Pearson M. N. (1991) Merchants and states

Pearson Michael N. (1991) “Merchants and states”, in Tracy James D. (ed.), The Political Economy of Merchant Empires. State Power and World Trade 1350-1750, Cambridge: Cambridge University Press, p.41-116.

What is the general role of governments in economic development?
Policies can impede or induce growth. Political elites can also have a significant influence on development. Governments support the class that provide the most important share of their revenue (fiscalism). Besides, the poorest the sate, the strongest the non-state players.

Fiscal policies
“The crucial variable is sizes of state, class structure, and revenue resources. Controllers of small political units typically have to take much more interest, for better or worse, in overseas trade than do rulers with large peasant population that can be taxed relatively easily” (69). Large entities preserved an “indifferent neutrality” towards merchants community. The author takes the example of the early modern long-distance trade and distinguishes between two types of polities: the territorial empires and the merchant empires.

The territorial empires
They were: China, Mughal India and the Ottoman Empire. Administration was reserved to the military elite. Their efficiency was often poor (cf the Mughal defeated by the Marathas) (53). Empires got caught in unproductive traps due to their size: fiscal revenues were completely used to collect them (55).

“The crucial point is that all of these Asian [empires] prospered not by compulsion, but by providing facilities for trade freely undertaken by a vast array of merchants. What the rulers provided was really opportunities, fair treatment, an infrastructure within which trade (…) could take place” (70). The Asian tributary modes of production were more viable than European feudalism. There was a “high level equilibrium trap” explaining why empires settled for lower fiscal efficiency not trying to increase the revenue perceived from the merchants (68). There were also spacial differences Asian city-states had a more “hand-off policies” than their European counterparts (70).

The Chinese example
During the Ming period the Mongols’ pressure forced the Chinese government to concentrate on land matters (103). Considering the size of the empire, it was difficult to dominate the peripheries (see the Ming loyalists holding the southern coastal regions), thus intervention overseas was out of reach. Even coastal shipping is dropped in favour of transport by canals (104).

A comparison with Spain

In 1691, foreigners engrossed 90% of the Spanish imports from the Americas (81). “Both Portugal and Spain became in effect conveyor belts that transported spices and bullion to Europe and then sent them on to the north and east. In Portugal, empire did not lead to internal economic change; royal power was too great, so that a nascent bourgeoisie was unable to flourish […] It seems clear that [Spanish] mercantile groups did better […] than in Portugal, […] but they still not do nearly well enough” (82).

Overall, the European had a rather minor role in the Asian economy before the 1750. Numerically, they were simply other foreign merchants in the Asian ports. But they brought their method from Europe and the Mediterranean: de-territorialized posts in the host port-cities, trading companies, violence. European states were chiefly supporting their subjects’ trade, while Asian states induced foreigners’ trade (76). Politically, Asian merchants were weaker than their highly organized counterparts; Asian traders had less influence on the state’s policy (77).

The merchant empires


Portugal had few inhabitants and no natural resources, hence the state depended on the trade for its revenue. The Portuguese long-distance trade took place under state umbrella. Often state enterprises such as the discoveries were contracted out to private entrepreneurs. In the early 17th century as investors lost interest the Crown was reluctantly pulled back in (79).

Frederic C. Lane argument: the origin of the Portuguese success in the Indian Ocean was the their ability to threaten the Asian traffic and then to sell protection; merely a racket. Portuguese “could have done better by using the cost advantages of the Cape route to undercut the traditional trade with Europe by purely economic means” (79). On the long run, the areas were the state was less involved (i.e. Brazil), the Portuguese did better (80). The Spanish trade was not as centralized as the Portuguese one. The Casa de Contratacíon was just a regulating body, not a trading organization.


In Japan, the warring daimyos had to create strong incentives (free trade, good infrastructures) to attract merchants in their domain rather than in their opponents’. The central government of the shogun was far more interventionist.[1]

Low Countries

But, as the Dutch case shows, an interventionist government was not necessarily un-effective. In the Netherlands, the government was the merchant community “the nexus between the government and the [VOC] was so tight that [state intervention] was not necessary. [They] were one and the same, indistinguishable from each other and indeed often consisting of the same people” (85). Thus the diplomatic and political powers delegated to the company did not create any problem. As the Portuguese did, the company internalized its protection costs (86). Interestingly, the centralized Spanish empire was incapable to retain its benefices within the country, whereas the redistributive Dutch system was able to do so (87).


The English Crown contribution was political tending to eliminate intra-English competition (89). But English companies at first we less independent than the Dutch ones because the commercial and political elite were not identical, on the other hand the company refused any state intervention in its affairs (90). As a result, the English state often squeezed revenues out of the trading companies (92). But the government was overall pro-business, uniquely it allowed export of bullion. The English government has always been mercantilist as an important part of its revenue came from customs up to 50% under Henry VI (93). The Navigation Act epitomized the state’s support to the merchants.

[1] 1597: antichristian persecutions started in Japan; 1606: Christianity was proscribed; 1623: the English leave Japan; 1624: the Portuguese leave Japan; 1630s: the Japanese forbidden to trade overseas; 1639: the Dutch traders are moved to Deshima Island in Nagasaki harbour (p.84).

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