Understanding Eurasian Trade in the Era of the Trading Companies

Contours of the Europe-Asia trade, 1500-1830

1. The volume and value of Europe-Asian trade

In an earlier article, I attempted to integrate the existing studies of European maritime trade with Asia from all the participating countries, beginning with the Portuguese establishment of the Cape route in 1497 and ending with the disruption to company-based trade at the end of the Eighteenth Century.^xxiv My aim was to chart the long-term course of this trade from a ‘global’, or continental, rather than a national perspective. The results of this statistical exercise were surprising in two respects: in the steady long-term growth of European maritime trade, and in the moderate pace of that growth. On what grounds can one claim that the early modern ‘boom’ in trade between Europe and Asia was slow?^xxv And, how can a trade marked by fierce, often violent competition between European trading companies have been steady? Indeed, how can any economic activity of the early modern era have enjoyed steady growth over three centuries? The other available time series of long-distance shipping or industrial production for this era invariable reveal large fluctuations, periods of profound disruption, even whole centuries of stagnation or reversal.^xxvi

[Figure 1.1: Europe’s intercontinental trades, by shipping tonnage, 1501-1795. ]
Figure 1.1 shows the volume of trade, decade by decade, over three hundred years, and a long-term trend line. Deviations from that trend line are few and brief. This aggregation of the trade of all European companies active in Asian waters shows a remarkably steady upward course. What this masks is the substantial volatility of the trade of each separate country, and, even more, of the various commodities of trade. Moreover, that steady upward course of trade was not very rapid. The long-term trend line of the shipping volume returning from Asia to Europe in each decade ascends at the rate of 1.1 per cent per annum.

Why should we call that slow? To begin with, any measure of the total trade between Europe and Asia must include the flows of goods that did not make use of the Cape route, but entered Europe via the Levant. The ‘silk route’ mercantile networks were not entirely shut down by the new competition. Indeed, after 1550 they appear to have regained their competitive capacity. But by the 1620s this silk route competition diminished markedly, and we can accept the measurement of Cape route shipping as representing nearly all of the Asian goods reaching Europe.^xxvii Until the 1620s the growth of the Cape route trade reflects both ‘trade creation’ and ‘trade diversion’. How much was diverted from the old trade routes cannot be measured with any certainty, but it could easily have been one-third of total Cape route volume in the 1620s. Thus, at least in the Sixteenth Century, the real growth of trade was somewhat slower than revealed by figure 1: perhaps 0.8 per cent rather than 1.1 per cent.

We must also consider population growth. We are primarily concerned with per capita trade growth, not simply an expansion of trade that reflects a growth of the populations of either Europe or Asia. Europe as a whole experienced a long-term population growth of about 0.25 per cent over the three centuries that concern us here.^xxviii Of course, the rate of growth was substantially higher in the Sixteenth and Eighteenth Centuries, and higher in Northwestern Europe than the Mediterranean countries, and higher in cities (especially larger cities). Much less is known about demographic trends in Asia in this period, especially about South and Southeast Asia. But the overall rate of population growth may well have exceeded that of Europe, and the population of China almost certainly did so, especially in the Seventeenth and Eighteenth Centuries. Its average annual growth over the three centuries reached approximately 0.4 per cent, and its eighteenth-century growth was quite extraordinary, at 0.8 per cent per annum.^xxix This considerably diminishes the increased ‘trade intensity’ experienced by China as a result of a 1.1 per cent annual growth of trade with Europe.

Overall, the effects of ‘trade diversion’ and population growth are marginal in nature. More important, surely, is the simple fact that the flow of trade between Europe and Asia at its eighteenth-century peak was not imposing. A 1.1 per cent annual rate of growth sustained over 300 years certainly yields an impressive total increase in the volume of trade: 25-fold. But, did this constitute a ‘trade boom’? At the end of this long era, the total volume of goods sent annually from all of Asia to all of Europe measured approximately 50,000 tons—the carrying capacity of one large container ship of today.

To be sure, these Asian goods were not distributed equally among Europe’s inhabitants, nor was their production spread equally over the vast expanse of Asia. A curious feature of the slow, steady growth in the volume of the Cape route trade is that it was the composite result of:
1. vigorous competition among European trading companies, whose market shares were subject to substantial fluctuations, and
2. boom and bust cycles of specific Asian commodity exports, centered on widely scattered Asian locations.

Until the 1620s, the attention of European traders was focused on the Spice (Molukken) Islands and the South Indian centers of pepper production; thereafter the cotton textiles of Bengal led Asian export growth, while the pepper and cinnamon of Sumatra and Ceylon (Sri Lanka) grew in importance. In the Eighteenth Century, attention shifted toward Mokka’s coffee and, even more, to Canton’s tea. Thus, at the level usually studied—by European nation and/or Asian commodity—the trade exhibited distinct cycles and much instability. But in the aggregate, Asian exports grew slowly and steadily. Any discussion of the supply elasticity of ‘Asian exports’ needs to take into account the highly dispersed and varied nature of this composite entity. What appears in the aggregate as an Asian fount of trade goods, available in ever growing quantities at constant prices, looks different at the micro level—where most trade goods experienced, sooner or later, either market saturation or supply inelasticities.

A final perspective on the pace of Cape-route trade expansion is offered by a comparison with the other major domain of intercontinental trade, the Atlantic economy. By the 1770s the volume of New World sugar shipments to Europe alone exceeded by more than four-fold the volume of all Asian goods shipped to Europe. Total sugar exports to Europe grew at 2.2 per cent per annum between the 1660s and 1750s, while Chesapeake tobacco exports grew at over 5 per cent per annum from 1622 to the 1750s. Earlier, the shipping volume of Spain’s colonial fleet grew at an annualized rate of 2.2 per cent from 1511-15 to 1606-10, before beginning its long decline.^xxx A lower-bound estimate of New World commodity exports may be derived from the rate of growth of African slave transportation to the Western Hemisphere, since slaves formed the bulk of the labor force active in export-oriented production. The transatlantic supply of slaves grew by 2.1 per cent per annum over the entire period 1525-1790.^xxxi Finally, as a check on these estimates of the growth of the Atlantic economy, the Sound Tolls levied by the Kings of Denmark on all shipping passing to and from the Baltic offer a confirmation of these measurements. In the century 1680-1780 the tonnage of ‘colonial goods’ (almost all from the New World, with sugar and tobacco predominating) grew at 2.6 per cent per annum, nearly double the rate of growth of Baltic trade as a whole.^xxxii

In sum, the Atlantic trade, while highly volatile, grew by at least twice the long-term rate of the Cape route trade over the three early modern centuries. Consequently, by the late Eighteenth Century, the volume of American exports to Europe was a large multiple of the volume of Asian exports to Europe. The correct question to pose may not be what explains the ‘boom’ in the Asia-Europe trade, but what accounts for its retarded growth?

Perhaps our concern should be focused not on the rate of growth and the volume of trade, but on the monetary value of trade, and on its scale, or level relative to the size of the domestic economies linked by Cape route shipping. The most general statement one can make about the scale of goods entering Europe from the east is that by the 1780s all the trading companies combined landed about a pound (0.5 kg) of Asian goods for every European (50,000 tons per 100 million Europeans.) This composite bundle of Asian goods then had a wholesale value, realized at first sale by the trading companies, of about 0.625 Dutch guilders or just over one English shilling.^xxxiii

What would this average level of consumption of goods from the East have cost the average household? If we set the average household at 4.5 persons and guess that the retail prices of these goods would be at least double the wholesale price (the auction price paid to the trading companies), then the annual household expenditure on Asian goods reaches 5.625 guilders, or ten shillings.

It is, of course, unrealistic to suppose that all Europeans participated equally in the consumption of Asian goods, but if they had, the annual expenditures of a manual worker in Southern England or Holland would have taken up at least a week’s earnings—about two per cent of annual income. Elsewhere in Europe it would have claimed considerably more—three to four per cent.^xxxiv

Finally, we can approach the issue of the overall impact of goods from the East on European economies by measuring the value of Asian imports as a percentage of total imports to the major trading nations. In the 1770s broadly comparable data are available for England, France, and the Dutch Republic. These three countries then accounted for 85-90 per cent of all Asian trade. Goods from the East accounted for 11 per cent of the value of their combined total imports. Much of this was re-exported to the numerous European countries without direct imports of their own, but it serves to show that even in those countries most invested in the Asian trade the volume and value of Asian trade was far from dominant. New World imports to these same nations, cumulatively, accounted for three-times the value of Asian imports, and here other nations played more than a marginal role in supplying Europe.^xxxv

It remains possible that the true value of goods from the East was not a direct one—the value and profits of the trade or the direct utility of the imported goods—but an indirect one that was revealed by transformations of consumer demand that redounded to the benefit of producers and traders beyond those involved in the Asian trade. That is, perhaps goods from the East stimulated a commercialization of societies at the retail level, drawing households into the market in order to acquire the new goods.

So far, I have focused exclusively on the scope and possible impact in Europe of goods from the East. But, trade is a two-way street, and the Europe-Asia trade can also be considered from the perspective of the Asian markets. What did Asians buy from the European trading companies? They bought three things: European manufactures, shipping and commercial services, and bullion, primarily silver.

The Asian market for ‘goods from the West’ was highly restricted, and until the late Eighteenth Century this was a distinctly minor factor. The VOC sent one to two million guilders worth of trade goods to Asia annually (5-10 per cent of the value of the goods purchased in Asia) while the EIC sent rather more than this. European exports included metals and metal products, armaments, woollen textiles, books, and instruments. The purchasers were primarily states and elite individuals; there was no social or economic basis for the sale of European goods to ordinary consumers. This is sometimes held as proof of Asian productive superiority, but it may reflect something else: a low Asian purchasing power (in terms of silver), and restricted, fragmented circuits of information that could lead to the development of novel consumer choices.^xxxvi

From a very early date, the Europeans in Asia began devoting their commercial resources—ships, crews, capital, trade goods—to the conduct of intra-Asian trade. The Portuguese and later the Dutch and English sent ships into Asian waters (and acquired additional ships built in Asia) with the intention of retaining them there to earn income from trade among Asian ports. The profits were ultimately repatriated in the form of Asian goods shipped to Europe. From a trade balance perspective, this can be viewed as an export of ‘invisibles’ (shipping and commercial services). In certain periods (1620-70 for the VOC; after 1757 for the EIC) these ‘exports’ were a major factor in balancing East-West trade. The source of Europe’s competitiveness in intra-Asian shipping remains to be explained satisfactorily. A hypothesis deserving of consideration is that Europe’s advantage resided in its organized networks of information gathering rather than in any technical advantage in navigation or commercial practices.

The third and final European export is often the only one mentioned: silver. The Europe-Asia trade is often simplified as an exchange of Asian goods for European silver, and it is certainly true that silver accounts, in most times and places, for a lion’s share of European exports. This raises an obvious question: if European goods found few buyers in Asia, why was there always a market for its silver? Indeed, why, as many contemporaries observed throughout the early modern era, did the world’s silver appear to migrate, as though drawn by a magnet, toward Asia, especially China?

This is a theme we have already encountered. The old ‘oriental despotism’ literature placed great stock on the high Asian demand for bullion, especially silver, and explained it either as an irrational preference or as the rational response of private individuals to life in a society without secure property rights, rife with risks of loss and expropriation. Such societies will exhibit a high liquidity preference and resort to hoarding—hence the ongoing demand for silver imports.

The great divergence scholars explain the same phenomenon quite differently. As we have already noted, most of them do not place much emphasis on foreign trade in their accounts of the Asian economies, but they do hold bullion imports to be essential to Asian economic health. To Pomeranz, ‘the influx of silver, by oiling the wheels of the Chinese economy, had some stimulatory effect.’ That is, silver advanced monetization. It was not hoarded, but placed in monetary circulation. The increased money supply stimulated market-oriented production, which allowed for greater specialization, which secured higher productivity. Parthasarathi makes this same point with respect to India, but more strongly. The silver and gold inflow doesn’t simply ‘oil the wheels’ of the Indian economy, it was the very motor of market expansion, enlivening specialized production throughout a subcontinent that was ‘awash in money’ thanks to trade with Europe.^xxxvii

From this perspective, the Europe-Asia trade, while perhaps a boon to (some) European consumers, was nothing short of essential to the efficient functioning of major Asian economies. If goods from the East were a private European pleasure, silver from the West was a public necessity in Asia, and the proof of this is found in the price. Asians were prepared to pay more for silver than anyone else in the world. This was true in the Sixteenth Century, when the Portuguese entered the Indian Ocean area with silver mined in Saxony and Bohemia, and it remained true into the Eighteenth Century, when the ships of all the European trading companies sailed round the Cape of Good Hope with chests of silver that had been mined in Mexico and Peru. Three centuries of exploiting the arbitrage opportunities of highly unequal world silver prices did not much diminish Asia’s appetite for silver, as revealed by the persisting price differentials.

How much bullion did the trading companies actually send to Asia? I have made estimates of this outflow, based on company records, for the Seventeenth and Eighteenth Centuries and, to place the Europe-Asia bullion flow in perspective, compared it to the shipments to Europe from the mines of the Western Hemisphere. (See Table 1.1). There is certainly reason to doubt the accuracy of these estimates, especially the bullion shipments from the Spanish Empire, but they must be well wide of the mark to undermine the basic findings:

1. 
   The bullion, mostly silver, shipped annually to Asia via the Cape route was a very small portion of the annual additions to the European supply until the Eighteenth Century. Only then did it reach a quarter and, ultimately, a third, of the New World shipments to Europe. The trade with Asian never ‘drained’ Europe of its bullion.
   
2. 
   The silver entering Asian economies from the Cape route trades could not have played a major role in increasing the money supply in large parts of Asia (as opposed to specific ports and small regions) until the Eighteenth Century. Even then, at the peak of bullion shipments in 1726-50, the ability of Cape-route silver to deepen Asian monetization remained distinctly limited.
   

In 1726-50 the European companies sold approximately 160,000 kg of silver and silver equivalent in Asia in exchange for goods. If it were entirely monetized, this would suffice to augment the per capita money supply of some 500 million Asians by 0.32 grams of silver—the equivalent to 0.77 of an English pence or 0.72 of a Dutch stuiver.^xxxviii Even small annual augmentations, when accumulated over many years, can make a difference, of course, but it is probable that these bullion injections barely kept pace with Asia’s population growth. That is, the bullion reaching Asia via the Cape route did little to increase the per capita monetization of the economies.

b. The Importance of Exports to Asian Economies.
If the flow of bullion to Asia was important but not of a scale to be transformative, what about the direct stimulus of European demand to Asian manufacturers and producers? How important were European markets for Asian producers? The answer to this question surely must vary enormously sector by sector. Within sectors such as Chinese ceramics and Indian cotton textiles many specialists were wholly devoted to the production of export wares, goods specially designed for specific foreign markets.^xxxix For them, the European market (and other foreign markets) was of critical importance. But, were their activities of critical importance to their regional and national economies?

To answer this question we must situate these conspicuous export-dependent producers into the larger context of Asian production capacities in manufactures and tropical commodities. On this question much remains to be learned. We know, of course, that the major Asian societies were populous: the populations of both India and China exceeded that of all of Europe, and Asia as a whole held well over three times the European population. If, as the ‘great divergence’ school argues, much of early modern Asia was economically productive at a level at least comparable to Europe, it would only stand to reason that Asian exports to Europe were never more than a tiny percentage of production for domestic and other Asian markets. In the absence of detailed knowledge, this logic stands behind the claims that a highly elastic supply of Asian goods of high quality and low price could flow to European markets. Europe was, as it were, simply absorbing a small fraction of the output of an enormous and productive economic machine.

But was the ‘effective’ domestic market (urban, market-oriented population) really very large? The great divergence literature is premised on the claim of rough equality of general level of development and of the standard of living in east and west. Thus, demand at home, in Asia, could not have been small. Andre Gunder Frank pushed the argument of Asian manufacturing superiority hard in ReOrient (1998). The unidirectional character of Eurasian trade (that is, the absence of significant Asian demand for European goods) struck him as proof that, as Robert Marks expressed it, manufacturers were capable of ‘flooding the world market with Chinese manufactures.’^xl

Kenneth Pomeranz does not see matters quite this way. He doubts the importance of foreign markets for Chinese industrial production: ‘Even with silk, domestic demand dwarfed exports…’ For him, Chinese foreign trade is a minor matter, even a distraction. More importantly, he also doubts the claim that Chinese manufactured goods were elastic in supply.

He argues that Qing China suffered from increasingly severe supply constraints. For example, he notes that China produced vast quantities of tea, sugar, tobacco and cotton and claims that per capita Chinese consumption of these goods in the Eighteenth Century must have been higher than that of Europe. But, production of all of these commodities stagnated and even declined, he argues, because food crops demanded ever more land as China’s population grew. ‘China increasingly ran short of places in which sugar (or tea or tobacco) production could keep expanding without reducing grain output. Cotton and probably tobacco production in north China probably fell significantly after 1750 as a burgeoning population needed more land for food.’^xli

Pomeranz does not pursue the implications of these domestic supply constraints for foreign trade, but if eighteenth-century China faced a trade off between basic food versus luxury and industrial raw material production, it may also have faced a trade off between production for domestic versus export markets. In this context, European demand, while tiny when measured as a percentage of total Chinese and other Asian production, may have been highly disruptive in the regional economies most affected.

c. Asian supply inelasticities
If Asian production superiority is not assumed—if, indeed, Asian exports diverted resources from basic needs at home—the growing supply of goods from the East must have been driven, for the most part, by rising European demand: high and growing incomes in Europe that ‘suck in’ goods from Asia despite supply inelasticities, at least for certain goods. This hypothesis has the virtue of being consistent with a repeated pattern of Asian export goods being displaced in European markets by competing sources of supply. Thus, European demand was robust; it rose faster than the one per cent per annum long-term growth of Eurasian trade. But, while exposure to Asian goods may well have initiated the new European tastes, the long term growth of European demand often came to be satisfied by non-Asian suppliers, who offered the goods at lower prices, learned to produce to Asian standards of excellence, and/or developed a larger export-oriented production capacity. Consider the following examples.
Coffee: From Mocha to Java to Saint Domingue.
The only substantial commercial suppliers of coffee beans were in the Yemen, on the Arabian Peninsula. Until the 1690s, Western and Central Europe were supplied with coffee—in very small amounts—via the Levantine ports of the Ottoman Empire. As European demand became significant, the English, French, and Dutch East India Companies all began to visit the commercial center of Mocha to buy coffee directly (and send it thousands of miles via the Cape route to reach markets that could be reached in less than one quarter of the distance via the Levant). Table 2, which details the source and volume of British coffee imports at various dates, shows how the supplies grew in the first decades of the Eighteenth Century as the trade shifted from the Levant to East India Company traders at Mocha. (Insert Table 2) But supplies at Mocha remained nearly fixed, regardless of the price. Only later in the Eighteenth Century did coffee supplies grow further, once the West Indian islands supplanted the Arabian suppliers.

Britain was not a major consumer market for coffee (most was re-exported to continental Europe); the Dutch Republic was, and data from the Zeeland Chamber of the VOC offers more detail about the changing sources of coffee supplies. (Insert Table 3) Mocha’s coffee supplies peaked by 1720. A decade earlier the Dutch traders, frustrated by persistently inelastic supplies and high prices, smuggled coffee plants from Mocha to Java and set about acculturating the plants there with a view to developing coffee plantations. In the course of the 1720s Javan supplies overtook Mocha. By 1726 Java supplied 4 million lb (versus a few hundred thousand from Mocha) at one-third of the price prevailing at Mocha. But Java, too, found its European market share eroded as coffee cultivation developed with success on the Caribbean region. By the 1780s, Surinam and Guyana accounted for 80 per cent of Dutch coffee imports. By then, the world supply of coffee from all sources amounted to about 110 million pounds. Arabia and Java each produced about 10 per cent of this volume; the West Indies supplied the rest, half being produced on French Saint Domingue.

Indigo. From Toulouse to India to the New World.
India was a large producer of indigo, a source of blue dyestuff, primarily to supply its large domestic textile industry. The European trading companies sent supplies to Europe, where it successfully competed with European-produced woad, another source of blue dye. By the 1640s, when woad (much of it from the region of Toulouse) had been largely displaced from the market, consumers complained of the inelastic supplies and unreliable quality of Indian indigo.^xlii Higher indigo prices did not elicit increased production in India. But the higher prices did encourage development of indigo cultivation in tropical zones of the New World, which quickly became the dominant supplier to the European market.
Porcelain. From Jingdezhen to Meissen to Staffordshire.
The hard-glazed porcelain of China had no direct equivalent in the European ceramics industry. Chinese porcelain stands therefore as a classic example of a novel product desired for its unique quality—a striking example of Eastern craftsmanship. From a single Chinese production center, Jingdezhen, Europe was supplied, over the Seventeenth and Eighteenth Century, with at least 70 million pieces of crockery, much of it specifically fashioned to satisfy European tastes.^xliii But Europe, even at the peak of its demand, absorbed only a minor portion of exported Chinese porcelain. At the same time that China catered to European tastes, it also produced specialized products for the Japanese and Southeast Asian markets.^xliv

The ‘demonstration effect’ of Chinese (and Japanese) porcelain on the European consumer generated a vast demand for both the exquisitely decorated porcelain and for more utilitarian earthenware that emulated the qualities of the Asian product. While Chinese production satisfied a portion of this new demand, more and more came to be supplied by European imitators (such as the luxurious royal porcelain works of Meissen, Sèvres, etc.) and European producers of less costly substitutes (such as Delftware and, later, the creamware of Josiah Wedgwood).^xlv Speeding this process along was a rise in the price of Chinese porcelain after 1750. By the end of the Eighteenth Century, import substitution had reduced the original Asian porcelain to the position of a specialty item in a large ceramics industry dominated by European producers. Maxine Berg summarized the dynamic of demonstration effects and import substitution nicely: ‘If selling Asian goods provided the model for new consumer goods retailing, then the products and indeed their production processes provided the models for European industrial development.’ ^xlvi

Silk. From fabric to raw material.
A similar story can be told of the trade in Asian silk fabric. Silk was produced in many places, including Europe. But the Chinese product was esteemed in both Europe and elsewhere in Asia as the finest available. The Spanish empire’s extraordinary Acapulco-Manila galleons were all but wholly devoted to shipping Chinese silk to Mexico and beyond, and the ships of the Cape route regularly supplied Europe with luxury silks. There the Asian product—from Persia, India, and China—competed with Europe’s own silk weaving industries, which responded to the new competition with improvements in quality and design. Here, too, import substitution eventually marginalized the Asian product; by the second half of the Eighteenth Century China’s silk exports were growing rapidly, but the export was now primarily raw silk rather than the finished fabric. The EIC then shipped only raw silk from India to Europe.
Cotton textiles. From India to Lancashire.
By far the most consequential example of import substitution, whereby the importation of a novel and much-desired Asian product is replaced by a European imitation, is cotton cloth. The conventional story begins with the introduction of Indian cotton fabrics to Europe, the growth of demand for this fashionable and versatile fabric, and the long dominance of Indian production centers as suppliers of vast markets in both Asia and the Atlantic world. India’s superior craftsmanship was undercut, ultimately, by England’s success in the mechanization of cotton spinning, followed by the mechanization of weaving and the other seminal inventions of the Industrial Revolution.^xlvii The Industrial Revolution thereby causes the collapse of India’s major export industry, which functioned as the motor of the entire subcontinent’s domestic economy. In short order, Britain grew rich and India’s economy regressed.

The European trading companies certainly added substantially to India’s long-existing export trade in cotton cloth to Asian markets. Collectively, the companies sent to Europe some 100-200,000 pieces annually in the 1660-70s, a volume that grew to approximately 1,400,000 pieces by the 1750s. In later years, shipments to Europe never exceeded this high-water mark, and by the 1790s began a steep decline.^xlviii Thus, after the mid-Eighteenth Century the continuing, if not accelerating, European demand for cotton cloth was met less and less from India and ever more from Europe itself.

Ultimately, the dramatic events of the Industrial Revolution account for this transformation, but India’s loss of market share in Europe predated these events by a generation. India’s vast production capacity, venerable craft traditions, and long commercial dominance in the world’s cotton textile markets did not prevent inelasticities in supply from emerging that led to rising prices and quality-control failures. Giorgio Riello’s recent study of the world cotton industry demonstrates that the EIC’s average purchase price for Indian cotton textiles doubled over the century after the 1660s. Over this same century, manufactured goods, including textiles produced in Europe tended to decline in nominal price.^xlix Riello also noted ‘sufficient evidence that while prices increased quality worsened […] As consumption expanded in Europe, there was an incentive to replace increasingly expensive Indian cottons with competitively prices products produced in Europe.’^l

Were goods from the East losing their European markets? Certainly not all of them. Chinese tea flowed toward Europe in ever growing volumes (until the Nineteenth Century, when alternative production centers in India, Ceylon (Sri Lanka), and Java emerged—under colonial auspices—to become the dominant suppliers). A wide variety of tropical commodities and fashionable furnishings also retained their hold on European consumers. But, the relatively slow growth of the overall Asia-Europe trade remains as a problem which calls for explanation. In all of the examples discussed above, Asian goods appear to have enjoyed a European demand that grew faster than Asian production centers could supply. Inelastic supply gave rise to higher prices and sometimes quality problems. In time, alternative supply centers in Europe or its New World colonies learned to produce competitive goods and gain control of most of the market. Goods from the East exerted a ‘demonstration effect’ on European consumers, changing tastes, and increasing the demand for the new goods. But, eventually a process of ‘import substitution’ reduced the role of Asian suppliers in satisfying this demand. In the long run, the European demand for goods introduced from Asia grew considerably faster than did the supply of such goods from Asia.

The reason for this discrepancy may be, as suggested above, some failure of Asian supply. But it may also have been caused by a failure of the European trading companies to reduce the costs of bringing Asian goods to European markets. The costs of contracting with Asian suppliers, enforcing contracts, transporting goods to Europe, and so on—the ‘transaction costs’ of the Europe-Asia trade—were very considerable. Arguably, these high costs placed Asian producers at a great disadvantage in serving European markets, a disadvantage that only grew over time as goods from the East shifted from being primarily costly luxuries to being goods sold to a broader public of the ‘middling sort’. Were these stubbornly high transaction costs ‘unavoidable’ given the technological and organizational capacities of the time? In the Atlantic trading world transaction costs fell considerably over time as the early monopoly trading companies gave way to a more competitive regime of private traders.^li Why could such a transformation not have been achieved east of the Cape of Good Hope?