Understanding Eurasian Trade in the Era of the Trading Companies

The European trading companies vs private merchant ventures

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The European trading companies vs private merchant ventures.

The European trading companies were monopolies in a specific, restricted sense: they were national monopolies, possessing the sole right to conduct trade with Asia and supply their home countries with goods from the East. But they generally compete with each other in Asia (and with native Asian traders) in the acquisition of goods and they also competed with each other to supply European markets. It may be more correct to describe the English, Dutch, French, Danish, Swedish, and Austrian (Oostende) companies as engaged in a form of oligopolistic competition. They were large enough to influence the market by restricting the supplies of goods and by adjusting their sales practices to the actions, or anticipated actions, of their competitors. Their short-term supply-restricting behavior may have had long-term consequences on growth of Europe-Asian trade.lii

Probably more important to the long-term performance of the European trading companies was their very limited capacity to reduce the transaction costs of Europe-Asia trade. Their national monopoly privileges clothed them with state-like powers in Asian waters, and the exercise of these powers imposed a large overhead cost that bore on their trading results. It is likely that it bore also on the entrepreneurial behavior, or the lack of it, of company directors who were simultaneously merchants and administrators of large and far-flung establishments of trading stations, territorial dependencies and military forces.

In the Atlantic World, the monopoly trading companies that initiated the settlement and commercial exploitation of the New World were gradually dismantled, and replaced by private traders operating under an umbrella of state authority and naval protection. Both the fall of transaction costs and the high rate of growth in the Atlantic trades owe much to this liberalization (within mercantilist limits) of commercial life. In Asia, the monopoly trading companies retained their hold on trade right to the end of the Eighteenth Century. Company employees conducted private trade, licit and illicit, as discussed above, and the French and Danish companies experimented with limited privately financed shipping, but, overall, the trading companies retained a firm hold on the Europe-Asia trade until a confluence of commercial, political, and military events undermined this venerable structure of trade. Between 1783, when private ships of the newly independent United States entered Asian waters, and 1815, when the Napoleonic Wars ended and continental European states could begin to reestablish trading relations with Asia, the organization of this trade changed fundamentally. Of the old trading companies, only the English East India Company remained, although it, too, had to admit private British shipping into what had been its exclusive preserve.

Thus, from 1815 onward, while shipping technologies, communications technologies, and sailing routes remained as before, the commercial organization of Europe-Asia trade was transformed from one of an oligopoly of companies to one dominated by private merchant ventures. This transformation was made possible by the security umbrella now provided by the Royal Navy, and as Peter Solar convincingly shows, the commercial results were dramatic.
1. The long-term rate of growth of the volume of Asian exports to Europe more than doubled after the 1790s.

As noted earlier, after three centuries of rather steady growth at about 1 per cent per annum, the total annual volume of Asian shipments to Europe by the 1780s reached 50,000 tons. The course of change thereafter was anything but steady, as war in Europe cut off all but British ships from access to Asia and the continental European trading companies were all liquidated. Britain’s East India Company, the last man standing, continued the trade with Asia together with private American traders, and they were joined after 1815 by a new Dutch trading company and a swarm of private traders, deploying small, unarmed ships where the old trading companies had always relied on large, usually armed, vessels. The total tonnage of Asian goods returned to Europe quickly rose to over 100,000 tons, and the rate of growth, while volatile year-by-year, was nearly double its historical rate. The acceleration in growth was entirely accounted for by non-company shipping.

2. The transaction costs of Cape route shipping fell rapidly.liii

The smaller, unarmed vessels of the Americans and private British and other European merchants quickly achieved significant reductions in transportation costs. With the removal of security concerns, these vessels functioned with smaller crews (twice the tons per crew member as conventional East Indiamen). They made more voyages to Asia before they were scrapped and, although they were no faster than other ships, they spent less time in port and waiting to join convoys and thereby completed more voyages per year. Capital costs, labor costs, and insurance costs all fell substantially. By Solar’s calculation these savings lowered transport costs by half and lowered the price at which Asian goods could be landed at European ports by 20-23 per cent.

3. The composition of Asian exports shifted from manufactures to raw materials.

The reduced shipping cost of the early Nineteenth Century did little, if anything, to restore the competitiveness of traditional Asian exports to Europe. Instead, it rendered possible the long-distance shipment of relatively bulky raw materials: raw cotton and silk, sugar, jute, and, of course, tea. Asia was on its way to becoming an exporter of raw materials and an importer of manufactured goods.


The opening of the direct trade route connecting Europe to Asia via the Cape of Good Hope ushered in a long era of trade expansion that has attracted historical interpreters ever since. It is not a simple story. This chapter has sought to make an inventory of the issues, muster such evidence as we now have, and venture some interpretations where they seems warranted, and raise some questions where that seems necessary. In general, the historical importance of this dramatic logistical enterprise now appears to be found more in the realm of knowledge and information circulation than in ‘primitive capital accumulation’, and in transformed tastes and material culture rather than in technology transfers.

European trade with Asia in the Sixteenth and Seventeenth Centuries was almost certainly more important for its ‘demonstration effects’ on European consumers than for its direct economic contributions via company profits or commercial practices. Goods from the East were as important for the information they conveyed as for their direct satisfaction of wants. They helped to transform consumer demand in ways that Asian suppliers could not keep pace with. This was partly a problem of high transaction costs (a failure of the European trading companies) and partly a problem of inelastic Asian supplies (a failure of the Asian economies). Commodity after commodity lost its hold on European markets as import substitution within Europe and rival supply zones in the New World undercut the original Asian product. This problem manifested itself well before the radical cost-reducing innovations of the Industrial Revolution could have played any direct role in bolstering European competitiveness in manufactures.

The overall rate of growth of the Asia-Europe trade across the Sixteenth, Seventeenth, and Eighteenth Centuries was slow: slower that the growth of European demand for many Asian goods; slower than the growth of the Atlantic trades; and rather modest when compared to the rate of population growth, particularly in parts of Asia. A ‘trade boom’ is not the correct term to describe this trade, and the cause of the moderate pace of trade expansion is partly attributable—though how large a part remains a matter of debate—to the organization of the European trading companies. Their commercial virtues in the Seventeenth Century were considerable, especially in concentrating capital and amassing and assessing commercial and political information across the vast littoral of maritime Eurasia. But, over time, their hierarchical organizational forms and their characteristic conflation of political and economic functions imposed heavy costs on trade. The size of this burden is revealed by the shock of the Napoleonic Wars, which destroyed the old trading regime and offered an opening for private western traders to enter Asian waters. In short order, transaction costs fell enormously and the rate of trade growth doubled. This acceleration did not have to wait upon the technological breakthroughs of steam ships, railways, and the Suez Canal. It preceded these achievements by more than 50 years, and raises the counterfactual question of how the Europe-Asia trade might have developed under a more liberal trading regime in the Eighteenth Century. Moreover, when transaction costs did fall, early in the Nineteenth Century, this did not act as a stimulant to the export of Asian manufactures, but open new possibilities for the export of Asian raw materials. Repeatedly, trade was just one of the factors at play as European and Asian societies interacted at a distance. Until the long era of trade gave way to an era of empire, the global economy remained firmly polycentric and trade’s role in advancing global convergence remained distinctly limited. But the information that followed in the wake of the trade flows could, under particular domestic conditions, set in motion transformations in both consumer behavior and commercial organization with far reaching consequences.

Figure 1. Europe’s intercontinental trades, by shipping tonnage, 1501-1795.

Table 1. Inter-continental bullion flows, 1601-1800.

Estimates of silver (and silver equivalent) entering Europe from the Western Hemisphere, and entering Asia from Europe via the Cape route. Annual averages in tons of 1000 kilograms.

European Arrivals from New World

Asian Arrivals via Cape Route

Asian Arrivals as % of European Arrivals

































Source: European Arrivals: Ward Barrett, ‘World Bullion Flows, 1450-1800,’ in James D. Tracy, ed., The Rise of Merchant Empires (Cambridge, 1990), pp. 243-44. Asian Arrivals: de Vries, ‘Connecting Europe and Asia,’ pp. 78-79.

Table 2. Coffee Imports, by source, to Great Britain, 1699-1787. In thousands of pounds per annum.



West Indies
























Source: S.D. Smith, ‘Accounting for Taste: British Coffee Consumption in Historical Perspective,’ Journal of Interdisciplinary History 27 (1996), pp. 183-214.

Table 3. Coffee Imports, by source, to the Dutch Republic 1710-1789, in thousands of pounds.

VOC – Mocha

VOC – Java

West Indies


























Source: Johannes Postma, ‘Suriname and its Atlantic Connections, 1667-1795,’ and Eric Willem van der Oest, ‘The Forgotten Colonies of Essequibo and Demerara, 1700-1814,’ in Johannes Postma and Victor Enthoven (eds), Riches from Atlantic Commerce. Dutch Transatlantic Trade and Shipping, 1585-1817 (Leiden and Boston, 2003), pp. 317, 350-51; J.J. Steur, Herstel of ondergang (Utrecht, 1984), p. 243.

i Immanuel Wallerstein, The Modern World-System: Capitalist Agriculture and the Origins of the European World Economy (New York: Academic Press,1974), p. 42

ii Wallerstein, The Modern World-System, p. 330.

iii Eric Jones, The European Miracle: Environments, Economies, and Geopolitics in the History of Europe and Asia (Cambridge: Cambridge University Press, 1981), p. 226.

iv Jones, The European Miracle, pp. 164-65.

v The ‘bullion sink’ concept is developed in the following: R.C. Blitz, ‘Mercantilist Policies and the Pattern of World Trade,’ Journal of Economic History, 27 (1967), pp. 39-55; John Maynard Keynes, Indian Currency and Finance (London: Macmillan, 1913); Charles Kindleberger, Spenders and Hoarders (Singapore: Institute of Southeast Asian Studies, 1989).

vi Kenneth Pomeranz, The Great Divergence: Europe, China and the Making of the Modern World Economy (Princeton: Princeton University Press, 2000); Andre Gunder Frank, ReOrient. Global economy in the Asian Age (Berkeley; Los Angeles: University of California Press, 1998); R. Bin Wong, China Transformed: Historical Change and the Limits of European Experience (Ithaca, NY: Cornell University Press, 1997); R. Bin Wong and Jean-Laurent Rosenthal, Before and Beyond Divergence. The Politics of Economic Change in China and Europe (Cambridge, Mass.: Harvard University Press, 2011).

The California School also informs these more general works: Robert B. Marks, The Origins of the Modern World. A Global and Ecological Narrative (Lanham: Rowman & Littlefield, 2002), and Jack Goldstone, Why Europe? The Rise of the West in World History 1500-1800 (New York: McGraw-Hill, 2008).

vii Not an unchallenged orthodoxy. For critiques, see: Peer Vries, Via Peking to Manchester. Britain, the Industrial Revolution, and China (Leiden: Research School CNWS, 2003); Peer Vries, ‘The California School and beyond: how to study the Great Divergence?’ History Compass 8 (2010), pp. 730-751; Peter Coclanis, Jan de Vries, Philip Hoffman, R. Bin Wong, Kenneth Pomeranz, ‘A Forum on Kenneth Pomeranz’s “The Great Divergence”’, Historically Speaking 12 (September, 2011), pp. 10-25.

viii Frank, ReOrient, pp. 4-5.

ix Pomeranz, The Great Divergence, p. 251.

x Pomeranz, The Great Divergence, pp. 172-73, 194-95, 205-06; Prasannan Parthasarathi, Why Europe Grew Rich and Asia Did Not. Global Economic Divergence, 1600-1850 (Cambridge, 2011), p. 182.

xi Pomeranz, The Great Divergence, p. 191; Parthasarathi, Why Europe Grew Rich, pp. 46-50, 266.

xii In addition to the Great Divergence historians, on finds this approach in global historical such as: Chris Bayly, The Birth of the Modern World; John Richards, The Unending Frontier. An Environmental History of the Early Modern World (Berkeley; Los Angeles: University of California Press, 2003); Victor Lieberman, Strange Parallels. Southeast Asia in global perspective, 800-1830, 2 vols (Cambridge: Cambridge University Press, 2003 & 2009); Jos Gommans, ‘Continuity and change in the India Ocean basin,’ in J. Bentley and S. Subrahmanyam (eds), Cambridge World History, Vol. VI: The construction of a global world, 1400-1800 (forthcoming).

xiii Parthasarathi, Why Europe Grew Rich, pp. 37-45; Pomeranz, The Great Divergence, p. 33; Rosenthal and Wong Before and Beyond Divergence, ch. 4.

xiv Stephen Broadberry and Bishnupriya Gupta, ‘The Early Modern Great Divergence: Wages, Prices and Economic Development in Europe and Asia,’ Economic History Review 59 (2006), pp. 2-31; Robert Allen, Tommy Bengtsson and Martin Dribe, eds., Living Standards in the Past: New Perspectives on Well-Being in Asia and Europe (Oxford, 2005).

xv Pomeranz, The Great Divergence, pp. 50-54; Robert Marks, Tigers, Rice, Silk, and Silt (Cambridge: Cambridge University Press, 1998), pp. 180-83, 33-45.

xvi Kevin H. O’Rourke and Jeffrey G. Williamson, ‘After Columbus: Explaining Europe’s Overseas Trade Boom, 1500-1800,’ Journal of Economic History 62 (2002), pp. 417-56.

xvii Leonard Blussé and Ivo Smits, eds., Bridging the Divide: 400 Years, the Netherlands-Japan (Leiden: Hotei Publishing, 2000).

xviii Niels Steensgaard, The Asian Trade Revolution of the Seventeenth Century: The East India Companies and the Decline of the Caravan Trade (Chicago; London: University of Chicago Press, 1974).

xix Woodruff Smith, ‘The Function of Commercial Centers in the Modernization of European Capitalism: Amsterdam as an Information Exchange in the Seventeenth Century,’ Journal of Economic History 44 (1984), pp. 985-1005. The gathering and assessing of botanical information is the focus of Harold J. Cook, Matters of Exchange. Commerce, Medicine, and Science in the Dutch Golden Age (New Haven: Yale University Press, 2007); Matthew Sargent, ‘The Birth of Globalization: Cross-Cultural Knowledge Transfer along Euroepan-Asian Trade Routes and the Rise of the Multinational Corporatin (1250-1750),’ (Ph.D. Dissertation, University of California, 2013).

xx J.J. Steur, Herstel of ondergang. Voorstellen to redress van de VOC, 1740-1795 (Utrecht: HES Uitgevers, 1984), p. 75.

xxi Ulrich Pfister, ‘The great divergence, consumer revolution, and the reorganization of textile markets: evidence from Hamburg’s import trade in the eighteenth century,’ (Univ. Muenster,, June 2012, unpublished MS).

xxii A related argument about the role of consumer choice in raising living standards is developed in Jonathan Hersch and Hans-Joachim Voth, ‘Sweet Diversity: Colonial Goods and the Rise of European Living Standards after 1492,’ (CEPR Discussion Paper no. 7386, 2011).

xxiii The concept sketched here is developed more fully in: Jan de Vries, The Industrious Revolution (Cambridge; Cambridge University Press, 2008).

xxiv Jan de Vries, ‘Connecting Europe and Asia: a quantitative analysis of the Cape-route trade, 1497-1795,’ in Dennis Flynn, Arturo Giráldez, and Richard von Glahn (eds), Global Connections and Monetary History, 1470-1800 (Aldershot, Hants, 2003), pp. 35-106.

xxv O’Rourke and Williamson, ‘After Columbus,’ use the term ‘trade boom’ in the title of their article to describe the growth of Europe-Asia trade in the early modern era.

xxvi Fernand Braudel and Frank Spooner, ‘Prices in Europe from 1450 to 1750,’ Cambridge Economic History of Europe, Vol. 4 (Cambridge, 1967), pp. 374-486; Jan de Vries, The Economy of Europe in an Age of Crisis, 1600-1750 (Cambridge, 1976), pp. 14-15.

xxvii For a defense of these claims, see: De Vries, ‘Connecting Europe and Asia,’ pp. 55-62. The ‘Europe’ I refer to here and elsewhere excludes the lands of the Ottoman and Russian empires.

xxviii The population estimates cited here refer to ‘Europe’ west of a line from Königsberg (Kalinen) to Trieste. It excludes easternmost Europe and the Balkans. Jan de Vries, ‘Population’ in Thomas Brady, et al. (eds), Handbook of European History, 1400-1600, Vol. 1(Leiden: E.J. Brill, 1994), p.13.

xxix William Lavely and R. Bin Wong, ‘Revising the Malthusian Narrative: The Comparative Study of Populatin Dynamics in Late Imperial China,’ Journal of Asian Studies 57 (1998), pp. 714-48; Loren Brandt, Debin Ma, and Thomas G. Rawski, ‘From Divergence to Caonvergence: Re-evaluating the History Behind China’s Economic Boom,’ London School of Economics Working Papers 175/13 (2013).

xxx Carla Rahn Phillips, ‘The Growth and Composition of Trade in the Iberian Empires, 1450-1750,’ in Tracy (ed.), Rise of Merchant Empires: Long-Distance Trade in the Early Modern World, 1350-1750 (Cambridge: Cambridge University Press, 1990), pp. 40-46; M. A. Mola, ‘The Spanish colonial fleet (1492–1828)’, in H. Pietschmann (ed.), Atlantic history: History of the Atlantic system, 1580–1830 (Göttingen: Vandenhoeck & Ruprecht, 2002), p. 373.

xxxi Curtin, The Atlantic Slave Trade: A Census (Madison, Wisc.: University of Wisconsin Press, 1969).

xxxii Klas Rönnbäck, ‘An Early-Modern Consumer Revolution in the Baltic?,’ University of Gothenburg Working Paper, 2010.

xxxiii The average value of a ton of Asian goods sold by the trading companies in 1780 was 1250 guilders, or 112 pounds sterling. 0.5 kg of a weighted average of all Asian goods landed in Europe, generated 0.625 guilders (12.5 stuivers), or 0.056 pounds sterling (1 shilling 1.4 pence). De Vries, ‘Connecting Europe and Asian,’ p. 87.

xxxiv See wage data in Robert Allen, ‘The Great Divergence in European Wages and Prices from the Middle Ages to the First World War,’ Explorations in Economic History 38 (2001), pp. 411-447.

xxxv Data drawn from: W.A. Mitchell and Phllis Dean, Abstract of British Historical Statistics, p. 310; Pierre Butel, ‘France, the Antilles, and Europe in the Seventeenth and Eighteenth Centuries: Renewal of Foreign Trade,’ in Tracy, Rise of Merchant Empires, pp. 163, 170; Jan de Vries and Ad van der Woude, First Modern Economy (Cambridge: Cambridge University Press, 1997), p. 497, with corrections based on Wim Kloosters, Illicit Riches. Dutch Trade in the Caribbean, 1648-1795 (Leiden: KITLV Press, 1998) p. 176.

xxxvi Frank, ReOrient, pp. 126-27, 174-78.

xxxvii Pomeranz, The Great Divergence, p. 191; Parthasarathi, Why Europe Grew Rich, pp. 46-50.

xxxviii De Vries, ‘Connecting Europe and Asia,’ pp. 78, 91.

xxxix Rosemary Scott (ed.), The Porcelain of Jingdezhen (London: Percival Foundation of Chinese Art, 1993); Giorgio Riello, Cotton. The fabric that made the modern world (Cambridge: Cambridge University Press, 2013), esp. pp. 87-109.

xl Frank, ReOrient, pp. 111-117; Marks, Origins of the Modern World, p. 16.

xli Pomeranz, The Great Divergence, p. 125.

xlii Ghulam Nadri, ‘Indigo in Euro-Asian Trade in the Early Seventeenth Century: Challenges and Opportunities,’ in this volume; R. C. Nash, ‘South Carolina Indigo, European Textiles, and the British Atlantic Economy in the Eighteenth Century,’ Economic History Review 63 (2010), pp. 362-92.

xliii Scott (ed.), The Porcelain of Jingdezhen; Robert Finlay, ‘The Pilgrim Art. The Culture of Porcelain in World History,’ Journal of World History 9 (1998), pp. 141-87.

xliv C. Ho, ‘The Ceramic Trade in Asia, 1602-1682,’ in A.J.H. Latham and H. Kawakatsu (eds), Japanese Industrialization and the Asian Economy (London, 1994), pp. 35-70.

xlv de Vries and van der Woude, The First Modern Economy, pp. 307-09; Lorna Wetherill, ‘The Growth of the Pottery Industry in England, 1660-1815,’ Post-Medieval Archaeology 17 (1983), pp. 15-46.

xlvi Maxine Berg, Luxury and Pleasure in Eighteenth-Century Britain (Oxford: Oxford University Press, 2005), pp 75, 77.

xlvii Parthasarathi, Why Europe Grew Rich, pp. 90-114.

xlviii Riello, Cotton, Fig 5.3, p. 94

xlix Riello, Cotton, pp. 107, 116.

l Riello, Cotton, p. 108.

li Russell Menard, ‘Transport Costs and Long-Range Trade, 1300-1800: Was There a European Transport Revolution in the Early Modern Era,’ in James D. Tracy (ed.), The Political Economy of Merchant Empires (Cambridge: Cambridge University Press, 1991), pp. 228-75.

lii O’Rourke and Williamson, ‘After Columbus’; Jan de Vries, ‘The Limits of Globalization in the Early Modern World,’ Economic History Review 63 (2010), pp. 710-33.

liii This section is based on Peter Solar, ‘Opening to the East: Shipping Between Europe and Asia, 1770-1830,’ Journal of Economic History 73 (2013), pp. 625-61.

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