O’Rourke K. and Williamson J. (2006) Did Vasco da Gama matter for European markets?

O’Rourke Kevin H. and Williamson Jeffrey G. (2006) “Did Vasco da Gama matter for European markets? Testing Frederick Lanes hypotheses fifty years later”, IIIS Discussion Paper, 118, 53p.

This paper is available on line.

Summary: In this article, the authors argue against F. C. Lanes’ traditional thesis which considered that the Portuguese discoveries had little long-lasting effect on the European spices markets. They show that the Portuguese route did decrease the spices prices in 16th-century Europe. Moreover they contributed to the creation of an integrated European market for luxury goods that did not exist before 1500. They conclude by saying that the European consumers were ultimately the main beneficiaries ofda Gama’s voyage.

Introduction

During the 20th century, historians have significantly downplayed the significance of the discovery of the Cape route by Da Gama, F.C. Lane and others have considered that after a 50 years-long Portuguese domination, the Mediterranean actors had came back to seize a significant amount of the European spices market. So much so that in 1979, H. H. Wake had to reaffirm the significance of the Lusitanian domination of the Asian trade during the 16th century (1). So did the discovery of the Cape route had an immediate effect on the European spice markets?

Was there or not an international commodity market integration. If there was, prices should have decreased (2). Da Gama’s second voyage was the first big commercial success the Portuguese enjoyed in the Asian enterprise (1502-03). He came back with 1700 tons of spices, the equivalent of the Venetian annual import. So 1503 is to be considered the key transition date (4).

Why the voyages?

Lane’s work is based on three hypotheses:

  • There was no price boom in Europe before 1498, supply shortage was not an incentive for the Portuguese to set sail to India, the Venetian Levant routes were able to meet the European deamand.
  • Spices prices did not drop after 1503, in Europe.
  • Prices in Europe were overall quite similar as the spices market was well integrated at the continental level as early as the 15th century (5,6,7).

On the contrary, the authors argue that, Lanes’ evidence for Venice prices do not mirror the European reality and that it was the rise of Lisbon that allowed the integration of the European market for luxury products (8). To have more robust result, they will use relative rather than nominal prices and not only for Venice, but from the whole of Europe.

Before Gama

Nominal pepper price fell by 40% in Venice over the 15th century following a similar trend in the Middle East (9). During the same period, they rose steeply in Europe (10). A spike in pepper price in 1410-14 seems to have misled Lanes into believing that there was a downward trend (11). The authors remark that the rise might have been caused by the disruption of the Asian spices market due to the Chinese naval expeditions in the region (12).

As there is no correlation between grain and pepper prices, the rise of pepper prices cannot be explain by a general inflation (13). So pepper prices did increase in absolute terms in Europe over the 15th century, except – maybe – in Venice. As the Portuguese must have been looking at the English and Dutch market rather than at the Venetian one the hypothesis discarded by Lane that they set sail to meet the European demand might be valid after all (14).

After da Gama

Nominal pepper prices did not fall over the 16th century. But as it was a period of general inflation, it turns out that the relative pepper price did fall all over Europe during the 1500s.

“These relative price trends are consistent with the conventional view that the Portuguese discoveries “opened up” trade with Asia, lowered transport costs between Europe and Asia, and thus caused the relative price of Asian goods to fall in 16th century Europe. They also imply that the Cape route led to an increase in European consumer welfare and that the Portuguese had to share their gains with the rest of Europe. Finally, note that real pepper prices did not just fall in the immediate aftermath of the discovery of the Cape route, but continued to fall during the latter half of the 16th century” (14).

Other spices

Pepper dominated the Portuguese imports but was not alone. Cloves, cinnamon, ginger, nutmeg were also brought through the Cape route if their price did not decrease, it would be possible to say that the da Gama effect was limited to the some what peculiar case of pepper. But the real prices of all other Asian spices fell as well after 1503 all over Europe despite a fast rise of consumption. So pepper was not an isolated exception (18).

Integrating Europe

The authors see two reasons why it is more likely that the Portuguese kick started the process of market integration for luxury products in Europe and the Venetian did not:

  1. They were much better located than the Venetian were. Lisbon is easy to access by sea from most of the European significant market while Venice is not.
  2. They were more open to free trade going as far as sailing directly from Asia to the Feitoria de Flandres (the royal commercial house in Antwerp) while the Venetian state forced the German merchants to buy under its supervision in the Fondaco dei Tedeschi (19).

While, in the 15th century, Arabian and Venetian pepper price seem to have moved along, the rest of Europe’s prices were disconnected from Venice’s. Before 1503, some correlation could be observed between Belgium, the Netherlands and England, but not in the rest of Europe (20). On the contrary, correlation increased markedly after 1503 between region far apart (e.g. England and Austria). The Portuguese discoveries are certainly good candidates for the explanation of this improvement of the European market integration. This conclusion is confirmed when observing other Asian spices (21) (with the puzzling exceptions of ginger and Andalusia). “The Portuguese did not just bring European and Asian markets closer together […] they also brought European markets closer to each other”.

European and Asian markets

By the end of the 15th century, the European consumed at most a fourth of the spices produced in Asia (23). While pepper production in Malabar rose by 7 or 8% per annum, scholars have estimated that this increase was explained by Asian rather than European demand. The latter having only a trivial impact on Asian prices before the late 16th century (24). The Portuguese never managed to extract monopsony profit from Asian producers as their total control of oceanic routes and monopoly over the producing regions proved elusive (26).

Conclusion

“The Cape route permanently altered the competitive structure of the European import trade from Asia” (27). The author estimate that the Portuguese appropriated more profit than the Venetian did and that the European consumers were better off under the system which saw the Portuguese and the Venetian compete rather than under the previous equilibrium when the Venetian enjoyed a monopoly.

As earlier historians have shown the Portuguese did not manage to draw the Venetian out of business (28). Later on the “Anglo-Dutch competition on the Cape route would further drive down pepper price and drive up European consumption and welfare”.

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