The relentless revolution: a history of capitalism (8 page)

Like most Dutch trading ventures, the first one to Java was financed cooperatively by a group of diverse investors. Despite an awkward maiden voyage, this Dutch fleet of three ships returned with enough pepper to cover its costs. The rivalry among Dutch merchants launched a dozen more ventures in the next decade. This led the States-General to form the Dutch East India Company in 1602 with monopoly trading privileges west of the Strait of Magellan and east of the Cape of Good Hope. It also received the right to exercise sovereign authority in the name of the Dutch Republic. Though impressive, such a charter was actually a hunting license; it would be in the waters and islands of the East Indies that the Dutch would have to make good their claims. Twenty years later a Dutch West India Company was chartered with a commercial monopoly in West Africa and the New World. Like its model, the company was granted the quasi-governmental powers of maintaining an army and navy, making war within its ambit of operation, and assuming judicial and administrative functions in its region.

Within one generation the Dutch had established themselves as the dominant power in the Malay Archipelago. With breathtaking efficiency, they supplanted the Portuguese, driving them back to a few fortified positions, which they held until the twentieth century. The Dutch East India Company had to fight off the English in Amboina, putting to the sword ten traders in a dramatic gesture of their serious intention to be the only European power in the area. The English moved on to India. The Dutch also engaged in the intra-Asian trade. They bartered local goods for pepper to be shipped to China and Japan for luxury goods and gold or silver, much of which was sent back home to finance more outbound voyages.
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Strong population growth in China and elsewhere enlarged this trade, though like European countries, Asian regions suffered from repeated famines.

Now commanding the center of the spice-producing islands, the Dutch won over most of the indigenous rulers, who fought among themselves with great ferocity. The company established its headquarters in 1619 on Java, conferring the old Germanic tribal name of Batavia on the Javanese city that they had destroyed while capturing it. The archipelago included dozens of sovereign states that often interfered with the control the Dutch wished to exert, so what began as an aggressive commercial policy became a program of conquest. By 1670 the tasks of subduing local rulers had been accomplished. Still, the profits from the spice trade were so high that Chinese and European rivals rarely gave up trying to corner a bit of the market, muscling in on the trade of pepper, sugar, coffee, tea, silk, and textiles. Still, the Dutch East India Company enjoyed a monopoly of trade with Japan from the middle of the seventeenth century to the middle of the nineteenth century as well as on the commerce in cloves, mace, nutmeg, and cinnamon.
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A self-perpetuating urban oligarchy oversaw the domestic and foreign commerce of the Netherlands. Once independence was secured, the regents managed to push those Catholic aristocrats left over from the Hapsburg era back into their medieval castles. The regents and their fellow merchants ran a dozen thriving cities. Those with trading interests in the Netherlands wanted to hold at bay also those religious leaders who were more concerned with the enforcement of orthodox beliefs than with the commercial benefits of toleration. And they succeeded. The regents, in deference to the polyglot nature of commerce, extended hospitality to all comers; they rushed to facilitate trade across ethnic and religious lines.

Holland became an intellectual center, offering refuge to dissenters, freethinkers, and a raft of cranks. The book trade flourished, fostered by the high rate of literacy in the Netherlands as well as the freedom to publish writings banned in surrounding countries. Of some one hundred thousand people living in Amsterdam, a third of them were foreigners: Portuguese, Jews, Belgians, and refugees from all over Europe. Artisans seeking religious freedom added their skills to the rich reservoir of crafts already present. People in the seventeenth century loved the metaphor of the beehive. The Netherlands truly fitted the metaphor, attracting artists, writers, philosophers, and artisans, who all prospered from the crosspollination of ideas and talents. But this particular honeycomb was never chaotic, for the regents, the rulers of the Netherlands, cherished order almost as much as profit.

Trade and Society

Because sixteenth-century trade created new wealth and reached deeper into the countryside with its monetary exchanges, it had a more pervasive impact than had earlier commercial enterprises. The flood of silver that the conquistadors stole from the Incas and Aztecs precipitated a century-long inflation in Europe. This inflation didn’t fall, like the rain that Shakespeare’s Portia described, impartially on everyone. It hurt those with fixed incomes, like landlords tied to old leases. Wages too lagged behind price rises, but inflation gave a boost to entrepreneurs. The profits of merchants in the East Indian trade were enhanced too. Merchants from England, France, and the Netherlands sailed forth on their yearlong voyages with goods and currency to pay for them and returned to find their cargoes of silks, precious stones, spices, and perfumed woods selling at substantially higher prices than when they left.

In England, trade burgeoned within an aristocratic society headed by a royal family. Unlike Spain, where the hidalgos disdained anyone connected with trade and used their influence to keep tradesmen in their proper place, many an English gentleman was attracted to profit-seeking ventures. The established order in England was hierarchical and open at the same time. There was a fluidity in society not found elsewhere. Another unusual feature marked the English nobility: Only the firstborn son inherited the family title whether that title be duke, count, marquess, or baron.

Where Spain, Portugal, and France had an aristocracy of blood, the English nobility was narrowed to a single male line. The eldest sons carried the family title, and his siblings were considered commoners. The lines between titled nobles and other members of the elite were loosely drawn. Winston Churchill, for instance, was the younger son of the Duke of Marlborough, but still a commoner. Another striking contrast between England and France lay in the concept of derogation, in which a nobleman in France could lose his title by engaging in trade, unlike in England, where a large contingent of the aristocracy took an interest in economic investments without any risk of losing status.

The joint-stock trading companies were a financing novelty that appealed to a wide variety of people with money. Borrowed from the Italians, this form of corporate enterprise was unknown in Spain or Portugal. Unlike the merchant companies composed of active traders, members of a joint-stock trading company subscribed to a certain number of shares in the company. For the English gentleman or woman here was a chance to become a part of a profitable venture without taking an active part in it. Dozens of such joint-stock companies, with royal charters, were pushing out the boundaries of interregional trade.

Members of the English aristocracy showed a decided preference for companies that established colonies or pioneered trades that would enhance England’s status in the world. Commerce had champions in the highest circles of society, and the House of Commons included merchants among its members. Because of this, English law changed faster than the glacial pace set elsewhere. The protection of private property, secured in England centuries earlier, became flexible enough to include the new forms of intellectual property, like inventions. The 1624 Statute of Monopolies established that patents for new devices would be granted for fourteen years, striking a balance between the inventor’s reward and the public’s access to useful devices. The law recognized new forms of property like company shares to encourage investors to risk their money.

A peculiar dynamic of the emerging world commerce revealed itself most strikingly in England’s first colony, that fragile outpost of European life established by the Virginia Company on the far side of the Atlantic. With Spain as their example, the investors expected to realize rich profits in gold and silver and, if not that, in spices, sandalwood, and pearls. Each shareholder had a vote in the company’s annual meeting in London, and all paid for their shares in installments. As it turned out, the initial investment of men and equipment sent over in 1607 was quickly exhausted. The colonists at Jamestown found little of value to send back home. Failure followed failure; the death rate was appalling. Shareholders stopped paying for their shares. The company turned to a lottery to raise more money and began distributing the one asset it had, land. At this juncture, one of the colonists, John Rolfe, who is remembered as the serious young Englishman who married the Indian princess Pocahontas, successfully hybridized a tobacco strain, which he christened Orinoco. Orinoco was good enough to compete with the much-esteemed Spanish leaf.

Rolfe’s hybrid triggered a boom. Throughout the 1620s tobacco fetched between two to three shillings a pound, a price high enough to encourage Virginia Company shareholders to pour money and men (along with a few women) into their plantations. Newcomers and surviving colonists scrambled to plant more tobacco. The volume of exports surged from fifty thousand pounds in 1618 to more than three hundred thousand, eight years later. Cultivation spread along the tidal rivers emptying into the Chesapeake Bay. When the inevitable oversupply followed this boom of demand-driven expansion, prices dropped to one twenty-fourth the price of good Virginia leaf in the 1620s. Busts, caused by decentralized decision making from overly confident profit seekers, were to become a permanent feature of capitalism. But an upside followed this downer.

A whole new crowd of consumers could afford to buy tobacco at the cheaper price. Here is a wonderful example of the unintended consequences of pioneering enterprises. The increased demand for tobacco to chew or smoke created an incentive to cut production costs in order to take advantage of this larger body of consumers who would buy if the price were low enough. Within a few years the planters had found a way to serve it.

Not to be outdone by the Portuguese, Dutch, and English, a bold and tenacious Frenchman, Jean de La Roque, backed by the French East India Company, single-handedly wrested the trade in coffee away from the Middle East, where coffee had been grown exclusively for centuries on the mountain slopes of Ethiopia and Yemen. De la Roque took more than two years to complete his voyage from the Red Sea to around the Cape of Good Hope. Despite the time, going by sea, he cut transportation costs considerably. Coffee in the seventeenth century ranked as a luxury because of its high price, but a luxury the Europeans longed to indulge themselves in. Within the next decade, coffee trees were sent to France’s island of Martinique and French Guiana. The Dutch started growing them on Java, the Spanish in Colombia, and the Portuguese in Brazil, which today exports almost a third of world production. Thriving in all these places, coffee dramatically fell in price. Like tobacco, many Europeans could now afford this aromatic, caffeinated way to start the day.
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When ordinary people joined their social superiors in the pursuit of the pleasures of consumption, their numbers changed the character of enterprise. Retrospectively we can see that this boom-and-bust cycle unintentionally widened the market for new goods. Investors responded to the profits of the boom; ordinary people, to the opportunity of the bust. The increase in the volume of goods when ordinary people became consumers meant enormous augmentations in the wealth and power of those nations and persons who participated successfully in supplying the new tastes. Society also had to learn to accommodate a push from below. Always much more than an economic system, capitalism persisted in Europe in changing mores and values however deeply embedded they once had been. This adaptability was to become a critical factor in the spread of capitalism beyond its homelands in the West.

Unintended and Unexpected Consequences

During the sixteenth century and into the seventeenth, while Europeans were experiencing their Renaissance, the Mughal court of India was flourishing, as was the Ming dynasty in China. The Ottoman caliphate still hoped to control world trade along with European land, as evidenced by its menacing Vienna with an army. Both European Christians and Ottoman Muslims found the styles of each other exotic and appealing. Decorated Italian cut glass vases and lacquered boxes could be found among the possessions of a Persian aristocrat. The techniques for working up art and ceramics themselves came from Syria and Iraq. Islamic artists copied the naturalistic style and oil paintings they saw in Europeans’ royal portraits. Traditional Islamic patterns of flowers and birds appeared in European books and boxes for centuries after contact. Sometimes the cultural messengers were missionaries; sometimes, merchants.
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As Europe was becoming more secular, religion increased its hold in the Islamic world, so this exchange of techniques and sensibilities had a vastly different impact.

One more unintended consequence colored the early history of both Virginia and capitalism. The company went bankrupt, and the king turned Virginia into a royal colony. Many of the original shareholders were left with patents to land that had been issued in lieu of dividends. When in the middle decades of the seventeenth century Virginia had settled down into a self-sufficient economy with steady profits from the annual tobacco crop, these shareholders brought out their patents, stuffed away in trunks, and applied for grants of land with them. They often sent out a young relative along with some money to set up a plantation. Virginia got a new infusion of capital just as it was beginning to switch from reliance on the labor of indentured servants to the purchase of slaves.

France, along with England and the Netherlands, had profited from the profligacy of Spain and Portugal. French artisans supplied buyers from the Iberian Peninsula with the finest cloth, leatherwork, printing, furniture, and wine. Like England and the Netherlands, France had sent out explorers and settlers to the New World fast on the heels of the Spanish. At that time France had the largest European army and grandest royal court. Most contemporaries considered it the world’s preeminent power. Yet the country’s glories associated with the Sun King, Louis XIV, at the end of the seventeenth century became its weaknesses under his successors.