese had deployed substantial fleets. The Japanese and Koreans had also done so, in the 1590s. According to Black, naval development requires the,
particular, on the openness of the first to advice from the latter and on an ability to derive mutual profit from naval requirements and financial resources. Oceanic naval power depended on a maritime economy to supply resources in depth, i.e., demand from government alone would not generate sustainable maritime infrastructure. It required both a strong state infrastructure and a strong maritime economy and that was not only quite rare but could also be put under Britain. (Black, 2007: 145–46)
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great pressure in war, as France discovered in conflict with
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Asian merchants were important no doubt in long distance trade, but the mercantile elites were generally separated from rulers by ethnic or religious divides. And linked to this, the relationships between port cities and states were often uneasy and was nothing like that represented by the role of London in British policy. Jews, Greeks and Armenians did not have close relations with the Turks, while China after the Manchu conquest in the mid-17th century was very much dominated by the elite, whose values were not maritime. Mughals in India and of the rulers who succeeded Safavids in Persia from the 1720s placed priority on landed and not on maritime warfare. Maritime activity that was taking place under the auspices of these polities was not synonymous with naval strength. They did not focus on naval forces (Black, 2007: 142–47). In contrast, the western powers had developed, as we have discussed in Part IV, close collaboration between their naval and merchant fleets through naval warfare among themselves for gaining competitive supremacy in the Atlantic Ocean.
Notes 1. Over two-thirds of the world’s population lived in Asia in 1700 compared with a fifth in Europe. 2. At Agra, one Sabal Singh Sahu was so intoxicated with prosperity, that his court resembled that of princes. One great merchant from Agra on his pilgrimage to Puri had in his train, 500 soldiers, 1,200 sadhus and 500 servants to carry the baggage (Raychaudhuri and Habib, 1982: 190). 3. The traders were generally submissive, but striking instances of resistance were not unknown. Kapurchand Bansali, nagarseth of Ahmedabad, employed nearly 500 persons to resist the illegal exactions of Maharaja Ajit Singh. Whenever the Marwar tyrants dragged away a citizen, he sent his own men to rescue him by force (Ibid.).
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4. Land tax accounted for two-thirds of the government’s revenue. The quota fixed in 1385 under the early Ming period had become out of alignment with the actual distribution of wealth and the government was finding it impossible to counter the influence of local landlords who were resistant to any fundamental reassessment to meet growing resource requirement.
Chapter 19
Pax Britannica: Rise and Fall of British Hegemony
Imperialism cannot be explained in simple terms of economic theory and the nature of finance capitalism. In its mature form it can best be described as a sociological phenomenon with roots in political facts: it can properly be understood only in terms of the same social hysteria which has given birth to other and more disastrous forms of aggressive nationalism. —D.K. Feldhouse1
T
â•… The Atlantic world economy brought about a perceptible shift in the geo-political power balance in Europe over three centuries; 1688 marked the beginning of that shift, presaging the outbreak of a second Hundred Years’ War between Britain and France and her allies, particularly Spain, for the profits of global commerce. In an effort to contain Louis XIV and later Napoleon I, the navies and armies of Britain fought six major and three minor wars between 1689 and 1815 on every continent—in Europe and America, as well as, in Asia and Africa.
Imperial Century The period from 1815 to 1914 is generally regarded as Britain’s ‘imperial century’. The Treaty of Vienna (1815) marked the 312
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emergence of Britain as a hegemonic power. Britain was successful in combining her political power and business interests; she grew and modernised, geo-economically linked to navalcommercial expansion and supported by the ideological cohesion of state elites and a dominant class that could successfully raise and deploy state resources as naval power to serve the polity as well as business. The British economy’s triumph was largely based on commercial and territorial imperialism; the polity was always ready to back businessmen with ruthless and aggressive economic discrimination and open war against all possible rivals. At the heart of this imperial governance was a kind of ‘gentlemanly capitalism’, a close alliance of Westminster and Whitehall, locater in ahe city, London’s burgeoning financial services hub, from where they were able to deploy resources, shape opinion and influence decision-making (Cain and Hopkins, 1993).2 These commercial sophisticates were, in a sense, …burghers of the whole world, backseat drivers of the imperial vehicle who paid for the fuel and supplied the road map, but were unable to exercise tight control over the steering wheel. The real drivers were those operating at or beyond different frontiers, who acted in their own interest or who managed behalf of those who remained at home. (Bowen, 2002)
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resources, made decisions and undertook decisions on
Once London had displaced Amsterdam as the financial centre of the globalising European system of states, as it did by the 1780s, Britain became the main beneficiary of interstate competition for mobile capital. It became the heir to the capitalist tradition of the 16th century Genoese and the 17th century Dutch. Unlike the 17th century Dutch world-trading system, which was always a purely mercantile one, the 19th century British
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world trading system was an integrated system of mechanised production and transport (Arrighi, 2007: 244).
British Hegemony: Three Pillars The British Empire was in many respects a central element in the development of the 19th century world economy. It had three basic institutional components: a free labour market for manufacturing and other allied enterprises, a free market for absorbing an ever-expanding range of manufactured products and a financial market that could ensure the sanctity of the gold standard for the smooth operation of trade. These three formed the core of a self-regulating world market system that grew around the Industrial Revolution originating in Britain (Polanyi, 1957: 135).3 The pillars were built by the combined resources of business and political entrepreneurs. For free labour, the initiative for creating a socially acceptable environment had to be the polity. New markets had to be found all across the globe for sustaining the upsurge of industrialisation and active political intervention was needed for business initiatives to be successful. Equally important is a financial market that can facilitate the transaction of goods and services across the globe at a stable exchange rate. During the 19th century, through the phases of the rise, dominance and decline of British hegemony, the structure of the relationships between business and polity in these three key areas changed. Our focus in this chapter is to understand the dynamics of this shift.
The Rise: Industrial Revolution By the end of the 18th century, Britain was exhibiting signs of early industrialisation through the application of mechanically powered machinery in the textile industries,4 the introduction
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of James Watt’s steam engine and the ‘triumph’ of the factory system of production. The textile phase of industrialisation was followed by one that was based on the capital goods industries, on coal, iron and steel. Between 1830 and 1850, some 6,000 miles of railways were opened in Britain, mostly as the result of two extraordinary bursts of concentrated investment followed by construction, the little ‘railway mania’ of 1835–1837 and the gigantic one of 1845–1847. With the railways, Britain entered the period of full industrialisation. Its economy was no longer dangerously poised on the narrow platform of two or three sectors like textiles, but broadly based on a foundation of capital goods production that drew upon inorganic sources of energy and forms of new technology.
Ensuring Free Labour British business had initiated the process of industrialisation without the direct intervention of the state but a transition was necessary from a traditional to an industrialising society; this required the reform and re-adjustment of existing institutions that interfered with the efficient functioning of the manufacturing enterprises. From the beginning of the 19th century, the British polity dismantled a series of structural, fiscal and economic barriers to the mobility of men and resources. One immediately visible impact was the transformation of labour and land into market commodities. In the new system, both labour (human beings) and land (the natural endowment) were bought and sold, used and destroyed, as if they were not simply merchandise, even though they were in no sense the products of human industry. This new kind of environment was needed for continuous adoption of new technologies for enhanced industrial production. The traditional Poor Laws had been providing guaranteed
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support for the poor according to a scale depending on the price of bread: it was a recognition, in a sense, of ‘the right to live’ by holding society responsible for the lives of all its members. Businessmen considered this a kind of restriction on industrial production; the new emerging industrial bourgeoisie felt public support for the poor was an obstacle to industrial capitalism, for hunger and the will to survive should prompt labourers to work in the factories and their wages should be determined by the mechanism of the market. The amendment of the Poor Laws in 1832 established a free labour market; Polanyi regarded this year as the beginning of modern industrial capitalism. However, in the long-term interest of business, the polity had to strike a balance between the logic of a free labour market and the interventions needed to save society and land from the destructive consequences of an unregulated system. These state interventions did not find favour with liberal intellectuals; in 1884, Herbert Spencer, the social philosopher, accused the Liberal Party of having forsaken liberal principles and introduced restrictive legislation (Polanyi, 1957: 146). Thus, what put England on a sustainable path was what Polanyi has described as the operation of ‘a double movement’:5 on the one hand, the self-regarding market supported by the owning and trading classes, and on the other, the self-regarding of society by social forces that seek to protect the people, their land and their culture (Ibid.: 132).
Engineering Free Markets The business–polity relationship was entirely different when it came to the expansion of markets abroad for sale of goods and services. It was a kind of ‘economic internationalism’ (Landes, 1958: 199)—internationalism in which Britain’s influence and
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example were almost as strong as in technology. Free trade was an attempt to achieve at the level of the international economy; something of what was achieved within the country by the lowering of internal trade barriers. Textiles, the leading sector of the industrial upsurge, emerged as a ‘typical by-product of that accelerating current of international and especially colonial commerce without which … the Industrial Revolution cannot be explained’ (Hobsbawm, 1968: 57). Every ounce of its raw material had to be imported; the slave plantations of the West Indies provided its raw material until, in the 1790s, it acquired a new and virtually unlimited source in the slave plantations of southern US, which, in a sense, became a dependent economy of Lancashire, preserving and extending the most primitive form of exploitation. British textiles would not have had an export market but for intervention by the state. The only pure cotton industry known to Europe in the early 18th century was that of India, whose products the eastern trading companies sold in Britain, in the face of bitter opposition from domestic manufacturers of wool, linen and silk. The English woollen industry succeeded in 1700 in getting the import of calicoes banned, giving the domestic cotton manufacturers a free run of the home market. For exports, it relied on a monopoly of the colonial and underdeveloped markets that were a gift of the British Empire, the British Navy and British commercial supremacy. The vast expansion of exports after 1750 gave the industry its impetus: between then and 1770, cotton exports multiplied 10 times over. Until 1770, over 90 per cent of British cotton textile exports went to colonial markets (Ibid.: 57–58).6 The capital goods industry, the backbone of the industrial revolution, developed as a subordinate branch of the British army and navy.
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… War … contributed directly to technological innovation and industrialisation ... War was pretty certainly the greatest consumer
of iron and firms like Wilkinson, the Walkers and the Carron Works, owed the size of their undertakings partly to government contracts for cannon, … Henry Curt, who revolutionised iron manufacture, began in the 1760s as a navy agent, anxious to improve the quality of British product ‘in connection with the supply of iron to the navy’ … Henry Maudslay, the pioneer of machine tools, began his career in the Woolwich Arsenal and his fortunes (like those of the great engineer Mark Sambaed with naval contracts. (Hobsbawm, 1968: 50)
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Brunel, formerly of the French Navy) remained closely bound up
There was a six-fold increase in British public expenditure in 1792–1815 (McNeill, 1982: 212, note 55) that was made possible, as Arrighi noted, because remittances from India enabled Britain to buy back its national debt from the Dutch and to start the Napoleonic war free from foreign debt (Arrighi, 2007: 245). This government demand created an iron industry with a capacity in excess of peace-time needs, as the post-war depression 1816–1820 showed. But it created conditions for future growth by giving British iron masters extra-ordinary incentives for finding new uses for the cheaper products that their new, large-scale furnaces were able to turn out. Military demands on the British economy thus went far to shape the subsequent phases of the Industrial Revolution, allowing the improvement of steam engines and making such critical innovations as the iron railway and the iron ships possible at a time and under conditions which simply would not have existed without the war-time impetus to iron production. ‘To dismiss this feature of British economic history as “abnormal” surely betrays a remarkable bias that seems to be widespread among economic historians’ (McNeill, 1982: 211–12).7
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To what extent did trade contribute to the rise of Britain as a hegemonic imperial power? Contemporary observers believed that economic progress was coming from the investments in global commerce, naval power and whenever necessary, from the acquisition of bases and territories overseas. Very few critics of mercantilism and imperialism writing between 1688 and 1815 had indicated any alternative blue-print for national development that might have carried Britain to the position within the international order that she occupied when she signed the Treaty of Vienna. Although 19th century economic development cannot be explained simply in terms of the exploitation of the New World and the east, the expanded trade, increased investment and the widened commercial horizon did make a significant contribution to British economic growth. Whether capital generated and accumulated during the earlier centuries from commercial exploits outside Britain, through either the slave trade or the sugar trades, or the commercial and fiscal activities of the EIC, or trade with the Americas, amounted to 5 per cent, 10 per cent or 15 per cent of the total will probably never be known (Bayly, 2004: 174).8 As Barry Supple puts it: If by the 1760s Britain was indeed the centre of the world’s biggest free trade area, if her trade and shipping enjoyed a world wide dominance, if her merchants and manufacturers had privileged access to large markets in Asia and America, if she was a major entrepot for Europe, and if, as seems likely, these developments were critical components of her ‘readiness’ for industrialisation—then the state did play Revolution. (Supple, 1976: 315–16)9
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an important, albeit indirect, role in the pioneer Industrial
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What is beyond doubt is that the step-up in world trade that had occurred before industrialisation through the cultural and economic re-alignments brought about by the Industrious Revolution had created the concept of a global market which the later industrialising world inherited. Imperialism is a ‘political function’ of the process of integrating new regions into the expanding economy (Gallagher, 1953). The economic hegemony that the British imposed by forcing other regions to submit to free trade was a kind of ‘informal empire’, where the British did not control territory as such but their military clout and political influence curtailed the independence of these regions to such an extent that, though outside the formal British control, these areas were nevertheless under imperial influence.10 These were mainly areas and regions in the non-European world. The overseas influence of Great Britain ranged far beyond the confines of formal and informal empires because of the global network of the city. If one were to regard only the territory under Britain’s direct control as part of the empire, it would be ‘rather like judging the size and character of icebergs solely from the parts above the water-line’ (Ibid.). The free trade empire was ‘trade with informal control if possible; trade with rule when necessary’ (Ibid.).
Forcing Market Expansion The visible hand of the state in expanding the market gave a revolutionary character to the early industrialisation of Britain. The productivity gains in late 18th century industrialisation were based on coal as a new source of heat, steam as a new source of mechanical energy and the intensive burst of technological innovation in these areas. But sustained growth would have been impossible without the support of the colonial markets.
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For the continued expansion of the market that was vital for the Industrial Revolution,11 British polity took calculated measures to enhance her competitive advantage. British statesmen in general and Lord Palmerston, British foreign secretary and later prime minister, in particular, wished devoutly to open-up foreign trade and believed it was right to do so by force of arms, if necessary. In a memorandum (29 September 1850), Lord Palmerston states: These half-civilised governments, such as China, Portugal,
Spanish America, require a dressing down every eight or ten years to keep them in order. Their minds are too shallow to receive an impression that will last longer than such period, and warning is of little use. They care little forwords and they must not only see the stick but actually feel it on their shoulders before they yield to that only argument which to them brings stick]. (Smith, 1998: 80)
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conviction, the argumentum Baculinum [argument of the
‘The road to the free market was opened and kept open’, as Polanyi said, ‘by an enormous increase in continuous, centrally organised and controlled interventionism’ (Polanyi, 1957: 140). In all of these, the aim was to establish positions whereby British influence could be increased and the region’s economy opened up to outside trade and investment. Where necessary, this was undertaken by force, with seizure of bases such as Hong Kong and the establishment of naval power off the coasts of east and west Africa. Regions that maintained monopolies were increasingly regarded as positively wicked, not simply as economically inefficient.12 From the 1830s to the 1860s, the British government intervened assertively in Latin America to open the markets of
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that continent. Britain signed numerous free trade treaties with Latin American governments: The British government was in constant conflict with some independent states that did not sign up for free trade, prompting complaints from British merchants about the tariffs and taxes that they were forced to pay to import their goods.13 In 1840, Palmerston sent a fleet into the Bay of Naples to force the Bourbon Neapolitan government to bring down tariffs. The trade depression and unemployment caused by the resulting influx of British goods did much to bring about the 1848 revolution in the kingdom. West Asia provides a good example of the ‘empire of free trade in action’. The free trade treaty of 1838 was designed to open up Turkey’s economy to western goods, more particularly British, establishing a tariff regime outside Ottoman control, exempting foreign traders from internal customs duty and eliminating state monopolies (see Chapter 18). Britain also took an active role in opening the Egyptian economy to British enterprise. Under Muhammad Ali (1805–1848), Egypt had experienced considerable economic growth. Her modernisation policies focussed on protection and a strong state sector in the economy; governmentrun factories produced textiles, sugar glass and paper and the state monopolised exports. The French Consul had warned in 1817 that the silk factories being established in Egypt would deal a deathly blow to those in Italy and France (Marsot, 1984: 169ff). The British consul had opined that Egypt would gain much by destroying its factories and importing all manufactures from Europe (Ibid.). Palmerstone, expressing his ‘hate’ for the ‘ignorant barbarian’ who dared to seek an independent course, dismissed the ‘boasted civilisation of Egypt as the arrantest humbug’. He deployed Britain’s fleet and financial power to terminate Egypt’s quest for independence and economic development
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(Marsot, 1984: 258ff). In the treaty that followed, Egypt’s rulers were forced to demolish the state monopolies and rely increasingly on foreign loans, particularly from British sources. When revenue failed to increase fast enough to meet obligations, the result was bankruptcy in 1876, marking a watershed in Egypt’s history—the establishment of a financial administration under European control to organise Egypt’s revenues and debt repayments. Although Britain occupied Egypt only in 1882, the country lost control of her affairs from 1876, when Britain established financial control from the outside.
Penetrating China The most striking examples of conflict between the moralising of the British about free trade and the concerns of nonEuropean governments can be seen in the way the British government penetrated the Chinese market. Britain’s industrialising economy was unable to use the free-trade logic to build economic connections with China. There was no demand for European goods in China, so the British had to pay for imports with American silver. When the supply of Mexican silver dried up, the Company was in a predicament: how to pay for its tea imports. It then began pushing sales of opium in China and monopolising opium production in Bengal. China had banned the opium trade, so the Company had to use private European and Asian traders to smuggle opium into China, concentrating its efforts on monopolising supply and regulating prices (Bagchi: 96). Free traders pumped an even greater volume of opium into the country.14 The internal resistance was broken with naval force (the Opium War of 1839–1842) and the Chinese economy was opened to western trade and finance through the Treaty of Nanking in 1842. The resulting five
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treaty-ports, the concessions and the principle of extra-territoriality were central to British ambitions in China.15 At risk were not just the profits of traders, but the revenues of the Government of India and so of the British government itself. Throughout the first half of the 19th century the amount the Company earned from its monopoly on the export of opium (opium duty accounted for roughly 20 per cent of the Indian revenues) was almost equal to the amount it had to remit to London to pay the interest on Britain’s huge debt (Ferguson, 2002: 139). By selling Chinese goods on the international market, Britain could buy raw materials such as American cotton. In 1856–1860, there was a second clash about opening ‘China to trade’ and British troops burned down the summer palace of the Chinese emperor in an unparalleled example of vandalism.16 European merchants now used primary cash crop exports to remit fortunes to Europe and no longer patronised the South or East Asian or Middle Eastern artisan products that had been so popular in 18th century Europe. Indigenous merchants had neither the range nor the techniques to export on their own account. England’s 19th century economic successes were not achieved simply because of its industrial revolution or its superior position in the world of free trade, but resulted in part from the English government’s continued capacity to set terms of exchange, politically and economically, a relic of mercantilism (Wong, 1997: 142). Britain’s governing classes, though still mainly a landed society, were broadly sympathetic to and representative of the commercial and financial interests that helped transform the country’s economic institutions and opportunities from the late 17th century onwards. The most striking indication of this is the powerful role which the state played in the
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creation and defence of the empire, in the extension of an international trading network of which Britain was the centre and in the regulation of commercial and imperial relations so as to benefit the domestic economy and British businessmen. The self-regulating world market system centred on Britain was somewhat of a façade. Until the 1950s, it was generally assumed that the mid-19th century heralded the rise of free trade and the decline of old mercantilism and witnessed an era of indifference to the empire (Smith, 1998: 71). This notion flies against historical reality (Gallagher and Robinson, 1953: 11). Under the façade of free trade and free market, the essential streak of mercantilism continued. It is no surprise therefore that, in government after government, the elite justified persistently high levels of public investment in the Royal Navy and the money spent in terms of a range of spin-offs and complementarities between public investment in sea power. Sanction for expenditure on public investments from a Parliament dominated by property owners, merchants and others of business was not always smooth, but despite the ever-mounting demands for taxes and growing accumulation of government debt, the elite knew that their own interests were inseparably linked with security for property rights within the realm and protection for opportunities for trade and investment overseas. The naval victory at Trafalgar and on the mainland at Waterloo could not have happened without that massive investment by government and British merchants in the security of the realm and trans-continental commerce and empire. For market expansion to be effectively operative, ‘this planetary community would have to be a peaceful one, or if not, would have to be made safe for Great Britain by the power of the Navy’ (Polanyi, 1957: 138).
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The Peak: Managing the Gold Standard By the middle of the 19th century, the British gold standard had become the British Imperial Standard, and London, the centre of the world’s money market. The ascendancy of the gold standard throughout the world corresponded with the apogee of the British Empire. The substantial British surplus on ‘invisible’ items such as finance, shipping and insurance was enough to create an over-all surplus and this was largely recycled in the international system through overseas investment. The Bank of England, with its single-minded focus on checking this external drain, made effective use of the Bank rate via open market operations to make the market follow the Bank’s chosen rate (Sayers, 1936). The market not only worked microeconomically to smooth-out surges in the demand and supply of currencies but also helped macro-economically, in equilibrating the levels of economic activity, in terms of effects on income, price and interest rate, among members adhering to the international gold standard. In practice, all three impacts of economic activity worked together though with differing contributions in time and place (Eichengreen, 1985). The gold reserves of the Bank of England had been just adequate to keep the system afloat. Although the Bank’s reserves were enlarged in the second17 half of the century, they remained on the average very much smaller than those of other central banks. Bagehot had constantly warned of the need for bigger gold reserves in the city to back up its worldwide responsibilities (Bagehot, 1873). Several factors helped the Bank of England succeed in the balancing act. First, British control of the resources of India helped offset the chronic British trade deficit. The Empire of India was kept
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by the British on a silver standard even when silver was fast depreciating against gold. This pushed up export of primary commodities and raw materials, earning India a large surplus in the last part of the pre-war period. The Indian surplus was invested in London. It is in the management of this surplus in a way conducive to the stability of the gold standard that the British financial elite proved most imaginative and successful.18 Second, the Anglo-French connection—the city exploited skillfully the much greater liquidity of the French monetary system seen throughout the 19th century. The bank rate was raised when the pressure was felt on the Bank of England’s reserve, but the expectation was that gold would flow from Paris. A key role was played by the House of Rothschild in connecting the French and the British money markets. In most British financial crises, the reserves of the Bank of England were replenished with gold procured by Rothschild from France. The House of Rothschild intermediated between the gold and silver sides of the international monetary system. A Rothschild sat in the Court of Directors of the Bank of England and a French Rothschild occupied an equivalent position in the Directorate of the Banque de France (De Cecco, 1992: 263). Third, South African gold production acted as a shockabsorber. All the gold produced there was commercialised in London, and the proceeds invested there. The control of that huge flow of gold was considered vital for the smooth operation of the Gold Standard. After World War I, South Africa decided in favour of the Gold Standard instead of pegging its currency to the sterling. The connection with the sterling was cut, to the great discomfort of Montagu Norman, who saw one of the main props of sterling suddenly disappear.
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The free-market economy was the foundation of British hegemony but started cracking under its own weight. As Polanyi explained: The increase in the rhythm and volume of international trade
as well as the universal mobilisation of land, implied in the mass transportation of grain and agricultural raw materials from one part of the planet to another, at a fractional cost … dislocated the lives of dozens of millions in rural Europe … The agrarian crisis and the Great Depression of 1873–86 had shaken confidence in economic well-being. From now on the typical institution of market economy could usually be introduced only if accompanied by protectionist measures, all the more so because since the late 1870s and early 1880s nations were forming themselves into organised units which were apt to suffer grievously from the dislocations involved foreign exchanges. (Polanyi, 1957: 213–14)
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in the sudden adjustment to the needs of foreign trade or
An era of competitive nationalism sparked off by the Great Depression of 1873–1896 changed drastically the geo-political environment. Over this period, prices dropped by 22 per cent in the United Kingdom, 32 per cent in the US and more elsewhere (Friedman and Schwartz, 1982: 122–37). The prices of wheat, cotton and gold fell sharply by 59, 58 and 57 per cent, respectively. The US raised protectionist walls around its domestic market. Germany increased tariffs on many goods. Great Britain and the Netherlands almost alone continued to stand for free trade, but there too, manufacturers were clamouring for protection against cheap imports from low wage producers on the continent and in North America. Faced with destitution, American farmers organised themselves into the country’s first real mass
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movement, demanding that the US go off the gold standard. The financial leaders of Europe and the world watched in shock as the assault on the gold standard challenged the very structure of the international economic order. The US was the world’s largest economy, biggest borrower and most important international destination for capital and people alike. Now it posed the greatest threat to the global economic order. This development had far-reaching consequences on the geo-politics of Europe, with its epicentre in the newly created Imperial Germany. Otto von Bismarck, the German Chancellor, realised that the verdict of the market would be too harsh on the state and society. The growing convergence of agrarian and industrial unrest in pressing for governmental protection made it easy for him to switch from free trade to a highly protectionist and interventionist stance. Through this switch, he was not just yielding to just social and economic pressures, he was also consolidating and strengthening the powers of the German Reich, the foundation of which was laid through a kind of organic relationship between the German government and select business enterprises. Imperial Germany was transformed into a paradigm of centrally planned organised capitalism, and posed a serious challenge to British hegemony. Simultaneously, there was an upsurge of competitive nationalism in several European countries. In their desire to promote national prestige and project their power overseas, statesmen and soldiers of these countries embarked upon the acquisition of most of sub-Saharan Africa.19 The push for these acts of aggression that go by the name of ‘new imperialism’ came primarily from the rulers of the different regimes rather than from the business sector. Victor Hugo’s exhortation to European nations captures accurately, the spirit of new colonialism.20 The
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grand orchestration of the new imperialism was organised, not by international capitalists, as Lenin averred, but national governments that encouraged the commercial interests of their own citizens to pre-empt rival mining, telegraph, railway, or commodity companies (Bayly, 2004: 231). Even Britain resiled from what had been, through most of the 19th century, its declared policy of free-trade imperialism, and started talking of the ‘visible hand of human will’ if the Empire was to be re-organised under the new geo-political situation. What came to find favour was a ‘constructive imperialism’ (Green, 1999: 350), which called for giving Britain’s imperial destiny a conscious direction and the state an extended positive role. Until the last quarter of the 19th century, the preferred method of Imperial government was to devolve primary responsibility upon private concerns; even the partition of Africa had been, wherever possible, left to private companies. Through the 1890s, the Imperial government increasingly underwrote or replaced private enterprise. Southern African gold, for instance, was vital to the strength of the British currency, and this predisposed the British government to search for political stability in southern Africa, and if necessary, to secure it against Dutch settlers or German rivals by armed force. From 1880 to 1914, the Bank of England’s reserves fluctuated between an average of about £20 million and £40 million. In contrast, the Bank of France customarily averaged around £120 million of gold reserves, the Imperial Bank of Russia held around £100 million and even the Austro-Hungarian Bank held around £50 million (Davies, 1994: 358). German gold accumulation became a threat, as Germany did not believe in the free gold market and Britain’s bank rate found obstacles in attracting gold from there. The German pattern became the one that found the largest number of followers among countries that established a
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Central Bank, and a central reserve to manage the Gold Standard. The result was the increasing seclusion of previously free flowing gold into large stocks, over which the traditional control instrument, the bank rate, scarcely exercised any leverage and which dwarfed in size the reserves of the Bank of England (De Cecco, 1992). The British monetary authorities had some relief when, by the end of 1896, new gold discoveries brought more of the precious metal into the market and the commodity market came to life. When the Great Depression of 1873–1896 ended and the gold standard was reaffirmed,20 it brought two decades of growth and globalisation. International lending and investment picked up, and in the years before World War I, Britain exported more than half of its capital. Hostility to the gold Standard, to international finance, to the world economy became muted and political conflict among the great powers eased. Free traders prevailed in domestic political battles, allowing international trade to grow much more rapidly than output and country after country geared up to produce for export and consume imports. On the eve of World War I, world trade was twice as important to the world economy as it had been 40 years earlier.
Phase III: Sunset With the geo-political upsurge of World War I, Britain found herself dislodged from her position at the centre of world finance. Before 1914, enlightened self-interest provided the gold standard with both a reliable conductor and a harmonious orchestra; nothing could be taken for granted after 1920 (Eichengreen, 1985). Preh 1914, France, Germany and smaller European nations provided strong support for the stability of the classical gold standard. For example, when, in the Panic
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of 1890s, Barings Bank nearly collapsed, the central banks of France and Russia lent to the Bank of England. In 1898, the British and French helped stabilise German financial markets; a few years later, the Austrians helped the Berlin market. At least seven more times between 1900 and 1914, the French stepped in to assist the British in a display of what the Bank of France called ‘the solidarity of financial centres’. All that melted into air in the post-war situation, as economic trench warfare continued among the European nations. The collapse of the gold standard in September 1931 was just a matter of time (Arrighi, 1994: 272ff). The city was not prepared to see the hard reality. What it considered central to its well being was that Britain must maintain its pivotal role in a liberal world trading order. This desire on their part was linked to two aspects of policy in particular—the maintenance of sterling’s international role and free trade, both being essential pre-requisites for London’s financial supremacy. With regard to the sterling’s role, the focus was on the gold standard, and its advocacy for the re-establishment of the gold standard at pre-war parity took on a totemic significance in the attempt to re-assert London’s international dominance. In this, the domineering role that the financial elite exercised over economic policy-making had disastrous consequences. Politicians and civil servants frequently accepted the argument that the financial elite knew best. For example, Sir Richard Hopkins, giving evidence to the Macmillan committee (1931) claimed ignorance of high finance and stated that the Treasury relied on the Bank’s advice for all decisions with regard to exchange rate and credit policy. Hopkin’s political master during the 1931 crisis, Ramsay MacDonald, told Montagu Norman in July of that year that as he knew nothing of monetary matters, he was forced to rely implicitly on the advice of financiers such as Norman himself (Green, 1992: 202). For all this, Sayers was constrained
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to come to the conclusion that financiers deliberately cultivated a mystique that at best befuddled and at worst intimidated those who had to take political responsibility (Sayers, 1967). Furthermore, it is difficult to escape the conclusion that the cultivation of the ‘mystique’ of the banking expertise ensured that, over the years, financiers dominated many of the most important government advisory committees which dealt with issues of financial and monetary policies. The claim to expertise in policy-making is one thing, but a policy-making apparatus which is receptive to that claim is another. Treasury saw its function as that of a ‘national housekeeper, not bread-winner’ in that its central concern was with funding government debt and managing the government’s finances. Insofar as the government’s financial position impinged directly on the London money market and insofar as the London money market was essential to the stability of the government’s financial position, there was only one possible outcome—the real economy was relegated to a side show and the Treasury and the Bank defined the function of government policy in terms of assisting the financial sector to create the correct climate for sound economic activity. The result of this was that the definition of sound economic activity effectively lay with the City (Green, 1992: 203). Montagu Norman saw Britain and the city’s interests as one and best served by putting the external aspects of monetary policy first. By doing so he might have raised the international prestige of the Bank to a high level, but by relegating the internal economic growth and the problem of unemployment to second place, his cherished gold standard was doomed and with it much of the painfully built prestige of the Bank of England. It was a fashion in those times to make fun of Keynes’s opposition to the return to gold at the pre-war rate. Keynes’s basic
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stand was that ‘so long as unemployment is a matter of general political importance, it is impossible that the Bank Rate should be regarded, as it used to be, as the sacred peculium of Pope and Cardinals of the City’ (Kynaston, 2000: 104). ‘The British Public’, he wrote, ‘will submit their necks once more to the Golden Yoke, as a prelude to throwing it off forever at a not-distant date’ (Davies, 1994: 378). Keynes’s warning of the strikes that would follow attempts to reduce prices and wages sufficiently to compete overseas was quickly followed by a nine-day general strike from 4 May 1926, sparked off by a miners’ strike that was to last for more than six months. The end of Britain’s attempt to maintain the gold standard was triggered by the failure of the Austrian Creditanstalt in June 1931, which led to the failure of a number of German banks and started a new wave of ‘hot money’ around the world’s financial centres. Because of this volatility, gold reserves that in pre-1914 days would have seemed ample were now plainly inadequate, while money intent on finding security was much less sensitive to high bank rates than formerly. The city became much more vulnerable to political fears, including antipathy to Britain’s Labour government, which since its election in 1929 had seemed to the bankers too weak to take the tough measures deemed essential to cure its poor balance of trade and its unbalanced budget. Despite the Bank of England’s success in borrowing £25 million from New York and the same amount from Paris, the external drain continued (Ibid.: 382). The crisis brought down the Labour government. The National government that came to power managed to raise a new loan of £80 million shared equally between New York and Paris. Despite the announcement of some economy measures, the drain continued and Britain went off the gold standard on 20 September 1931.
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The suspension of the gold convertibility of the British pound led to the final destruction of the single web of commercial and financial transactions on which the fortunes of the city were based. Protectionism became rampant, the pursuit of stable currencies was abandoned and ‘world capitalism retreated into the igloos of its nation state economies and their associated empires’ (Arrighi, 2007: 274; Hobsbawm, 1987: 132). Polanyi calls it the ‘snapping of the golden thread’. High finance disappeared from world politics, the League of Nations made way for autarchist empires, Nazism was born in Germany, the Soviet Union announced Five-Year Plans and US launched the New Deal (Polanyi, 1957: Chapter 3). While at the end of the World War I, nineteenth century ideals
were paramount, and their influence dominated the following decade; by 1940 every vestige of the international system had disappeared and, apart from a few enclaves, the nations 1957: 23, 27)
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were living in an entirely new international setting. (Polanyi,
World War I and its immediate aftermath pushed the belligerents out of the world economy and pulled the US into the resulting vacuum. The German and British economies did not go back to their pre-war size until 1925, by when the American economy was again half as big as it had been in 1914. Though the American economy had been the largest, it was, before the war, barely engaged with the rest of the world. World War I forced all of Europe to depend on American capital markets and technology. The US provided food and armaments to the Allies and built up a huge reserve. The war devastated Europe but made the US the world’s leading industrial, financial and leading power. Throughout the 1920s, productivity continued to grow
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faster in the US than in any of the debtor countries, further increasing the competitive edge of US business and the difficulties of the debtor countries to service, let alone to repay their debts. But, with American isolationism, the post-war economy was in disarray. The US changed from a passive observer of the slow collapse of the classical order to an active leader of attempts to reconstitute it. The route was tortuous. This is the theme of the next chapter.
Notes 1. D.K. Feldhouse, ‘Imperialism’, Economic History Review, second series, XIV (1961), p. 209. 2. The ‘Gentlemanly Capitalists’ did not always have an easy time. In the initial years, in relation to the EIC, they had to encounter visible unease about private public partnership in colonial ventures. Many took the view that trade and the sword ought not to be managed by the same people. ‘Barter and exchange’, as Arthur Young opined, ‘is the business of merchants, not fighting of battles and dethroning of princes’. Adam Smith argued in his The Wealth of Nations that the roles of the traders and sovereign were incompatible so long as primacy continued to be given to commercial activity. Charges of misrule were raised against the Company, particularly before 1790, as steady streams of Company servants returned to Britain to be accused of greed, tyranny and a host of other crimes besmirching the good name of Britain. 3. The key measures were the Poor law Amendment Act of 1834, which subjected the domestic labour supply to the price setting mechanisms of the market; Peel’s Bank Act of 1844, which subjected monetary circulation in the domestic economy to the self-regulating mechanism of the gold standard more strictly than it already was and the Anti-Corn Law of 1846 which opened up the British market to the supply of grain from the entire world. 4. Christopher Bayly draws attention to a study by Prasannan Parthasarathy that British industrialisation was a response to efficient artisan textile
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production in other parts of the world, particularly France and India. Indian weavers were producing high quality goods at very low cost and threatening Britain’s own textile industry. By 1800, British manufacturers responded to external competition by introducing machines which produced cloth more cheaply (Bayly, 2002: 174). 5. Polanyi offers a carefully worded definition: (The double movement) can be personified as the action of two organising principles in society, each of them setting itself specific institutional aims, having the support of definite social forces and using its own distinctive methods. The one is the principle of economic liberalism, aiming at the establishment of a self regulating market, relying on the support of the trading classes, and using largely laissez faire and free market as its method; the other is the principle of self protection aiming at the conservation of man and nature as well as productive organisations, relying on the varying support of those most immediately affected by the deleterious action of the market—primarily, but not exclusively, the working and the landed classes- and using protective legislation, restrictive associations and other instruments of intervention as its methods. (Polanyi, 1957: 132) 6. As the British economy started resting more and more on textiles, it reduced progressively its dependence and more on the sale of men and of sugar; this was the period when the British became the champion for the abolition of slave trade. 7. McNeill refers in this context to the study of Phyllis Deane, The First Industrial Revolution (Cambridge, 1965: 110) and also to that of Charles K. Hyde, Technological Change and the British Iron Industry, 1700–1870 (Princeton, 1970: 129). [McNeill, 1982: 212, note 54]. 8. Patrick O’Brien calculates that British trade with the periphery resulted in a level of gross annual investment at most 7 per cent higher than it would have been as a result of (hypothetical) alternatives. (O’Brien, 1982). Considering that economic development occurs at the margin, the 7 per cent may have represented a significant increment in net investment (Anderson, 1974: 63). 9. We need to, at this point, refer to a study by a north American school of economic historians who have sought, using counter-factual and
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quantitative techniques, to demonstrate, that participation in international trade and empire probably made a small contribution to the rise of imperial ╇Britain and that trade and empire emanated from domestic economic growth rather than the other way round (Mokyr, 1990: 69–78). They have separated the acquisition of colonies from the protection of trade. In order to measure the costs and benefits that might have arisen from a disembodied imperialism, they have resorted to an analysis based upon a counterfactual, namely an international economic order, operating between 1688 and 1815 under competitive conditions, virtually free from government interference with trade and untroubled by warfare (O’Brien, 1998: 75). These were highly unrealistic assumptions. As O’Brien has argued, to dichotomise the kind of development that took place over the 18th century, as ‘endogenous’, that is, as virtually disconnected from its possession, retention and expansion, would seem to be an unreal depiction of the range of inseparable forces promoting investment and productivity growth within the domestic economy during the 18th century (O’Brien, 1999). 10. A distinction has been made in this context between two forms of power in the international system, the concepts of ‘structural power’ and ‘relational power’, as a means of interpreting the British presence in Latin America, especially Argentina in the 19th century. ‘Structural power’ allows its possessors to determine, or at least exert, a predominant influence, and to lay down the general rules of the game governing international relations, a manifestation of the core values and policy priorities of the British liberal state, with its preference of free trade, low taxation and sound money. On the other hand, ‘relational power’ deals with the negotiations, pressures and conflicts that determine the outcome of particular contests within its broad framework (Akita, 2002: 2). 11. The expression was first used in the 1820s by French writers who, wishing to emphasise the importance of the mechanisation of the French cotton industry then taking place in Normandy and the Nord, compared it with the great political revolution of 1789. It acquired currency only after the publication in 1884 of Arnold Toynbee’s Lectures on the Industrial Revolution in England. Toynbee was a social reformer, not a scholar; his major interest lay in remedying what he believed to be the moral degradation of the British working classes (Cameron, 1993: 165).
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12. Richard Cobden, in mee House of Commons in 184h, ‘[A law whici prevents free trade is a] law which interferes with the wisdom of the Divine Providence, and substitutes the law of the wicked men for the law of nature’. Also in 1845, ‘We have a principle established now which is eternal in its truth and universal in its application, and must be applied in all nations and throughout all times, and applied not simply to commerce, but to every item of the tariffs of the world’ (Saul, 1992: 40–41). â•… Looking back on the regime of free trade in the 19th century, Niall Ferguson has this to say on the use of force for the enforcement of free trade, ‘(Defence expenditure) was money well spent. No doubt it is true that, in theory, open international markets would have been preferable to imperialism; but in practice global free trade was not and is not naturally occurring. The British Empire enforced it’ (Ferguson, 2002: 314). 13. British officials intervened on numerous occasions. For example, in 1845, as in 1806–1807, British forces intervened in the river Plate. British forces were also used in the landing at Callao in 1839 and the Mexican intrusion of 1861–1862. On other occasions, the mere presence of the Royal Navy was sufficientato holders
u
e compliance, as of Peru in
1857 on behalf oi bond-
nd again in Chile in 1863. British pressure helped the creation of
Uruguay while Brazil was threatened by the Navy over the slave trade in 1848–1849. 14. The real benefit of acquiring Hong Kong as a result of the war of 1841 was that it provided firms like Jardine Matheson with a base for their opiumsmuggling operation (Ferguson, 2002: 139). 15. British traders took up important positions in the Chinese economy. They operated with special privileges such as exemptions from local taxes and extra-territorial legal rights. British advisors took up positions within the Chinese administration, of which the most significant was the head of the Chinese Imperial Customs. 16. By 1830, opium trade was probably the largest single commodity business in the world. The House of Commons, so enthusiastic about the moral virtues of free trade, defeated motions to ban the opium trade in 1870, 1875, 1886 and 1889. The trade ended in 1913 as part of the winding down of the first free trade movement (Saul, 1992: 44). 17. The world’s stock of monetary gold increased substantially during this period, from £519 million in 1867 to £774 million in 1893 and to
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£1909 million by 1893, helping to give confidence to a financial world that still worshipped gold (Davies, 1994: 358). 18. The ‘Council Bills’ system, which was devised to effect financial transfers between India and London, was managed so as to keep the rupee’s value stable. The whole system, called the ‘Gold Exchange Standard’ was extolled as a paragon of skill and efficiency of British financial elite (Keynes, Indian Currency & Finance, 1913). Whether this efficiency promoted Indian economic development is another matter. 19. ‘Go forward, the nations! Grasp this land! From whom? From nowhere. Take this land from God! God gives the earth to men. God offers Africa to Europe. Take it! Where the kings brought war, bring concord! Take it not nor cannon but for the plough! Not for the sabre but for commerce! Not for battle but for industry! Not for conquest but for fraternity! Pour out everything you have in this Africa, and at the same stroke solve your own social questions! Change your proletarians into property owners! Go on, do it! Make roads, make ports, make towns! Grow, cultivate, colonise, multiply! And on this land, even clearer of priests and princes, may the divine spirit assert itself through peace and the human spirit through liberty! Man’s destiny lies in the South … The moment has come to make Europe realise that it has Africa alongside it … In the 19th century, the White man made a man of the Black; in the 20th century, Europe will make a world of Africa. To fashion a new Africa, to make the old Africa amenable to civilisation—that is the problem. And Europe will solve it.’ â•… From a speech delivered by Victor Hugo at a banquet commemorating the abolition of slavery where he presented colonisation not only as an alternative to slavery but even as a way of redressing the wrongs of the slave trade. Quoted from Gilbert Rist, The History of Development, Zed Books, London, 1997, p. 51. 20. Countries that had avoided the gold standard flocked to it: Japan and Russia in 1897, Argentina in 1899, Austria-Hungary in 1902, Mexico in 1905, Brazil in 1906 and Thailand in 1908.
Chapter 20
Pillars of US Hegemony
It’s the height of folly to take upon oneself the burden of the world’s correction. —Moliere, The Misanthrope
I
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â•… In February 1941, Henry Luce, the owner of Time and Life magazines, published what became a celebrated essay entitled ‘The American Century’. Luce defined the 20th century as the American Century in terms of the country’s wealth, power and values, its commitment to a system of free economic enterprise, its readiness to be ‘the Good Samaritan of the entire world’ and its willingness to be the ‘sanctuary ... for the ideals of Freedom and Justice’ (Reynolds, 2002: 243). The roots of American globalism can be found in the way the country was integrated and developed during its colonial and early national periods in the Atlantic world of the 17th and 18th centuries. Two central dynamics of the Atlantic economy shaped its national ethos: virtual elimination of Native Americans by the white settlers through westward expansion and the slave trade: It was the spatial product of the century-long process of
territorial seizure and occupation through which the United States had ‘internalised’ imperialism from the very beginning 341
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of its history. American historians who speak complacently of the absence of settler type colonialism characteristic of European powers merely conceal the fact that the whole process of territorial seizure and occupation.1
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internal history of the United States imperialism was one vast
The absence of territorialism abroad was founded on an unprecedented territorialism at home. Between 1803 and 1853, purchases and conquests had more than doubled the territory of the US. It had become continental in scope without having a formal empire for this purpose. Once the Union was secured, its economic integration and development proceeded apace in the last third of the 19th century. It was reaping the benefits of a continent-wide polity with a common currency, no internal tariffs and a single gauge railroad network. Throughout this period, as a deliberate industry promotion strategy, the government developed a high wall of protectionism. It was Alexander Hamilton, and not Friedrich List, as is often thought, who first systematically set out the infant-industry argument, arguing that competition from abroad and forces of habit would mean that new industries that could become internationally competitive would not be started in the US unless their initial losses were guaranteed by government aid (Chang, 2002: 25). In the 1816 Tariff Law, almost all manufactured goods were subject to import tariffs of around 35 per cent. In 1864, tariffs were raised still further. It was only after the World War II that the US, with its industrial supremacy unchallenged, finally liberalised trade and started championing free trade. Apart from tariff protection, the government recognised its role in industrial development. It promoted an extensive range of agricultural
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research, public education, infrastructure through the granting of land and subsidies to railway companies and defence related procurements and Research and Development spending (Chang, 2002: 30–31). Throughout the 19th century and up to the 1920s, the US was the fastest-growing economy in the world, despite being the most protectionist during almost all of the period.2 The development of the US was intertwined with European globalisation characterised by an increasingly open world economy and free and large migration of labour. The US could not have industrialised so quickly without dependence on British capital throughout the whole of the 19th century. By 1900, the base for 20th century American globalism had been established in a continent-wide country with a flexible political system and an integrated industrial economy (Reynolds, 2002: 247). The world, however, was peripheral to the prosperity of the US. Unlike Britain, an island nation that lived on imports, America was largely self-sufficient and only about 5 per cent of its Gross Domestic Product (GDP) came from foreign trade. Its 19th century growth came largely from the expansion of the internal market. The developments in the wake of the World War I led to the final breakdown of the UK-centred world economy and opened the doors of opportunity to the US. But the Depression of the 1930s constituted a marked reversal of globalising trends, with the US cutting back on capital investment, imposing higher tariffs and forming currency blocs. Recovery did not start until the allied war orders began in 1940 and America joined the belligerents in 1941. The near simultaneous fall of two imperial regimes—the old British colonial system and the war imperialisms of the Nazis and Japan—cleared the space for a new colossus imperium. By the end of the World War II, the main contours of this new world order had already emerged: at the Bretton Woods
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conference, the foundations of a new world monetary system had been established, at Hiroshima and Nagasaki, the US had demonstrated with new means of violence what the military underpinnings of the new world order would be, at San Francisco, new rules for the legitimisation of state and war-making had been laid out at the United Nations Charter. The new world order that came to be established was centred on and organised by the US; it differed in many key respects from the defunct British world order and became the foundation of a new enlarged reproduction of the capitalist world economy. The rise of the US after the World War II, less than 20 years after the Great Crash of 1929, has been placed by Arrighi in an interesting historical perspective: The United States was not the first to benefit tremendously
from the troubles of the world economy of which it was an integral and major component. Its experience had been prefigured by Venice in the fifteenth century, the United Provinces in the seventeenth century and the United Kingdom in the eighteenth century. As in all previous instances of prodigious enrichment and empowerment in the midst of increasing systemic chaos, the great leap forward of US wealth and power between 1914 and 1945 was primarily the expression of the protection rent which it enjoyed, thanks to a capitalist world economy.3 (Arrighi, 1994: 276)
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uniquely privileged position in the spatial configuration of the
As the US government and business were from the very start vanguards of the protectionist movement, the country could reap benefits from two related and reinforcing ways: one derived from the advantages of being the largest, most dynamic and best protected among the national economies into which the
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world market was being divided, and the other from its superior ability to neutralise and turn to its own advantage the situation when the British world market system was in the throes of destruction and world capitalism was retreating into national economies and associated empires (Arrighi, 1994: 293). At the end of the World War II, the US accounted for half of the world’s manufacturing output, half of world shipping, one-third of world exports and 61 per cent of gold reserves. The dollar was not only fixed to gold but also, as an official reserve asset, convertible into it. With the US economy and currency in such a commanding position, it seemed inevitable that, as before 1914, the international monetary system would effectively become an extension of the dominant country’s system. This opened up opportunities through a series of conjuncture of events and circumstances that were successfully exploited by polity and business working at tandem. We discuss the business polity relationships in the post-war period in three phases. In the first phase, in the immediate postwar period, American polity succeeded in putting its stamp of authority on the fledging global financial institutions and played an active role giving American business an outward thrust. Soon thereafter, in the mid-1960s, American polity had to grapple with problems of a severe budget deficit brought on by its geopolitical ambitions. The control regime was forced to impose, proved too restrictive for business, which got around it by going to the Eurodollar market. This is narrated in the second phase. We follow it up in the third phase by with the story of the rapid internationalisation of American business since the 1980s. The doors for expansion opened up in 1989, soon after the fall of the Berlin Wall and the collapse of the Soviet Union, through the Washington Consensus, a set of policy reform measures, in substance a kind of market fundamentalism, prescribed for the
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developing and crisis-ridden economies by the supra-national institutions, the International Monetary Fund and the World Bank, with the blessings of the American polity: this sought to legitimise the entry of American business in those afflicted national economies worldwide. This strategy threw up some basic contradictions between the dynamics of international business and the political compulsions of different national governments, posing a threat to the global economy.
First Phase The tone for the first phase was set by President Truman’s Point Four programme outlined in his Inaugural Address on 20 January 1949. New economic development, he said, ‘must be devised and controlled to the benefit of the peoples of the areas in which they are established’ (emphasis added). While, as he said, ‘The old imperialism—exploitation for foreign profit—has no place in our plans’, the character of development was presented as a set of technical measures that involved use of scientific knowledge, growth of production and expansion of international trade. Though presented as being outside the realm of political debate, it contained the seeds of Big Power intervention by creating an illusion of change. The development paradigm enabled the US to gain access to new markets. If the word colonisation was seen mainly as a political space to encompass large empires, the new ‘development age’ marked the beginning of the creation of economic space by the new global power (Rist, 1997: 79). Ironically, the US was confronted with a serious challenge that came from its own supremacy in world production and trade. Before the war, the US had regularly run a large trade surplus with Europe, a trade that was brought into balance by
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US purchases of primary products from Europe’s colonies. European countries then acquired these dollars by exchanging manufactured goods for raw materials and food stuffs from their colonies and through repatriation of profits from largescale colonial investments. This triangular trading pattern thus provided a basis for multi-lateral trading relations. As Europe was forced to convert many of these investments into cash to pay for the war, it could no longer acquire billions of dollars through profits from colonial investments alone and was thus forced to increase its own exports in order to generate foreign exchange to meet its import needs. This was no small problem given the waning of colonialism and the cut-off of markets and non-dollar sources of supply in the communist bloc. Fiscal insolvency in Europe and Asia threatened to close the US out of overseas markets and hence to destroy the possibilities of multilateral economic integration. The dollar gap, the $10 billion trade surplus of US exports over imports, caused a great shortfall in foreign dollar amounts. US leaders were deeply concerned that economic collapse or disorder would increase communist gains in western European elections and thus re-orient continental trade towards the USSR and away from the west. The US saw a real danger that if the triangular trading patterns—through which Europe earned dollars through US purchase of raw materials from their colonies—were not re-created worldwide, Europe and Japan would form soft trading currency blocs with other countries in their respective areas, including the USSR, eastern Europe and later communist China. This would then upset the multilateral trade relations and the balance of power that were so essential to the operations of the capitalist world economy and inter-state system.
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Injecting Liquidity Clearly, in the circumstances, the task of injecting liquidity into the global system could not be left to private business enterprises and market forces. From the perspective of the US, it was more than a serious economic crisis; it had far reaching geopolitical implications. Understandably, therefore, the efforts to find a solution to the liquidity crisis took place under direct US political initiative. It is this process of injecting liquidity that started defining the outlines of the global order emerging gradually under US hegemony. First, the reconstruction of the Federal Republic of Germany was regarded as crucial for the expansion of the capitalist world economy and for the maintenance of a favourable balance of power; as always, balance of power and balance of trade payments considerations were inextricably linked. The US government used the Marshall Plan as the means of integrating into a single market the separate domestic economies of the Western European states so that it could make decisive contribution to the take-off of the expansion of world trade and production. Thanks to the political initiatives of the US and the insistence that the subsidiaries of US industrial corporations in the emergent common market should be treated as European corporations, western Europe became the most fertile ground for the trans-national expansion of US corporations and the expansion in turn consolidated further the integration of Western Europe within the US capitalist regime. This relationship of complementarities between US governmental and business agencies is ‘not unlike that between British government and the mercantile enterprises in the seventeenth and eighteenth centuries’ (Gilpin, 1975). There was however a significant difference. The incorporation of the power networks
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of Britain into the Indian subcontinent was the work of a partgovernmental, part-business enterprise chartered by the British government to open up South Asia to British commercial and territorial expansion in exchange for trading privileges. After the EIC’s trading privileges were withdrawn and it went out of existence, the government inherited a territorial empire and a source of tribute without which London would never have been in a position to achieve world financial supremacy as absolutely and as long as it did. In contrast, the incorporation of Western Europe within the power networks of the US state after the World War II was undertaken by the US government itself. The government prepared the ground for the profitable transplant of US corporations, which then invaded Europe in strength. Second, the US government took a leading hand in the development of the international monetary order. In all previous world monetary systems, including the British, the circuits and networks of high finance had been firmly in the hands of private bankers and financiers who organised and managed them with a view to making profit. World money was thus a by-product of profit-making activities. In the world monetary system established at Bretton Woods, the production of world money was taken over by a network of governmental organisations motivated primarily by considerations of welfare, security and power—in principle the International Monetary Fund (IMF) and the World Bank, in practice the US Federal Reserve System acting in concert with the central banks of the closest and most important of US allies. The US looked at security and monetary institutions of the new world order as complementary. In spite of the close co-operation between Wall Street and Washington during the World War II, at Bretton Woods, bankers and financiers were conspicuous by their absence. Washington rather than New York was confirmed as the primary seat of production
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of world money and security considerations remained paramount in the shaping of the post-war monetary world. Third, the Bretton Woods institutions were found wholly inadequate for solving the deep structural balance of payments problems and create conditions for a stable multi-lateral system. The Marshall Plan was also a stop-gap measure. It came to be realised that European integration and world economic expansion required a far more comprehensive recycling of world liquidity than was involved in the Marshall Plan and other aid programmes. The long-term solution to both the balance of power and the dollar gap problem in the balance of payments came through a policy of re-armament or ‘international military Keynesianism’. In the 1950s, Dean Acheson, the US Secretary of State, and his aide Paul Nitze piloted this approach as the solution to bring about a massive recycling that was required to tackle the dollar gap problem and related security issues.4 There was no unanimity, however, in the US Congress. The right wing Republicans, typifying the nationalist current and representing, as they did, mostly local/regional business interests and constituencies, were extremely reluctant to increase taxation to rebuild their former economic and military competitors. The internationalist foreign policy current, symbolised in the cosmopolitan lawyers of the Eastern Establishment such as Dean Acheson and John McCloy, represented instead the interests of multi-lateral corporations and bankers with their keen interest in international trade and overseas markets (Reifer and Sudler, 1996: 19). Geo-political developments reconciled these two conflicting pulls and pressures. North Korea’s onslaught against the South, coming on the heels of both the Soviet atomic explosion and the Chinese Communist Revolution, provided the political crisis that facilitated the Congressional authorisation of the massive increase
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in military expenditure necessary to both overcome the dollar gap and reinforce the Cold War balance of power in Europe and Asia. The US was able to distribute the liquidity necessary to rebuild what Dean Acheson called the two great workshops of Europe and Asia (Gilpin, 1975: 110) while, at the same time, enmeshing US allies into a US-dominated security structure. US security obligations included guaranteeing an open door for free enterprise in the Third World, which US planners deemed essential for multi-lateralism. During the Cold War, the global growth of American enterprise took place under the patronage of the political project of the US, with which most American CEOs, like most Americans, identified themselves. The Korean War was the occasion for pursuing all these objectives at once, as captured in Dean Acheson’s later remark, ‘Korea saved us’ (Reifer and Sudler, 1996). The policy that the US was following to maintain its leadership was thoroughly embedded in, and shaped by, the Cold War era. US control over world money and military power became the primary means for the containment of Soviet power. The policy was primarily political in nature with a social orientation, a kind of ‘warfare-welfare state’5 on a world state, in competition with and in opposition to the Soviet system of communist states. President Truman’s Cold War spending was regarded by the business press as ‘a magic formula for almost endless good times’. In 1949, the editors of the BusinessWeek noted with some relief that ‘so far, Stalin’s peace feelers have been brushed aside’ by Washington, but remained concerned that his ‘peace offensive’ might be serious, interfering with ‘the prospect of ever rising military spending’ and compelling a shift to social spending as an economic stimulus (Chomsky, 1994: 94, 100). The 23-year period between the start of the Korean War and up to the Paris peace accords in early 1973, which virtually
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ended the Vietnam War, was ‘the most sustained and profitable period of economic growth in the history of world capitalism’. With the gradual recovery of the European and Japanese economies, the pump-priming effect of American Marshall Aid and the further boost of military spending during the Korean War, international trade burst out of the long stagnation of 1913– 1950. Exports worldwide doubled in value and almost doubled in volume (van der Wee, 1986: 260). This is the same period that Stephen Marglin and Juliet Schor, among others, have called the ‘Golden Age of Capitalism’ (Arrighi, 1994: 297–98). This spurt of growth—was it more of a Golden Age than Eric Hobsbawm’s ‘Age of Capital’ (1848–1875) or the bourgeoisie break out during the Age of Discoveries? By bringing about remarkably strong economic growth to the advanced capitalist countries, a tacit global compact was established among all major capitalist powers. The post-war international economic system was being managed not supra-nationally as was intended at Bretton Woods, but in effect by the US national interest as defined by the US treasury, the Federal Reserve and the US Department of Commerce; it could, in a sense be described as the ‘Washington System’ (Panic, 2003: 71). The US was in a clear leadership role. American business, as it started extending its international reach from the middle of the 20th century, had been substantively politically anchored. American global enterprise was mixed with politics from the start; if we are to put a date, it may be, as Hobsbawm says, at least from the moment in 1916 when President Wilson addressed a convention of salesmen in Detroit and told them that America’s ‘democracy of business’ had to take the lead in ‘the struggle for the peaceful conquest of the world’ (Hobsbawm, 2007: 68). US policies have been consistently crafted to pave the way for US business corporations to establish themselves; the reconstruction and upgrading of the
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German and Japanese industrial apparatuses were integral aspects of internationalisation of US corporations. In fact, George Keenan, in his elaboration of the policy of containment, had been advocating that, of the four or five industrial structures that existed in the world, the Soviet had one and the US had four, and things should be kept that way (Arrighi, 2007: 153).
Second Phase If, over the immediate post-war years, the polity helped American business in its foray in the international arena, in the mid-1960s onwards, it was American business that became the primary agency, through its own aggressive entrepreneurship, to be the bearer of US hegemony. By the late 1960s, the US started confronting the limits of its own power. With international military Keynesianism at its peak, it was caught in a trap with a permanent budget deficit. It could not compensate it by a trade surplus, for the increasing competition from Europe and Japan together with the formation of European Economic Community, had significantly undermined its position in world trade. Ironically, a disjunct developed between the interests that were driving the joint expansion of US corporate activities abroad and of Eurocurrency markets and those that were behind the preservation of the national foundations of US power. The polity had, virtually throughout the 1960s, followed an expansive budgetary policy that Kennedy had implemented and which the Johnson administration had continued in order to finance both the Great Society programme and the Vietnam War. The decision not to increase taxes generated inflation. Because of the fixed gold price of the dollar, inflation led to a progressively heavier over-valuation of the dollar and the further deterioration of the balance of payments (van der Wee, 1986: 475).
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US liabilities to foreign public and private institutions started exerting pressure on the declining US gold reserves; total US liabilities to foreigners—an unknown but not-negligible share of which no doubt consisted of dollar balances held by US corporations in foreign and offshore banks—was already beginning to exceed US gold reserves in the late 1950s. Soon thereafter it started falling far short of what was due to foreign monetary authorities and governments. The Vietnam War brought about a stunning reversal in the position of the US balance of payments, starting in 1968. Whereas the early post-war years saw a US $10 billion trade surplus of exports over imports that caused an enormous dollar gap, in 1971 and 1972, the USA showed a balance of payments deficit that reached nearly the same amount (Reifer and Sudler, 1996: 26). The Kennedy administration’s attempt in 1963 to deal with this problem by putting restrictions on US foreign lending and investment and tightening US overseas private lending and investment backfired. As long as the fixed exchange regime was buttressed by US gold reserves and by a sizeable current surplus in the US balance of payments, the developments of the eurodollar market helped rather than hindered the domestic and foreign power pursuits of the US government. It strengthened the role of the dollar as world money, it eased the global expansion of the US corporate capital and it made the expansion financially self-sufficient through borrowing in Europe.
Euro–Dollar Market and Global Liquidity The market for international dollar financing had, by then, started shifting from New York to London.6 Foreign dollar loans that had previously come under the regulatory guidelines of examination of US government agencies, simply moved out
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of their jurisdictional reach. The organisational structure that developed in the euro–dollar market was, for all practical purposes, beyond the control of the system of central banks that regulated the supply of world money in accordance with the regime of fixed exchange rates established at Bretton Woods. The world of euro–dollar finance—outside the regulatory authority of any country or agency—was an immense volume of liquid funds and markets. This tide of privately controlled liquidity surged when the Organisation of Petroleum Exporting Countries (OPEC) marked up the price of petroleum steeply. Also, with the massive migration of US corporate capital to Europe in the late 1950s and early 1960s, the New York banks servicing large US multinationals would promptly enter the euro–dollar market. The euro currency market remained free of controls, extremely competitive and biased towards large transactions that characteristically took place between banks (van der Wee, 1986: 471). Control over world liquidity began to shift from public to private hands, reversing what had been institutionalised after the World War II. The transfer of control over world liquidity from private to public hands, and from London and New York to Washington, realised under President Roosevelt and Henry Morgenthau, had been a necessary condition of the global Keynesianism through which the US government transformed the systemic chaos of the 1930s and 1940s into the orderly US–Soviet balance of world power of the 1950s and 1960s. American companies as first drew great benefit rom ohe system of free international capital transactions that emerged, because it enabled them to extend their penetration of the world economy in an extremely flexible way. This iberalisation of international capital flows brought about by the flourishing and ree eurocurrency market frustrated any kind of national exchange
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restrictions and capital controls. Also, importantly, it provided the level of world liquidity to such an extent that the balance of payments problems of the 1970s could be more easily resolved (van der Wee, 1986: 472). The recycling of petrodollars shored up the dollar’s value and illuminated the centrality of oil and arms in maintaining US hegemony. First, following OPEC’s decision to increase oil prices sharply, the US banks gained the privilege of recycling the petrodollars into the world economy, thus bringing the euro–dollar market back home. New York became the financial centre of the world economy and finance capital moved to the centre stage in this phase of US hegemony (Harvey, 2005: 64). Second, by opening up a new circuit for surplus capitalisation in the Third World, OPEC allowed for the recycling of petrodollars not only through arms sale, but also through the granting of construction contracts, purchases of Treasury securities and other investments. In conjunction with the international position of the dollar and with nuclear supremacy, the multinational corporation became one of the cornerstones of the US hegemony, a critical support of America’s international political and military position (Gilpin, 1975: 140). Third, the surplus dollars were lent by western banks to industrialising countries in both the US and Soviet blocs. Third World states used much of this borrowed money to solve the balance of payments difficulties during the 1970s, difficulties that had been caused in part by the oil price-rise. The borrowed money was used to buy large quantities of arms, primarily from Europe and north America, with up to $400 billion between 1960 and 1987 (George, 1992: 151). These three elements of American power have been interacting and reinforcing one another in preserving the hegemonic status of the US.
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The immediate response of the US government to the resurgence of private high finance, in which American banks and their clients had the primary role in the production and regulation of high money, was to reaffirm with a vengeance the centrality of Washington in the supply of world liquidity. Since there was no viable alternative to the dollar as the principal international reserve currency and medium of exchange, the abandonment of the gold-dollar exchange standard resulted in the establishment of a pure dollar standard. Instead of decreasing, the importance of US dollar as world money increased, and what had previously existed informally was now established formally. The switch to a system of flexible exchange rates had released the US government from the balance of payments constraints inherent in the previous commitment to fixed exchange rates.
Third Phase With massive liquidity at the command of the US commercial and investment banks and available to the trans-national corporations, it was but inevitable that business would necessarily become more internationalised. Since the mid-1970s, the world economy has acquired a distinctive orientation through the activities of multinational companies mostly based in the US. It is their actions that have been a major factor in linking national economies, especially those from the highly industrialised countries, to such extent that the linkages are ‘beginning to give rise to an international production system, organised and managed by transnational corporations’ (UNCTC, 1992: 5). With an increase in the number of integrated global markets for goods and services, and especially for finance, and with the role and weight of multinationals in the world economy continuously and enormously increasing, there has emerged, for the
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first time in history, a combined internationalisation of trade, finance and production. The trinity of the global market, the global workshop or global assembly line and the global casino has become the dominant feature. There are no firewalls between the circuits and the three types of capital are in fact intermingled. The chief executives of TNCs claim with some justification that their enterprises function as the lubricants for worldwide economic integration. The initiatives taken by them have concentrated on encouraging and facilitating internationalisation of the three circuits of capital: international trade, international finance and international production. This represents the most significant and sustained advance towards the realisation of the free trading ideals of those of the 19th century liberals who dreamed of a single, more or less standardised world where economic liberalism would be carried throughout the globe by ‘impersonal missionaries more powerful than those of Christianity and Islam had ever been; a world … from which, eventually, national differences would disappear’ (Hobsbawm, 2007: 83). It is a kind of trans-nationalisation of business that the world has never seen before. Trans-nationalisation of business has advanced to an extent ‘where all critical differences of economic interest between the capital owners of different nationalities have disappeared’ (Mandel, 1962: 332). The process towards a single global market set in motion through the dynamics of business logic of the TNCs has been receiving a tremendous boost from the US. During the last decade and second half of the 20th century, having won the Cold War and watched the collapse of the Soviet Union, the demise of communism across eastern Europe and the inexorable metamorphosis within China, the US has emerged as the only superpower. In the ambience that has come about, international business, under the leadership of the USA, is expanding at a furious pace.
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Fusion and Globalisation
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The defining characteristic of the third phase is the fusion of business and politics. It is the culmination of a process that has deep historical roots, in the settlement and expansion of American colonies. Right from the beginning, those colonial polities internalised the raw grabbing instinct that came out in all its crudeness during the course of extensive plantation done through slave labour and acquisition of landed properties of indigenous peoples through their physical extermination during the conquest of the American West. As we have discussed, the USA had relied consistently and heavily on state intervention and protection for the development of industry and agriculture, from the textile industry in the early 19th century, through the steel industry at the end of the century, to computers, electronics and biotechnology today. By 1850, the two logics of power, territorial and capitalistic, welded together7 to create a massive continental power growing up under a protective shield. As Harvey puts it: From the late nineteenth century onwards, the US gradually learned to mask the explicitness of territorial gains and occupations under the mask of a spaceless universalisation of its own values, buried within a rhetoric that was ultimately known to be known as globalisation. (Harvey, 2003: 47)
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to culminate, as Neil Smith points out,8 in what came to be
Globalisation has strengthened the status of the USA as a hegemonic power, given the relative strength of its economy, the international role of the dollar, the globalised financial markets that Wall Street dominates and US global military leadership. Hegemonic practices of the US from the perspective of its business are about exploiting the uneven geographical resource
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endowments and asymmetries that inevitably arise out of spatial exchange relations. The latter get expressed through the exercise of monopoly power, enforcement of unfair and unequal exchange, and several kinds of, through unfair and unequal exchange and extortionate practices. One of the key tasks of the hegemonic politics in the USA has been to try and preserve that pattern of asymmetries in exchange over space that works clearly to the advantages of US based industrial and financial institutions; it has also succeeded in bending, wherever necessary, the policies of multi-lateral institutions to suit their interests. US politics has been consistently engaged in ensuring that US business is enabled to sustain and exploit whatever asymmetries and resource endowment advantages can be assembled by way of state power (Harvey, 2005: 33). A set of specific economic policy prescriptions, generally known as the Washington Consensus, based in a broad sense on market fundamentalism,9 has been promoted by the supranational institutions such as the IMF and the World Bank under the leadership of the US Treasury Department. The consensus includes 10 broad sets of recommendations intended to expand the role of the free market and putting constraints upon the national sovereignty of states. The reform package, based on advice given by John Williamson, inspired a wave of reforms in Latin America and sub-Saharan Africa which fundamentally transformed the policy landscape in these developing areas. With the fall of the Berlin Wall and the collapse of the Soviet Union, former socialist countries similarly made a bold leap towards markets. There was more privatisation, deregulation and trade liberalisation in Latin America and eastern Europe than probably anywhere else at any point in economic history. The mantra ‘stabilise, privatise and liberalise’, as Dani Rodrik put it, came to be recognised as universally applicable principles for
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developing countries (Rodrik, 2006). The objective is clearly to move towards a new epoch of human history in which national economies, cultures and institutions fuse in a completely new world order: a single global market operating within the framework of a common global civilisation increasingly supervised by supra-national institutions, at the behest of the major powers under the leadership of the USA. The fusion of the two logics in the US hegemony of today can be seen in perspective through an acute observation of Hannah Arendt: ‘A never ending accumulation of property must be based on a never ending accumulation of power … The limitless process of capital accumulation needs the political structure of “so unlimited a power” that it can protect growing property by constantly growing more powerful’. If, then, the accumulation of power must necessarily accompany the accumulation of capital, the task that US polity and business have to set for themselves is a continuation of a hegemony expressive of ever larger and continuously more expansive power. What is it then that the future holds for us? Is it that, with American triumphalism, we have reached the end of History?
Notes 1. Quoted by Arrighi (2007: 247) from Gareth Stredman Jones, The History of US Imperialism, in R. Blackburn (Ed.), Ideology in Social Science, Vintage, New York, 1972, pp. 216–17. 2. During the 19th century, the US was the intellectual home of protectionist policies. It was then widely believed by US intellectuals that the new country required a new economics, one grounded in different political institutions and economic conditions that those prevailing in the Old World. Some of them went so far as to argue that even internationally, competitive US industries should have tariff protection because of the possibility of predatory dumping by large European enterprises, who,
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after decimating the American firms, would revert to monopolistic pricing (Chang, 2002: 31). 3. Thomas J. McCormick, in his study, America’s Half Century: United States Foreign Policy in the Cold War (John Hopkins University Press, Baltimore, MD, 1989), makes the interesting point (p. 35) that the US leaders fought the World War II not simply to vanquish their enemies but to create the geo-political basis for a post-war world that they would both build and lead. In particular, he notes in this context the British precedents during the Napoleonic wars. Britain entered the main European theatre only when the war had reached its final and decisive stage. Its direct military presence acted to inhibit any other continental power from attempting to take France’s place in the Continental power structure and reinforced the legitimacy of Britain’s claim to a dominant say in peace negotiations. In parallel fashion, the US entered the European theatre only in the last and determinant phase of World War II. Operation Overlord, its invasion of France in June 1944 and its push eastward into Germany similarly restrained Russian ambitions in the west and assured America’s seat at the head of the peace table. 4. Acheson and Nitze saw neither European integration nor currency realignments as adequate to maintain a significant export surplus or to continue American–European ties after the end of the Marshall Plan. The new line of policy they proposed—massive US and European re-armament—provided a brilliant solution to the major problem of the US economic policy. Domestic re-armament would provide a new means to sustain demand so that the economy would no longer be dependent on maintaining an export surplus. Military aid to Europe would provide a means to continue providing aid to Europe after the expiration of the Marshall Plan. And the close integration of European and American military forces would prove a means to prevent Europe as an economic region from closing itself off from the US (Block, 1977: 103–04; Arrighi, 1994: 297). 5. This expression has been used by Arrighi (2007: 152), borrowing it from James O’Conner, The Fiscal Crisis of the State, St Martin’s Press, New York, 1973. 6. An embryonic ‘dollar deposit market’ first came into existence in the 1950s as a direct result of the Cold War. Communist countries had to keep
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dollar balances for their trade with the West, but could not risk depositing these balances in the US lest the US government freeze them. The balances were thus deposited in European banks, mostly in London, which initially re-deposited these funds in US banks. Soon the London banks realised the advantages of holding the funds in the form of what came to be known as euro-currencies, held and used outside the country where they have the status of legal tender. 7. The expressions: the ‘territorial’ and the ‘capitalist’ logics of power have been used by Arrighi (1994). 8. The reference is to Neil Smith, American Empire: Roosevelt’s Geographer and the Prelude to Globalisation, Berkeley, University of California Press, 2003. 9. The term was initially coined in 1989 by John Williamson to describe a set of 10 specific economic policy prescriptions that he considered should constitute the ‘standard’ reform package for the recovery of Latin America from the economic and financial crisis of the 1980s (Williamson, 1989). Williamson has argued later that the term has taken on a different meaning more closely related to market fundamentalism than his original prescription entails (Williamson, 2000).
Epilogue
Stirrings for a New Configuration
O
Man’s struggle against power is the struggle of memory against forgetfulness —Milan Kundera
â•… Our odyssey has now come to an end. We have sailed through several civilisational complexes over the past 2,500 years in which were embedded a variety of political and economic formations. We have watched out for the behaviour of two power networks: those who control the levers of political power and those who engage themselves in wealth generating activities, how they had been found interacting between themselves and how the forces released through such interaction have impacted historical change. The dynamics of the two powerful networks that constitute business and politics take us from one historical epoch to another. It does not follow any immutable law. The transition is basically path dependent, where change is transmitted through a series of feedbacks that give momentum to the system, pushing it forward in a direction set by the past and carrying it into the future. The chapters of the book were remembrances of the past, of the meteoric rise and catastrophic fall of many great civilisations, and give us insights into how the outcomes were 364
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primarily influenced by the interactive dynamics of political and economic processes. The course of events was driven as much by the inexorable march of economic forces as by the unpredictability of human wills. The cycles of birth, growth and decline of civilisations have no preset pattern. They do not necessarily offer an infallible guide to the future, but it will nevertheless be unwise to ignore the past. Passing through a wide spectrum of political regimes, from the agriculture-intensive civilisations in the vast land mass of Eurasia to the capital-intensive civilisations in northwest Europe and America, we have observed that each civilisational complex has its distinctive characteristics. Out of the layers of those crowded experiences, we have in this epilogue tried to extract a few lessons that continue to be as relevant as they were in the past; we should not become, as Toynbee once said, victims of non-learning of those lessons that have certain universal relevance.
Recapitulating: Politics in Command In the empires of antiquity, land was the principal source of wealth and the farming community, as the generators of that wealth, supported and nourished the political superstructure. Ruling political classes, themselves large holders of landed wealth, would normally aim to maintain a kind of relationship with the peasant community that would keep them contented, for they constituted the main resource for the polity for the conduct and prosecution of war. Ancient Greece of the classical period in the 5th century bc was an exemplar: through Solon’s path-breaking land reforms, it restructured the landholding pattern to make it more equitable, established a democratic constitutional structure and paved the way for a cohesive and stable
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polity. Rome was a striking contrast: its governing class failed to discipline itself, becoming far too self-centred, acquiring wealth for its personal benefit in complete disregard of the interests of the farming community, even though it provided the main resource for the spectacular rise of the Republican Rome. The ruling class thus dug its own grave. The making and unmaking of the Arab Empire was an interesting variant. The Arabs built up a colossus with lightning speed, and nursed it carefully, exploiting the potential for trade in the conquered territories by allowing freedom to the merchants to carry on uninterrupted their business activities. The Caliphs understood the value of a mutually supportive relationship between business and polity. While this ensured peace and prosperity for nearly three centuries, the ruling class became victims, in the later decades of the Arab Muslim empire (as was in the case of the Roman Empire), of an insatiable craze for acquiring personal wealth for themselves, in collaboration with the business class; this led to a creeping deterioration of political governance followed by its terminal decline. The key to prosperity and stability for the polity was a pragmatic and positive approach towards business. Such pragmatism as observed in land-based civilisations in antiquity has three aspects. The first is a balance between the political ambition of the ruling class and the availability of resources from the wealth-generating sources. A wise polity would not only not allow these sources to dry up but also create conditions for sustained agricultural prosperity and welfare of the peasant community. Chinese imperial regimes had been farsighted in this regard. It had never been easy for any polity to keep this balance; the late Imperial Western Roman world and the Chinese dynastic cycles give illuminating insights into the consequences of the failure.
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Second, logistics of garnering and managing the economic surplus extracted from the peasant community had been of crucial importance. China showed the way as to how these relationships could be institutionalised. It was far ahead of the times in establishing fiscal and bureaucratic machineries within the state to guard against any arbitrariness. This explains in a way why China was successful in ensuring a relatively longer run for its dynasties than many of its contemporaries as, for example, the Mauryan Empire in India, even though the Mauryans had a reasonably efficient land revenue policy. Third, in the imperial polities there prevailed cultural and ideological inhibitions against trade as a calling. This created unenviable dilemmas for the ruling classes: they could not brush aside the diktat of the cultural czars nor could they ignore the benefits that could accrue to the polity by using the resource from trade. The Greek polity was wise enough to adopt a pragmatic attitude, encouraging foreigners and resident non-citizens, mainly slaves, to engage in trading activities. This was a kind of laissezfaire ambience that allowed businessmen to flourish and prepare the foundations of Athenian prosperity. China, on the contrary, was averse to encouraging trade, being apprehensive that traders acquiring economic power and wealth could pose a challenge to the existing power structure rooted and derived from agriculture. This put China at a disadvantage in optimising its resource raising options from different sources and curbed its ability to grapple with the geopolitical convulsions on its northern frontier.
Harmonious Balance As we move from land-based civilisations of antiquity to the present, we observe that the relative importance of land-based sources progressively declines, though it continues to retain its
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importance in the political regimes within the vast landmass of Eurasia. By the beginning of the second millennium, maritime trade acquired a long-distance global character that was much more extensive and intensive than what prevailed in the earlier centuries. Previously isolated peoples were brought into closer contact, leading to intensive cultural interaction between Mediterranean, African and Asian civilisations. An extensive network of trade developed, among the regions accessing the Indian Ocean, extending from China in the East to the Islamic regimes in the Middle East in command of the Mediterranean, with India as the pivotal link. The geopolitical medium through which merchants and their goods circulated was generally frictionless and continuous. Trade emerged, apart from land, as an import us source o wealth, marking a shifting configur ion in business–polity relationships. During this period, when trade was in the ascendant, ruling the high seas along the trading line from the Sea of China to the Mediterranean, two regions were lying secluded, within the self-contained feudal socio-economic structures, at the two ends of the long trading line: Japan at the eastern end and northwest Europe at the other end. For business it was a story of contrasts. In Japan, with a strong feudal tradition, with powerful chiefs concentrating political, economic and feudal powers in their hands, business had to struggle hard for survival; traders survived by sharing profits from trading with the feudal chiefs. Japan had to wait till 1868 when the Meiji restoration removed the feudal shackles. On the other hand, in northwest Europe, history turned out to be in the favour of business. The ruling princes, involved as they were, in their feudal and dynastic wars, left business relatively free to pursue its course. In fact, the ruling princes receiving financial support from the merchant community whenever needed, and gave it protective cover in return.
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Five Revolutions Europe reached a watershed in the 16th century. We have traced the series of coincidences through which Europe arrived at this century. Many causal paths, some long term and steady, others recent and sudden, others old but with a discontinuous historical growth, came together at a particular time and place. A series of coincidences, but nonetheless the continuance of this process has been a miracle. And then over the next four hundred years, several revolutions took place, in conjunction and in succession. The first spark was radical changes in warfare technology; these were enormously more resource-guzzling than what the world had ever seen before, and beyond what the feudal economic structure could provide. With the onset of the Military Revolution, the ruling classes started relating to business entrepreneurs for exploring new avenues of resources outside the feudal ones. These relationships proved basically unstable. With no institutionalised fiscal arrangements to service their debts, the princes were unable to ensure uninterrupted flow of finance for their military ventures. Also the reliance on mercenaries had its own risks for they could be faithless. It became necessary for the princes to internalise the logistics of organisation and administration of men, material and finances, by creating within the framework of government resource-raising fiscal machinery with bureaucratic underpinnings. This led to a series of transformations in business–polity relationships—from the earlier ad hoc and personalised arrangements between princes and business houses, into institutionalised collaborative arrangements. The outcome was the strong fiscal military states that came to be developed with the help of financial techniques and expertise made available by the business and financial community. Business was thus involved in numerous ways in state formation.
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This is the Second Revolution in the relations between business and polity. The growing relationship between business and polity deepened when Europe was hit by an economic crisis in the 17th century. The partnership then took an overtly economic character, the underlying rationale of which has been termed mercantilist philosophy by later economic historians. This was a combination of fiscalism and mercantilism that could not have come about except through the strong bonds that had come to be cemented earlier. Ad hoc collaboration deepened through fruitful partnership leading to the formation of a fiscal–military– mercantilist state that lay at the roots of European hegemony in later centuries. This is the Third Revolution in business–polity relations. The Atlantic exploration, marking the beginning of Europe’s age of conquests and settlements, was the Fourth Revolution. It was spearheaded through a tactical combination of the military power of the state and the aggressive grabbing instinct that European business had acquired over the past few centuries. This new dimension of relationships between polity and business came to be forged during the westward expansion of the Atlantic powers. The nations on the Atlantic seaboard believed that their national interests lay in development of long-range and large-scale international markets through aggressive warfare. War and trade went hand in hand. The international arena became their arena for expansion, with political regimes and business entrepreneurs working hand in hand. During this revolution, Britain secured a competitive advantage over her rivals. The core of her strategy lay in giving freedom to business to explore new avenues of trade and to acquire and control, if need be, territorial possessions, in support of business ventures, with the full assurance that the state would
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extend naval support whenever needed. It is not that the other major powers were passive, but none could equal the ‘adaptive efficiency’ of British polity and business. The aggressive culture that came to be moulded through competitive power struggles and through encounter with other civilisations lay at the core of what we call imperialist expansion. The spread of Commercial and Industrial Revolutions all over the globe cemented the business–polity relationships and laid the foundation for Pax Britannica. All this in essence is the precursor to today’s globalisation, the Fifth Revolution, which has engulfed the entire globe under American leadership.
Hegemonic Leadership Today’s globalisation, the Fifth Revolution, is driven primarily by American hegemonic power which is also an amalgam of state and business power, though it is different from Pax Britannica. US polity and transnational business had been playing complementary and supporting roles for nearly two centuries. In periods of geopolitical turmoil the two roles get so intertwined that it becomes difficult, if not impossible, to separate one from the other. It is through the combined strength of the two powers, overt or covert, that the United States has been able to maintain its hegemony since the end of the World War II. In a progressively globalising economy driven by the principle of free markets, business corporations in the United States and in other developed countries have been trying to preserve a pattern of asymmetries that works in their favour through the exercise of monopoly power, enforcement of unfair and unequal exchange and several kinds of extortionate practices. US politics, in particular, has been consistently engaged in ensuring that US business is enabled to sustain and exploit whatever asymmetries
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and resource endowment advantages can be assembled by way of state power (Harvey, 2003: 33). Hegemony is not sheer domination; it is, to use Gramsci’s definition, something different, the additional power that accrues to a dominant group by virtue of its capacity to lead society in a direction that not only serves the dominant group’s interests but is also perceived by subordinate groups as serving a more general interest. Dominant groups have the capacity to present their rule as credibly serving not just their interests but also in the delivery of certain global public goods. It aims to ensure stability not only at the domestic level, but also, at the global level, both on the political and economic fronts. It also means that if there be disruption, it possesses the wherewithal, whether by itself or in collaboration with others, to bring it back to equilibrium.
Signs of Change There are clear signs today that the United States is no longer in a position to offer what is generally accepted to be ‘public goods’ by the global community. Its hegemonic power is getting undermined in several respects. For example, there is a disturbing asymmetry between the political ambition of the hegemonic power and its capacity to continue to finance it without creating a potential threat to global financial stability. Though the United States has vast military power, the use of that power for political advantage is turning out to be counterproductive. The United States is simply unable to fund out of its savings the political commitments undertaken by its polity. The margin of economic advantage it used to enjoy is gradually shrinking. The United States has but 4.5 per cent of the world’s population
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and around 20 per cent of its income when measured by purchasing power parity. By 2050, the share of population may decline slightly, but its share of GNP is likely to decline rather sharply, perhaps to a mere 10 per cent of income (Sachs, 2005: 359). It cannot expect that the present arrangements by which the United States finances its fiscal deficit by drawing on the savings of other countries can continue indefinitely. Allowing the United States to pile up debt depends on the perception that the global power is providing public goods that the rest of the world considers acceptable. For some it was so in the cold war era, but it is no longer now. This inability on the part of the United States to pay its own way by increasing its own productivity is a standing threat to global stability; this has worsened further with its failure to manage and regulate the global financial system. The recent financial crisis, which originated in the United States, has jeopardised the momentum of global growth. The United States is no longer in a position to service the global community as a stable and responsible distributor of global liquidity. The world remains on the edge of a precipice.
A New Configuration? In the changing economic and political reality of today’s world, the United States has to work along with other nations towards global stabilbel. With its command over enormou sc entific, technological and economic resources, the United States can certainly contribute towards global prosperity, but it must learn to adjust its role to meet the expectations of the global community. It has to shed its belief that a set of political and economic values like liberty, democracy, equality, private property and markets’ which, as Samuel Huntington writes, are at the core
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of the national identity of the United States, are universally acceptable.1 It must accept that any interference in national affairs, however indirect, in the name of democracy or economic development, evokes painful memories of the arbitrary and cynical nature of colonial rule. Its political objective has to fit in within the framework of a harmonious comity of nations. The last two decades have witnessed a remarkable shift in the distribution of economic power and resources within the global community. Developing countries have travelled a long way from the time when Gunnar Myrdal, the Swedish Nobel prize winning economist, wrote that Asian countries were doomed to remain impoverished thanks to overpopulation, inadequate savings and poor education (Myrdal, 1968). The burgeoning growth of some of the developing countries is testimony, ironically though it may sound, that the impetus towards globalisation, pushed by the hegemonic power through TNCs, has been the major contributing factor towards growth. Even after the recent global crisis, the reactions to a liberalised business ambience—propagated as gospel for much of the 20 years since the end of the Cold War by the United States with sporadic support from industrialised countries such as the UK and institutions including the International Monetary Fund—have been measured among the BRIC countries (Brazil, Russia, India and China) and the other key emerging markets. In fact these countries are gently pushing forward reforms based prima facie on a philosophy of eclectic pragmatism rather than of wholesale retreat into autarchic nationalism. While countries have been adapting themselves, determined overwhelmingly by domestic considerations, to the new realities, they are increasingly becoming conscious that the business-centric political policies that lie at the core of the economic ideology of globalisation have to undergo significant changes.
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For centuries, the business–polity relationship has primarily revolved, almost exclusively, around the interests of the two groups, the ruling political regimes and the wealth-creating elite groups. This relationship needs a fundamental reorientation in the changing geopolitical environment in the interest of political and economic stability at the global level. It is being increasingly realised that the needs and aspirations of other interest groups in the society, equally important for its stability, are intimately connected with the way wealth is created and distributed. Each nation has therefore to strive to restructure the relationship in a way that answers to the needs of the different stakeholders of the society. CSR (Corporate Social Responsibility) is a grudging recognition by wealth creators that, apart from creating value for their owners, it is incumbent on them to accept social responsibility for their acts of omission and commission. The diverse wealth-generating activities of the economic entrepreneurs have to focus on the generation of employment and economic opportunities firmly anchored, not on the needs of the wealth creators, per se, but on creating a harmonious balance between diverse interest groups. In particular, it would be dangerous to ignore the interests of the poor and deprived communities who have become increasingly assertive, even in nations which are the new emerging high-growth economies of today. The disadvantaged can no longer be left to remain as spectators to history; they want to be and have to be made active participants in the process of change and development. Delivery of global public goods such as counter terrorism, action to control environmental damage and climate change—all these make daily headlines, but one that does not, even though it is equally important, is elimination of poverty. Arguably, poverty lies at the root of many of the political and social ills of today. Decade after decade of development has resulted in failed
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development goals, leaving about one-third of the world’s population marginalised. The structural adjustment programmes of the late 1970s and 1980s have added to the miseries in several countries. This lies at the core of the anti-globalisation movement. Shorn of its rhetoric, it has a powerful point to make, namely, that the kind of globalisation that is being driven by the TNCs under the protective umbrella of the United States means in substance public subsidy for the rich and market discipline for the poor. In an interdependent world that has become virtually interdependent, the need for a reorientation of business–polity relationships has to be accepted not only as a national but also as a truly global responsibility. Well-conceived and transparent policies are needed at the political level, designed and enforced to ensure better investment decisions for stronger and more sustainable economies. Such policies should take a fresh look at the basic building blocks of business and free markets: accounting, disclosure, incentives, regulation and responsibility. We must revisit standards of governance and ethics of market capitalism and fundamentals necessary for a strong and functioning capital markets. This apart, behaviour of TNCs in different developing nations or of movement of people across nations cannot be left to unregulated market forces or to the whims of individual nations. The role of TNCs, for example, that has been an indispensable part of US hegemonic power has to undergo a fundamental change. Certainly the global community would like to preserve and nurture the kinds of scientific and technological benefits that the TNCs are in a position to offer, but, for this to happen, several institutional arrangements for supervision at the global level over their policies and practices have to be in place. The global community has to create institutions that help
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support national policies anchored on the needs of the people within each country without hindering the process of growth. Global imbalances can be resolved and stability attained only through organised international coordination and consensually established international institutions (Nayyar, 2002). We cannot solve problems, as Albert Einstein once famously remarked, by using the same kind of thinking we used when we created them. Most in the liberal world are immensely relieved that the communist interlude is behind them, but they or the rest of the global community are not at all sure that we have moved into a safer or more hopeful or more livable world. What we have learnt from our historical survey is that any large system that is built around a hegemonic power may suddenly collapse like a sand pile. What happens within a sand pile, the shifting and sliding of the grains, is as critically important as what is visible from the outside. Scientists say that the sand pile is a system that could break down not only under the force of a mighty blow but also at the drop of a pin. This is the spectre that is now haunting the whole world.
Note 1. Huntington, 1993, as quoted in Noam Chomsky (2003).
Glossary
Agora: A central feature of the polis. Originally a market place, the agora also served as the chief social and political meeting place. Along with the acropolis (the upper fortified part of a city), the agora housed the most important buildings of the city-state. Archon: The chief magistrate in many Greek cities. In Athens there was a council of archons which was a form of executive government. asiento: A contract, especially contacts of financiers with the crown, or contract to supply slaves. Augustus: A title meaning ‘divinely ordained’ conferred by the Roman Senate on the first Roman emperor, Gaius Julius Caesar Octavianus (Augustus), in 27 bc and thereafter assumed by all succeeding emperors. Augsburg, Peace of: (25 September 1553). The treaty that ended the German religious wars of the Reformation period. It marks the defeat of the Habsburg Emperor Charles V politically and religiously—failures which were repeated in the Thirty Years’ War of 1618–1648 and in the Treaties of Westphalia (1648)—and thus represents an important stage in the evolution of Germany into a collection of petty states instead of a united absolute monarchy. Auto de fe: Act of the Faith; burning or other public condemnation of crypto-Jews, heretics, etc.; public ceremony held by the Spanish Inquisition. bakufu: Headquarters of the shogun (see also the note 3 in Chapter 7). Baku-han: A modern term referring to the Tokugawa system of government in which the shogunate (bakufu) exercised authority over several daimyo (han). Boule: Council. Boule usually refers to the Council of Five Hundred. The Council consisted of 50 citizens from each of the 10 phylai (see Demos), selected by lot for one year from candidates nominated for the 139 demes. The Boule was crucial for the working of the Athenian democracy.
basileus: The king archon designating the highest state official, after whom the year was named. He was responsible for organising state 378
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festivals and presided over the People’s Court in cases concerning family law and inheritances. Bull: A letter issued by the Pope that contains an order and/or statement of religious doctrine.
bushi: The military aristocracy in Japan; the samurai. caliph: The supreme leader of the Islamic world after Muhammad’s death in ad 632, the successor to Muhammad. Secular and religious authority was combined in the office of the caliph, who claimed to be appointed by God. Carreira da India: Round voyage between Lisbon and Goa. Casa da India: India House at Lisbon.
Chonin: Non-samurai urban dwellers, merchants and artisans. Consul: After the fall of the monarchy, the Republican Romans established a joint annual magistracy shared by two elected senators (originally called praetors) to act as the head of the executive and to lead the armies in war. Their power was that of the king, limited by their annual term and duality.
cortes: Portuguese Parliament or assembly of three estates of nobility, clergy and people. conquistador: Military adventurers, mostly commoners, who led the Spanish exploration of the New World during the 16th century. Fierce and often ruthless figures, they were motivated both by missionary zeal and greed for gold and other riches. Description applied to the Spanish military pioneers in America. Consulado: The Consulado in Seville and other Spanish cities was the corporation of merchants trading there. Creole: New World settler of white, Spanish descent. cruzado: Portuguese coin, originally of gold, whose value was fixed at 400 reis (A small Portuguese copper coin of low value) in 1517. During the 17th century, the cruzado was roughly valued at four English shillings.
demos: People. The word means (a) the entire Athenian people (= the Athenian state), (b) the common people (= the poor), (c) the People’s Assembly (= Ekklesia), (d) rule of the people (= democratia), (e) municipality, that is, one of the 139 demos created by Cleisthenes in 507 bc and collected into 30 trittyes, which were again collected into 10 phylal.
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denarius: A Roman monetary unit represented by a silver coin, the standard of the Roman monetary system. During the imperial period, these coins were progressively devalued (see also Sesterces and the note in Chapter 2). ducat: First minted in 1284 by the city of Venice. A gold coin with the portrait of the ruler (for example, the Duke, the Dodge) on it. Later, simply, a monetary unit of account. equestrian: The Equestrian order, the knights, second to the senatorial order, originally consisted of the income bracket sufficient to enable them to keep and equip a horse to enable them to serve in the cavalry. The order in the late Republican and imperial times included some very rich men who ran the commercial life of Rome. The qualification of membership in the late Republic was 400,000. Estado da India: ‘State of India’; Portuguese India, often loosely applied to all the Portuguese fortresses and settlements between the Cape of Good Hope and Japan. Fidalgo: Nobleman, gentleman. florin: First minted in 1252 by the city of Florence, later any of the several gold coins patterned after the Florentine florin (for example, the Dutch florin). Fluyt (flyboat): In early modern Europe, a small, rapid and highly efficient vessel designed for inexpensive, utilitarian hauling; a Dutch innovation. Galleon: Large Spanish oceangoing warship. Galley: Warships driven by oars in battle and equipped with sails for cruising. The galley was the standard European battle vessel until the late 16th century, when the sail-powered, more heavily armed galleon began to replace it. Open-ended vessel, used in coastal traffic and in the Mediterranean. Geniza: See note 12 in Chapter 5.
hadith: Traditions recounting the words and deeds of Muhammad; the source of Muslim scriptures. Han: A daimyo domain. Intendant: In 17th- and 18th-century France, the absolute monarchy’s key regional administrator. An intendant of justice, finance and police presided over each local government district and army intendants were civilian supervisors of the armies. Under Louis XIII and his Minister Cardinal Richelieu, intendants ruthlessly imposed justice and supervised tax collection. Overthrown by the rebellions known
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as Fronde (1648–1653), they gradually reemerged under Louis XIV as information gatherers and then as superb local administrators. peso: Unit of value in which Spanish–American treasure was expressed; there were also silver and gold coins bearing the name peso. Escudo: Castilian coin. Helot: In ancient Sparta, serfs who were forced to perform agricultural labour; originally the Messenians, a group conquered by the Spartans and reduced to near slave status. Hoi Polloi: The many or the majority. A term used synonymously with Demos. hoplite: A heavily armoured foot soldier of ancient Greece, who fought in close formation, usually in ranks of eight men, each carrying a heavy bronze shield (a ‘hoplon’), a short iron sword and a long spear. Huguenots: The name originated between 1510 and 1535 at Geneva, where those in favour of an alliance with the Swiss canton, Frieburg, were called Eidnots, literally ‘partakers of an oath’. They joined with the Bernese who had declared for the Reformed religion. The name came to be attached to French Protestants. latifundia: In Latin, literally, broad fields, in Roman times, a great landed estate, usually worked on by slave labour. Liturgy: Public service for the state. Some state expenditures were met not from state revenues but by requiring a rich person as a civic duty to defray the expenses in question for one year. Lombards (Langobardi): The last of the German invaders, entering northern Italy in the 6th century. Madrasa: Islamic school, established after the 10th century. Magyar: Dominant ethnic group of disputed origins in Hungary. manumission: The formal act of emancipating a slave, sometimes by written agreement or payment of the slave to the master. metic: In ancient Greece a merchant, usually a foreigner, who was a member of a class of resident non-citizens in the polis. Mulatto: In areas that were former colonies of Spain, Portugal, France and in the United States, a term for a person of mixed Negro and European parentage. Mycenae: An ancient Greek city on the Pelopponesian Peninsula, which rose to military power around 1500 bc. Mycenaean: Civilisation, influenced by Minoan Crete and the ancient cities on the Eastern Mediterranean, flourished politically and culturally until about 1300 bc.
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Optimates: In the contentious politics of Late Republican Rome, the diehard defenders of patrician privilege; literally the best; opposing the Optimates were the Populates or the People’s party. patrician: In medieval and early modern cities, a hereditary elite of bourgeois office holders, rentiers, and high-status merchants, to be distinguished from the ordinary guild merchants. patriciate: The hereditary aristocratic class of ancient Rome. phalanx: In ancient Greece, a military formation in which heavily armed infantrymen line up close together in deep ranks, defended by a wall of shields. polis (plural poleis): (a) city, (b) city-state. The typical polis had a territory smaller than 30 sq km and a citizen population of less than 1000 adult males. In addition to the citizens (politai), a polis was populated by free foreigners (xenoi, in some poleis called metics). Foreigners and slaves lived in polis, but were not members of it. The polis usually consisted of a city and its hinterland. The city was the political, religious, economic and military centre, even if most of the citizens lived on the land, outside the city wall. Principate: The system of government established by Augustus with the Roman emperor (Princeps) as its head. Other terms used to denote the imperial position were Imperator, Augustus and Caesar. Quraysh: The Bano Quraysh, the dominant tribe in Mecca. samurai: In medieval and early modern Japan, a class of warriors (from the Japanese saburu, meaning ‘service’). The samurai were originally rural landowners, generally illiterate, who served as military retainers. Later they emerged as military aristocrats and then as military rulers. Saracen: A term that Greek-speaking Byzantine chroniclers and other European peoples used for Muslim Arabs. Satrap: The governor of a province (satrapy) of the ancient Persian Empire. sesterces: The main unit of coinage under the principate in Rome: originally a quarter of a silver denarius. It was devalued by Nero to a ratio of 5:32 (see also the note in Chapter 2). Sharia: Islamic system of law based on the Qur’an. Shiatu Ali: ‘The party of Ali’—Shi’ites of the minority Muslim sect who maintain that the leadership of the community resides solely with descendants of Muhammad through Alui and Fatima. Sophists: A group of ancient Greek teachers of rhetoric, philosophy and the art of living, 5th–4th centuries bc, known for their adroit,
Glossaryâ•… 383
subtle and specious reasoning: Sophistry is now applied to any form of devious but convincing argument. Shogun: From the 12th to the 19th century, the chief military figure of Japan. Shugo: Military governor appointed under the Kamakura and Ashikaga shogunates. Sunni: Majority Muslim sect adhering to the belief that leadership of the community belongs to the most qualified person, regardless of descent from the Prophet. Sura: Chapter of the Qur’an. Trieres: Galley with three banks of oars, one above the other. It was the most common types of warship in the 5th and 4th centuries bc and had a crew of 200 men, of whom 170 were rowers. Ulama: Muslim religious scholar. Okios: The Greeks used this to describe the household: the house and all those who lived within, the husband, wife and family including the slaves. Okiomania: The Greeks used the word to describe the management of a household and its possessions; this is the source of the English word economy.
za: Guild in Japan. zeugites: Citizens in ancient Greece who produced between 200 and 300 measures of corn, wine and olives a year and thus belonged to the third Solonian property class. Templars: A western Christian military order in the Middle Ages.
thete (plural thetes): Properly, a day labourer, and then a citizen who produced less than 200 measures of corn and belonged to the fourth Solonian property class. tithe (archaic): Tenth part, tax payable to church.
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Index
A Abbasids, 72–73 business-politics dynamics, 81 Acheson, Dean, 349, 350 Adolf, Gustav, 184 Affaires Extraordinaires, 195 Age of Antonines, 20 America settlements in, 280–283 American War of Independence (1775–1783), 192 Ancient Greece. See Greece Antiquity, heritage of, xxi–xxix city-states, xxviii–xxix emergence of empires, xxix emergence of property forms, xxii–xxiv empires of, 364–366 expansion of trade, xxvi–xxviii land-based civilisations of, 366–367 state/private property rights, xxiv–xxvi Antwerp, 156–157 Arab Empire, 68–83, 365 Abbasids, 72 beginnings, 69–70 business-politics dynamics, 81–83 currency system, 75–77 internal revolt, 79–80 invasion of, 70–71 lapse into feudalism, 80–81 merchants in politics, 79
orientation towards trade, 73–78 religious stance, 77–78 trade network and common market, 73–74 Umayyad Dynasty (see Umayyad Dynasty) urban centers of consumption, 74–75 Archaic Period, Greece, 3 Arikamedu, 45 ‘Aristocratic constitutionalism,’ 220 Aristotle, 8 Arthasastra, 42 Ashur, xxv Athenian. See also Greece banks, 13 constitutional structure, 5–9 political reforms, 5–9 Atlantic Ocean Portugal ventures into, 225– 226 Atlantic Slave economy, 283–284 Atlantic system, 273 Aurelius, Marcus, 26 B Bacon, Francis, 208 Banking development of, in Greece, 12–14 Bank of England, 326–327, 330 Bank of France, 330 Bardis, 164 414
Indexâ•… 415
Bayly, Christopher, 274 Blackwell, Alderman Edward, 202–203 Bondages, types of, 6 Borrowing, 194–195 Bourgeois century, 219–221. See also economic nationalism cultural evolution, Dutch republic, 255–256 Braudel, Fernand, 9 Britain, 269–288 American settlements, 280–283 Atlantic slave economy, 283–284 Caribbean plantations, 272– 273 colonisation, 271 hegemonic foundations, 285–288 long-distance trade, 276–280 role of navy, 272 triangular trade, 273–276 British army, 191–192 British Empire. See also Europe China and, 323–325 engineering free markets, 316–320 free labour, 315–316 gold standard (see Gold standard, British Empire) in India, 308 Industrial Revolution, 304, 314–315 market expansion, 320–323 textiles, 317 three pillars of, 314 British Imperial Standard, 326–331 Bruges, 156 Buddhism and trade in India, 48
Burke, Edmund, 278 Burlamachi, Philip, 202 Business-politics disharmony Dutch Republic, 265–266 Byzantine Empire, 69 C Casa da Mina, 229 Casa de la Contratacion (House of Trade), 239 Ceremonial temples, xxii–xxiv Chambre de Justice, 197 Charles V, 175, 183, 184, 185, 241–242 China, 366 British Empire and, 323–325 Han Dynasty, 59–61 Indian Ocean and, 97–102 Japan trading with, 111 Manchu Dynasty, 306–308 political system, reliance on, 59–61 resource raising, 52–66 silver trading, 245 society and economy, 54–56 surplus from commerce, 57–59 surplus from land, 56–57 Tang Dynasty, 61–66 Chola Dynasty maritime trade, 93–94 Chonin, 115 Christian Church, Europe, 142–146 Cicero, 27 Classical Period, Greece, 3, 12–13 Cleisthenes, 6 Colbert, Jean-Baptiste, 197–198, 214 Colonisation Britain, 271 Dutch Republic, 264 Spain, 247–249
416â•… Business and Polity
Columbus, 238 Commercial wars, 217 Communes dominance of merchants in, 138–140 emergence of, 137–138 Confucius, 55 Consiel Royal des Finances, 197 ‘Cross-cultural brokers,’ 213 Currency system, Arab Empire, 75–77 D Daimyo, 111 Dark Age, Greece, 3 Debt, 200 public, financiers and, 202–206 De Greer, Louis, 184 Delian League, 12 Demes, 7 Democratia, 7 Demokratia, 17 Demosthenes’, 15 Denarii, 75 De Vries, Jan, 275 De-Witte, Hans, 184 Dinar, 76 Diodorus, 11 Di Pagolo Morelli, Giovanni, 141 Dirhems, 75 The Discourse on Western Planting, 270 Durrani, Ahmad Shah, 301–302 Dutch East India Company, 244, 260 Dutch Republic, 254–266 bourgeois culture and its evolution, 255–256 business-politics disharmony, 265–266 competitive resilience, 262–264 economic primacy, 256–259
‘fiscal-military state,’ growth of, 263 long-distance trade, 259–262 overview, 254 ‘the spirit of capitalism,’ 258 E East India Company (EIC), 199, 215, 216, 277–279 Economic estatism, 213–214. See also economic nationalism ‘Economic internationalism,’ 316–317 Economic nationalism, 210–219 bourgeois century, 219–221 commercial competition, 216–217 commercial crisis and, 211 companies establishment, 214–216 economic estatism, 213–214 factors, 218–219 goals, 212–217 government role in, 211–212 mercantilist policies, 218 military power, 212–213 overview, 210–211 trades/trading, 212 Economic primacy Dutch Republic, 256–259 EIC. See East India Company (EIC) Elliottm, J.H., 243 England mercantile system, 218–219 taxation, 194 English Navigation Acts, 217 Eupatridai, 7 Eurasia, 295–310 British Navy, 308–310 China, 306–308
Indexâ•… 417
India and Mughal Empire (see India) Ottoman Empire, 299–300 Russia marches into Siberia, 297–299 Safavid Dynasty, 300–302 Europe, 119–130 business and politics, 167–169 business transactions, 127–130 Christian Church, 142–146 development of markets, 125–127 economic expansion, 119–121 emergence of communes, 137–138 feudal property rights, 123–125 fiscal revolution, 192–194 five revolutions, 368–370 global financial centres, 155–157 great depression, 328 Hanse merchants, 149–152 Italy (see Italy) mercantile ethic and culture, 140–142, 159–163 merchant communities, 148–169 monetisation, 122–123 Pax Brittanica (see Pax Brittanica) role of guilds, 135–137 Southern Netherlands, 153–155 towns, integrated units of economic activity, 134–135 trading networks of Spain, 243–247 urban expansion, 132–133 European Economic Community, 352 F Fatimid Dynasty, 102–103 Financiers and public debt, 202–206
Fiscal management Portugal, 230–232 Flanders, 153–154 Florence, 161–162 ‘high finance,’ 163–167 Foreign policy, Greece, 11 France mercantile system, 218–219 tax farming, 195–196 Franklin, Benjamin, 282, 283 Free trade treaty, 1838, 322 French Revolution, 199 Fugger, Anton, 242 Fugger family, 184–187 G Gallic sack of Rome, 22 Genoa, 165–166 German Empire, 329 Germany, 175 Ghung-ch’ang Tung, 60 Gilpin, Robert, 217 Global financial centres, Europe, 155–157 Globalisation, United States, 358–360, 371–376 Glorious Revolution, 192, 288 Golden Age of Greece, 8 of the Roman Empire, 21 Gold standard, British Empire, 326–331 attempt to maintain, 331–336 Gracchus, Tiberius, 24 Great depression, Europe, 328, 331 Greece agriculture to trade, 9–10 Archaic Period, 3 Classical Period, 3, 12–13
418â•… Business and Polity
constitutional structure, 5–9 Dark Age, 3 foreign policy, 11 Golden Age of, 8 monetisation/banking, 12–14 political reforms, 5–9 pragmatic attitude towards trade, 10–12 slavery, economic surplus from, 14–17 society evolution, 3 Guilds, merchant, 135–137 Gupta Empire, in India, 49–50 H Hainault, 153 Hamilton, Earl, 251 Han Dynasty, 59–61 Hanseatic League, 149–152, xxvi Hanse merchants, 136, 149–152 Han Wu-ti, 58 ‘High finance,’ Italy, 163–167 History of the Reign of King Henry the Seventh, 208–209 Hiyal, 78 Holland, 10 ‘House merchants,’ 115 House of Elgi, xxvi House of Mitsui, 115 House of Rothschild, 327 House of Sumitomo, 115 Hudson’s Bay Company, 215, 277, 280 I ‘Ideal State,’ Plato, 10 IMF. See International Monetary Fund (IMF) Imperial century, British, 312–314 Imperialism, 320
India British Empire in, 308 early trade contacts, 39–40 extension of maritime links, 43–45 Gupta Empire in, 49–50 Indian Ocean and, 91–97 Mauryas in, 41–43 and Mughal Empire, 302–306 political economy in, viii public policy in, viii religion and trade, 47–48 Satavahana Dynasty, 45–47 traditions, 50–51 urbanisation, 40–41 Indian Ocean China and, 97–102 India and, 91–97 Mughal Empire, 304–306 muslim mediterranean, 102–106 power vacuum in, 106–107 trade and politics in, 91–107 Indian Ocean trading Portugal entry into, 227, 233–235 Indo-Gangetic plain trade links, 39–40 Industrial Revolution, 194, 304, 314–315 Injecting liquidity, United States, 347–352 ‘International merchant class,’ 11 International Monetary Fund (IMF), 348 Italy city states in, 158–159, 168 ‘high finance,’ 163–167 J Jainism and trade in India, 48
Indexâ•… 419
Japan, 109–118, 367 governance elements, adaption of, 110 Meiji Era, 117 merchant prominence, 110– 112 Muromachi Period, 110 ‘three unifiers’ of, 113 Tokugawa Era, 115–116 trading with China, 111 transformation, 112–118 John I, 225 K Karimis, 104–105 Kautilya, 41 Koran trade in Arab Empire and, 77–78 Kuli, Nadir, 301–302 L The Laws, 8 Levant Company, 199 Linen Board, 213 Loans, 200 Long-distance trade. See also trades/trading Britain, 276–280 Dutch Republic, 259–262 Louis XIV, 199, 203, 204, 214 Low Countries, 153 M Mahajanapadas, 40 capitals of, 41 Mamluks, 103–104 Manchu Dynasty, 306–308 Maritime trade, in India, 43–45, 91–97 Mauryas, in India, 41–43 Mawali, 71
‘Maxims of confusion,’ 197 Medicis, 164–165 Meiji Era, Japan, 117 Mercantile system, 218–219, 286. See also economic nationalism ‘Merchant bankers,’ 205 ‘Merchant capital,’ 10 Military power economic nationalism, 212–213 Milyas, 15 Ming Dynasty, 99–102 Mississippi Company, 282 Monarchial capitalism Portugal, 228–230 Monetisation and Ottoman Empire, 122 Monetisation, Greece, 12–14 Monetisation, in Europe, 122– 123 Mongol Yuan Dynasty, 98 Mughal Empire, India and, 302–306 Muromachi Period, 110 Mycenaean Civilisation, 5 N Navigation Acts, 213–214 O Oda Nobunaga, 113 Okios, 4 Olympiodorus, 26 On Duty, 27 OPEC. See Organisation of Petroleum Exporting Countries (OPEC) Optimates, 24 Organisation of Petroleum Exporting Countries (OPEC), 354, 355
420â•… Business and Polity
Ottoman Empire, 299–300 monetisation and, 122
Public debt, financiers and, 202–206
P Pallava Period, in south India, 50 Pasion, 15–16 Patricians, 28–29 Pattana, 42 Pax Brittanica, 312–336 British Empire (see British Empire) imperial century, 312–314 Peisistratus, 6, 7 Philostephanus of Corinth, 16 Pinder, Paul, Sir, 202 Pitti, Buonaccorso, 130 Plato, 8 ‘Ideal State,’ 10 Pliny, 22 Plutarch, 11 Politics, 8 Poor Laws, 315–316 Pope Innocent III, 144 Popolo, 139 Populares, 24 Portugal, 225–235 ascendancy of private traders, 232–233 entry into the Indian Ocean, 227 monarchial capitalism, 228–230 new commercial culture, 233–235 overview, 225 poor fiscal management, 230–232 ventures into the Atlantic Ocean, 225–226 Private property rights, xxiv–xxvi
R Reconquestia, 237 Religion, in India trade and, 47–48 Republic, 8 Roman Empire, xxi assembly, 30 declining phase, 30–34 early republican phase, 22–23 Golden Age of, 21 governance culture, 20–36 history of, 20 political structure, 29–30 seaborne trade, 27 Senate, 24–28 territorial expansion, governance culture and, 24–28 Rome. See Roman Empire Royal Africa, 215 Rude, George, 220 Russia marches into Siberia, 297–299 S Safavid Dynasty, 300–302 Samarra, 75 Samudri Raja, 92 Sangha, 49 Satavahana Dynasty maritime trade, 45–47 Selfless knights, 176–177 Shamash, Babylonia, xxiv Shia’ism, 72 Shoguns, 112 Siberia Russia marches into, 297–299 ‘Silk Route,’ 57 Six Dynasties, 61
Indexâ•… 421
Slavery, Atlantic economy, 283–284 Slavery, in Greece economic surplus from, 14–17 Smith, Adam, 55 Social interaction, 178 Solon, 6, 11 reforms, 7, 16 Song Dynasty, 97 Southern Netherlands, 153–155 Spain, 237–252 Iberian contribution, 249–252 impact on the colonies, 247–249 impact on trading networks and European wealth, 243–247 war finance, 239–243 Spufford, Peter, 122 Sri Lanka, 39 maritime trade in, 44 Ssu-ma-Ch’en, 54 State property rights, xxiv–xxvi T Tahmasp, 301 Tamkaru, xxv Tang Dynasty rise of, in China, 61–66 tenure system in, 62 Tariff Law, 1816, 341–342 Tax farming, 203 advantages, 195 Tax/taxation fiscal revolution and, 192, 193–194 Technological developments economic activities and, x Textiles, British Empire, 317 Themistocles, 11 Thetes, 7
Three Kingdoms, 61 ‘Three unifiers,’ Japan, 113 Tilly, Charles, 134 Tokugawa Era, 115–116 Tokugawa Ieyasu, 113 Tokugawa Shogunate, 113 Toyotomi Hideyoshi, 113 Trades/trading ascendancy of private traders in Portugal, 232–233 Britain, 273–280 Dutch Republic, 259–262 economic nationalism, 212 Portuguese entry into Indian Ocean trading, 227, 233–235 Spain, 243–247 Treaty of Vienna, 312–313 ‘Tunnage Act,’ 204 Turkey Company, 199 ‘Tyrants,’ 6 U Umayyad Dynasty, 70–71 fall of, 71–73 United States euro-dollar finance, 353–356 first phase of economic development, 345–346 fusion, 358–360 globalisation, 358–360, 371– 376 hegemony, 340–360, 370–371 injecting liquidity, 347–352 liabilities, 353 rise of, after World War II, 343–344 second phase of economic development, 352–353 third phase of economic development, 356–357 Urbanisation, in India, 40–41
422â•… Business and Polity
V Venice, 160, 166–167 Vietnam War, 352–353 Vijaynagar, 96–97 Virginia Company, 238, 263– 264, 279 Vyner, Thomas, Sir, 202–203 W Warfare technology, 176–188, 205 agricultural economies, 178–181 overview, 176–177 resource raising for, 177–178 urbanised economies, 181–188 War finance, 239–243 War of Austrian Succession (1739–1748), 192 War of Eight Saints, 163 War of English Succession (1688– 1697), 192 War of Spanish Succession (1702–1713), 192 Washington Consensus, 359
Ways and Means Act of June 1694, 204 Weber, Max, 5, 82, 258 West India Company (WIC), 261, 264 Wharton, Samuel, 283 WIC. See West India Company (WIC) Williams, Eric, 273–274 Wilson, Charles, 218 World Bank, 348 World War II rise of United States after, 343–344 X Xenophon, 4 Y Yuan Dynasty mercantile prosperity and, 100 Z Zeugitae, 7
About the Author
D N Ghosh has traversed the worlds of government, the public and private sectors and academia. He has been secretary to the Government of India, Chairman of India’s largest bank, State Bank of India and chairman of several leading companies in the private sector and professor of Development Finance in the Indian Institute of Management, Kolkata. The author of two acclaimed books, Banking Policy in India: an Evaluation and Governance and Accountability, he is at present Chairman of ICRA, a leading credit rating agency of India, the Managing Trustee of Sameeksha Trust that runs the prestigious Economic and Political Weekly and is associated with several companies and organisations as Chairman or Director. His main areas of interest are financial and banking history.
