Understanding Eurasian Trade in the Era of the Trading Companies

Eurasian Trade: Side Show or Main Event?

Both the old and the new approaches to the interactions of Europe and Asia in the early modern era make claims—implicit as well as explicit—about the nature of the trading relationships that connected them, and which with the opening of the Cape route grew steadily in importance over the following three centuries. In a volume focused on the European reception of ‘goods from the East’, it is appropriate to begin our assessment by examining those that emphasize special qualities of those goods. They can be bundled into three distinct claims:

1. Goods from the East were exotic. They were primarily tropical products, unavailable within Europe, and inherently desirable.
These claims imply that there was something inevitable and obvious about this trade. Once the Asian goods were available in Europe on a dependable basis and at an ‘affordable’ price, demand was bound to grow: consumer demand was like a coiled spring, awaiting release by intrepid European traders. Today, this type of argument is not as self-evident as it once appeared. Broad consumer acceptance of novel and exotic goods is far from inevitable. Moreover, while most of the early goods sent to Europe from the East were, indeed, tropical products unavailable from European sources (spices and pepper), they were not literally exotic. Demand grew precisely because they were already familiar and desired. But this demand was not unlimited, and the growth of trade volume from Asia to Europe would have ceased in the Seventeenth Century were it not for the emergence of new trade goods, most of which were not literally exotic, tropical commodities. Why would European consumers necessarily embrace them? Perhaps because they were of uniquely fine quality.
2. Asian goods were superior. They embodied unique craft skills and design elements. They were exquisite in a way that could not readily be imitated in Europe.
This claim implies that Asian manufacturers - of silk and cotton textiles, porcelain, lacquer wares, and chinoiserie more generally – produced unique products. Consumers seeking their special qualities had no alternative but to purchase Asian imports. It is certainly true that as the demand for the tropical spices and pepper slowed, further trade growth in the Seventeenth Century depended increasingly on Asian manufactured goods. The claim that Asian goods possessed unique qualities that imparted a measure of monopoly power in European markets competes with an alternative explanation for the growth of Asian manufactured exports to Europe: that they were cheap.
3. Asian manufacturers were the low-cost suppliers. Not only were costs low, but the supply of low-cost labor was highly elastic, allowing goods from the East to be supplied to international markets in large and growing amounts at constant costs.
This argument resonates with recent experience in East-West trade, and is consistent with earlier assumptions of a neo-Malthusian type that China and India had dense peasant populations whose productivity in agriculture was low. This made their labor available for manufacturing, usually in a proto-industrial framework, at low cost. But, the great divergence literature denies the validity of these key assumptions, arguing that labor productivity in (advanced parts of) Asia was comparable to that in (advanced parts of) Europe. Therefore, they argue, if Asian wages were lower than those in Europe (when measured in silver equivalents), this only reflected another aspect of Asian economic prowess: its highly productive rice-growing sector, which provided staple food at lower cost than was possible in Europe.^xiii Unfortunately, there are reasons—theoretical and empirical—to question these arguments.^xiv The claim of a highly productive agriculture is not consistent with the very large share of the labor force wedded to Asian agriculture until well into the Twentieth Century; nor is it consistent with the sharp competition for land between food and raw materials production emphasized by great divergence interpreters such as Pomeranz and Marks.^xv
Goods from the East are said to have been unique, superior, and cheap. These attributes of Asian production are not mutually exclusive, and they may all have played a role in accounting for the growth of Europe’s demand for Asian goods over time. However, unless we simply assert an obvious irresistibility of goods from the East, some consideration needs to be given to European demand for Asian goods. Did Europeans acquire in the course of the early modern era - because of events in Europe - a new capacity to purchase Asian goods?

There are three dimensions to this issue that deserve our consideration:

1. Goods from the East became cheaper in Europe because of a significant reduction in ‘transaction costs’ (the costs of acquiring, shipping, and distributing goods, enforcing contracts, making payments, and so on). If the European trading companies that controlled the Cape route for three centuries succeeded in substantially reducing these costs over those prevailing on the old ‘silk route’, the new, lower prices at which Asian goods could be sold in Europe might explain much of the growth of this trade. This is, strictly speaking, a supply-side argument, but the cost advantage is not attributable to Asian economies; it is a product of western initiatives to supply European markets.
2. Goods from the East benefited from a rising European demand, at any given price, because European incomes rose. Or, alternatively, European incomes came to be distributed more unequally, generating increased demand among income strata with a taste for Asian goods. This argument is more difficult to test than the first, although Williamson and O’Rourke have attempted to do so, finding that rising European incomes (especially upper class incomes derived from land ownership) rather that Asian supply factors accounted for most of the growth of trade in the Seventeenth and Eighteenth Centuries (but not in the Sixteenth Century).^xvi
3. Goods from the East were less important than ‘information’ from the East: new knowledge (about goods, among other things) that changed tastes, created new markets, and laid the basis for developing new products. This argument emphasizes the dynamic aspect of East-West trade. It was not simply a matter of exploiting price differentials or reducing transaction costs—important though these were—but of gathering and assessing a vast amount of new information and incorporating it into European life. This stood at the foundation of changing tastes, the demand for new goods, and the development of new markets in the early modern era.

But, if new information helped shape European demand for goods from the East, the opposite might also have been true. If the intensified and direct trade links between east and west established with the mastery of the Cape route greatly augmented the supply of information about Asia available in Europe, it should also have increased information flows in the opposite direction. The clearest illustration of this point is the long Dutch trading presence in Japan. For over two centuries, the Dutch were the only European traders tolerated by the Shoguns of Japan. The shipping route from Holland’s ports to Nagasaki harbor, site of the Dutch East India Company’s trading station, was the longest of the early modern era, and Dutch ships visited Japan every year, but very few trade goods ever traveled all the way from one end to the other in either direction. What did move over this long trade route was information: Rangaku, or ‘Dutch/western learning’ moved eastward, as filtered by a caste of official translators, while Dutch officials, confined to their island outpost in Nagasaki harbor except for annual trips to pay their respect to the Shogun in distant Edo, sent home political, economic, and cultural information that fertilized multiple domains of knowledge.^xvii

Japan was undoubtedly a special case in the history of East-West trade, but its experience does serve to illustrate key questions in early modern intercontinental trade: did all parties implicated in these new commercial systems benefit from the rich information flows that coursed through their trading arteries? And, if not, why not?

Perhaps the answers to these questions lie in the institutions established by the European nations trading in Asia, especially the joint-stock trading companies of the northern European states. These large, bureaucratic organizations have long attracted the fascinated attention of historians, who have called attention to their large, permanent capital stocks, their need to coordinate disparate activities across great distances, and, especially, their combined commercial and political natures, which led to the internalization of protection costs (naval and military force) within their larger commercial missions.^xviii What has only recently begun to receive the attention it deserves is their effectiveness in gathering, analyzing, and acting upon large volumes of information.^xix Commercial, political, navigational, technical, botanical, linguistic, and cultural information flowed from their numerous trading factories and ships spread across maritime Asia and parts of Africa toward their command centers in Asia and Europe.

These nodal points of company trade were ‘information rich’ in a different way than the rumor-filled markets, bazaars, taverns, and cafés, filled with independent merchants attempting to trade on their fragments of private information. The European trading companies faced the challenge of processing and acting upon large amounts of information in a rational, systematic way. Their allocations of capital among many ports and many commodities and their decisions, at intervals, to back their trading ventures with costly physical force required a level of coordination that was altogether unprecedented in early modern commerce.

What concerns us here is the quality of these companies’ information about supplies of Asian goods and how to gain access to them, and about the potential European demand for Asian goods, especially novel goods. While the largest companies—the English East India Company (EIC) and Dutch East India Company (VOC)—commanded vast information networks, they generally did not have direct access either to producers in Asia, or to consumers in Europe. That is (with the important exception of the fine spices, whose production centers were controlled directly by the VOC), they generally bought goods at Asian markets via local intermediaries, and they sold their Asian cargoes in European ports at auction to private merchants, who controlled the distribution of goods from the East to the ultimate consumers.

Thus, at both ends of the trading networks controlled by the European companies one finds ‘gatekeepers’: private merchants with commercial information which was otherwise unavailable, or imperfectly available, to the directors of the trading companies. Indeed, the broader and more complex the commercial operations of the trading company the greater the likelihood that its own servants (agents of the directors, sworn to act in the company’s interest) acquired information that they did not pass on to the center but acted on privately. Since most private traders were simultaneously company servants, their activities are usually discussed as a species of corruption and a force undermining the profitability of the companies. They were ‘free riders’, appropriating company resources for personal gain. However, in many cases, they were engaged in lines of business quite distinct from those in which the companies specialized, especially the ‘country trades’ (intra-Asian commerce such as the opium trade) and financial transactions. This raises the question of whether the activities of private traders were, on the whole, more complementary than competitive to company enterprise. I will return to the phenomenon of private traders in Asia below.

In Europe, the trading companies had never involved themselves with the distribution of goods from the East to final markets. For this they always relied on private traders, who assembled at the periodic auctions held at company facilities in the Atlantic ports. Many of these merchants were simultaneously investors in the joint stock companies, insuring a substantial overlap between company and private trader, but this overlap became smaller over time. In the case of the VOC, the company directors (bewindhebbers) of the Eighteenth Century were almost all town regents, without direct engagement in the domestic trade in Asian goods.^xx The companies remained, in theory, the sole suppliers of goods from the East, but one may question whether the directors continued to have an adequate hand on the pulse of consumer demand, their own role in stimulating an expansion of that demand notwithstanding.

The European ships that pioneered the Cape route sought to supply a known demand in fine spices and pepper that had long been met via the silk route and Venetian merchants. But the growth of new information and merchant initiatives led, over time, to a fundamentally new phenomenon: shifts in consumer demand as Europeans entered a new environment of consumer choice. Thus, neither reduced transaction costs in getting Asian goods to Europe nor increased incomes in Europe can fully explain the long-term growth in demand. For example, a recent quantitative study of the changing composition of Hamburg’s import trade in the Eighteenth Century found a major increase in the import of colonial goods (from both Asia and the Americas). Ulrich Pfister, the author, concluded:
Relative price shifts are unable to explain import growth of American groceries. Given stagnant income per unit of labor and land, it requires a massive shift in preferences and/or an increase in labour time [and, hence, money income] to increase demand for these commodities.^xxi
Standard neoclassical trade theory (comparative advantage and regional specialization, generating lower prices and changes in relative prices) cannot account for most of the growth and the changing composition of Hamburg’s trade in this period. Instead, Pfister concludes, the ‘New Trade Theory’ seems to offer better insights: product differentiation and economies of scale generated a demand for new products, and this led to increased labor by households in order to secure the new, distinctive, differentiated goods.^xxii

Information and ‘industriousness’ are highly correlated. The incentive to earn additional income is often generated by knowledge of new goods—of consumer choice. When the new goods and new knowledge respond to and confirm a felt need—in this case, the urge to signal ‘respectability’ in the eyes of one’s peers—the result is a dynamic shift in the structure of consumer behavior that cannot be predicted from relative prices alone.^xxiii

This survey of the supply (exotic goods, superior goods, low-cost goods from the East) and the demand factors (lower transaction costs, increased European incomes, and information-induced shifts in demand) found in the literature on Asian trade provides an agenda for testing and verification of considerable complexity. Indeed, there is much we still need to know before many of these competing and overlapping claims can adequately be tested. We now have a fair overview of the ‘macro’ trends and developments in the three centuries of company-dominated trade with Asia. But, many of the ‘micro’ issues—particularly concerning the ‘gatekeepers’ in both Europe and Asia referred to above—remain poorly understood. In the next section of this essay, I will introduce the available evidence of an aggregated, or macro-level, type and try to identify how they reflect on the plausibility of the claims discussed above. In addition, I will call attention to several questions, mostly of a micro type, which beckon for further study.