Global Trade and Commercial Networks

Eighteenth-Century Diamond Merchants

Tijl Vanneste

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317323372
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

At the heart of this study on cross-cultural trade lies a concrete case-study of a network of diamond merchants operating in the early eighteenth century. All the traders examined in this study are outsiders: an English Catholic in Antwerp, Sephardic and Ashkenazi Jews in London and Amsterdam and French Huguenots in Lisbon.

1 MODELS FOR TRADE AND GLOBALIZATION

Social relationships are crucial to successful commerce. They are able to overcome the two factors that most contribute to the success of trade: good information and the prevention of cheating. These two criteria, together with the possibility of profit, determine if repeated transactions occur. Social embeddedness theories of trade answer why a merchant would trust another merchant whose actions might be beyond direct control or punishment. In the early modern period, the world did not have an integrated market and information travelled slowly. Trade did not yet shape the world, but was embedded in a society arranged on personal ties such as kinship or religious affiliation. Social ties and cultural norms and values were shared. In such a familiar world, a trader could reasonably predict commercial behaviour of another merchant. The fact that modern commerce was based on impersonal market exchange seems to suggest that the social embeddedness thesis is only valid for pre-industrial times. Historians have come up with institutions that were invented to replace social relationships in commerce, relying on the pursuit of self-interest by the rational individual.

Different scholars argue, however, that social relationships remain crucial in answering the question of repeated transactions. Trade is a form of human interaction, and a theory explaining its organization based solemnly on self-interest seems hard to sustain. Game theory, new economic sociology, institutional economics and network analysis all have in common that they analyse solutions for the problems of monitoring behaviour through information and the punishment of cheaters. In order to assess the validity of the claim that social relationships are important, commerce has to be analysed taking their conclusions into account. This can only be done by an analysis of the solutions applied by merchants to overcome problems of regular and long-distance cooperation. The social foundation of trade becomes especially relevant when considering the rising cross-culture nature of trade and its international expansion after new sea routes opened up to Asia and the New World. If social ties are so crucial, what sort of relationships were formed between people who entered into commercial transactions together who did not share kinship ties, a common religion or a similar background? This question becomes all the more poignant because it is oft en the rise of international trade that became central in explaining our modern economic system. In this first chapter, a theoretical framework will be discussed that will allow for a socio-cultural analysis of cross-cultural trade networks. This framework will be connected to a soft definition of early modern globalization that relies on the ability of international and cross-cultural commerce to change merchants and the societies to which they belonged in a profound and reciprocal manner.

Commerce as an Economic Activity

Classical Economic Theory, Economic Man and History

Following Adam Smith’s Wealth of Nations, economic theory has firmly become rooted on the idea of the rational, calculative individual that is looking out for his best interest. Impersonal market exchange between utility-seeking individuals has become the main explanatory element in classical and neoclassical economics. According to Geoffrey Ingham, ‘the model of the rational calculating subject is the foundation stone of all economics’ and ‘all explanations in economics are based on typifications of individual economizing’.¹ Analysis of behaviour that is based on selfish incentives of so-called homo economicus led to classical economics, but it also created fierce methodological debates. Alfred Marshall published his Principles of Economics in 1892, and its first chapters showed the ‘ubiquity of the calculating, maximizing spirit in economic life’.² The idea that it was possible to derive universal economic laws which were able to describe economic events disregarding where or when they occurred came up against strong opposition, not in the least from economic historians. The universality suggested in the theory of economic man is difficult to reconcile with a discipline such as history, wherein the particulars of time and place are essential to analysis. It is also very hard to re-interpret the past in the light of modern theories on man, as there is no absolute truth in the idea that man and his motives have always been the same throughout the ages with regard to economic activity.³

If it is accepted that the self-interested search for utility is a fundamental and universal inclination of man, it becomes impossible not to see societies that have made different arrangements with regard to economic activity as less-evolved. Societal economic practices that are not based on free market exchange between individuals become in this manner old-fashioned structures that stand in the way of modern economic development. In this sense, it becomes hard to argue that this type of economic analysis does not contain a fundamental notion of superiority of the free market.⁴ A substantial amount of mainly Western historiography has been written with a desire to instruct others on the true nature of things, so that they can better their condition. This is a Western-focused agenda.⁵ The idea of superiority is further enhanced by the revolutionary heritage that linked free trade and individualism with freedom and liberalism in general. It is this connection between the organization of the economy and of society based on individual self-interest that goes back to Adam Smith and was elaborated in the nineteenth century. An individual acting freely on the market would take up similar ideas about his freedom in general. A thinker such as Benjamin Constant ‘adopted the more standard Smithian view that commercial life universalizes the ideal of the masterless man … it habituates people to providing for their own needs without the intervention of political officials’.⁶ More than an economic axiom, the idea of homo economicus became a modern ideal. Each individual, free from oppression, would be able to enter the market in order to transact with other individuals, leading to a mutual optimal fulfilment of self-interest. It has been a common consideration to see modern market exchange, or the capitalist system, as the crown in historical progress. The idea of a society arranged on self-interest as modern is an evolutionary idea that had already found its origins before Adam Smith.⁷

The interdependency between the development of classical economics based on the homo economicus paradigm and economic progress is remarkable, and has led to a mainly Western vision of economic activity and its contribution to progress of society. This vision suggests that scientific progress is economic progress, and economic differences are oft en explained in terms of knowledge differentials, which still does not explain where that gap in knowledge comes from.⁸ Two different types of society can be distinguished: one in which rational individuals know what they are, and another in which they do not. Rationality means that once a society is aware of the fundamental human nature of its subjects, it can take fate into its own hands. In the modernity discourse, this is what happened in the West. Other societies have not experienced similar success because economic science has not advanced sufficiently to make them aware of the existence of fundamental laws based on economic human behaviour. Once they had advanced sufficiently and had become self-aware, there would be no rational reason why individuals living in such societies would not respond accordingly. It is not a coincidence that many eighteenth-century thinkers wrote about universal economic principles with an explicit agenda of making the government aware of these principles, so that they could act accordingly. The fact that a theory leads to a hierarchical world view does not in itself mean that such a theory is wrong. Universality of economic theories has also been attacked on the grounds of providing an analysis of ideal situations. Albert Hirschman considered idealized markets that consisted of ‘large numbers of price-taking anonymous buyers and sellers supplied with perfect information’.⁹ Classical economics might not always explain how things worked, but how they should work under specific and ideal circumstances, making abstraction of socio-cultural and historical elements that influenced economic behaviour. This is acknowledged by the development of institutional economics, a discipline that deals exactly with the imperfect nature of market relationships, and human-built institutions to overcome such imperfections.¹⁰

In economic theory based on homo economicus, there was no need to study culture, or to include human interactions that took place outside the anonymous market. Such matters came to belong to sociology or to anthropology, and this division led to a separation of research objects and created a lesser interest in cross-disciplinary approaches.¹¹ Eric Jones has written that ‘economists agree about many things … but the majority agree about culture only in the sense that they no longer give it much thought’.¹² The determinism that society is based on economically-driven actions of man separated the field of economics from the human sciences that dealt with society. This methodological separation is all the more remarkable since economics as a science had developed itself out of an analysis of society. When economics accepted the self-interested motive of man as the basis for his economic behaviour, man was made economic man, and other aspects of his character had lost their place in economics as a science. This also rang true for economic history. According to Emma Rothschild,

historians have chosen, mostly, to describe the exterior events of life. The history of economic relationships has come to be seen, in particular, as a matter of quantities and commodities, of canals and paper money and the bullion committee. Economic thoughts (the thoughts of economic theorists, and of public officials, and of individuals in their economic lives) have come to be seen as something less than events.¹³

The idea that the thoughts of individuals in their economic lives no longer matter is especially relevant for this discourse. The acceptance of rationality and self-interest as the only human characteristics that matter when it comes to economic behaviour has made man a slave of his own nature. He seems not to have had much choice but to act in an economically rational manner, and the search for other motives regulating his behaviour was stopped on the grounds of irrelevance, at least in economic theory.

The separation between economics and human sciences goes back to an older division between ethics and economics. Historically, there has been a strong tendency to consider trade in a moral perspective.¹⁴ According to Amartya Sen, economic theory has taken moral consideration out of its analysis.¹⁵ The centrality of the rational and self-interested individual as an explanatory element in economic theory might have driven ethics out of classical economics. Ethics can be considered a field that analyses inner man. In its acceptance of self-interested man as the basis and its separation from ethics, classical economics has lost interest in culture or social group interaction precisely because it did not matter. The paradigm of homo economicus has driven questions on other motivations of man to other scientific disciplines. In universalizing human motives and by explaining the world in terms of economic performance, individual agency has become institutionalized. Economic science has embraced the homo economicus, but in doing so, it has also marginalized human agency or the importance of historical change. If human nature is fundamentally the same everywhere and at any time, it ceases to be an explanatory element. It is no coincidence that some of the strongest adversaries of classic economic history were sociologists and anthropologists. Scholars working in these disciplines are not so much concerned with the individual, but with interaction between individuals and groups in societies.¹⁶ They argued for a more nuanced view of economic man by showing that other types of commercial exchange and relationships existed, historically as well as contemporaneously.¹⁷

The Rational and Self-Interested Mindset as a Cultural Construction

The challenge made by anthropology to the economic model based on rationality and self-interest is concentrated on its alleged universality and consequent superiority over other models. Anthropologists are well placed to confront the classic economic model, as they oft en examine societies wherein economic activity is based on other motives than individualism and profit maximization. It is not an anthropological prerogative to question the universality of individual character. The vision that human nature was fundamentally the same has never been without criticism. In his posthumously published History of Economic Analysis, Joseph Schumpeter criticized Adam Smith for the ‘equalitarian tendency of his economic sociology’.¹⁸ According to Schumpeter, Smith saw humans as fundamentally alike, attributing differences to different training or environment. For Schumpeter, economic progress lay in the action of the entrepreneur, who caused economic growth by coming up with an innovation.¹⁹ The Schumpeterian entrepreneur broke out of a rhythm of daily life based on routine, something that required leadership skills, and a particular and rare mental state.²⁰ The Schumpeterian entrepreneur was rational and self-interested. He was an innovator who changed the economy in a dynamic manner. In his discourse on the importance of the entrepreneur with regard to economic progress, Schumpeter did not fundamentally challenge the idea of homo economicus. He made him a rare character, perhaps not to be found in all societies or at all times. He opposed universality, but he maintained the notion of exceptionalism based on the same economic qualities: rationality, individualism and self-interest. His individual possesses the same agency as is given to him by classical economics, but he is not a faceless individual. Schumpeter’s theory implies that economic inequality can be explained by differences in human nature. The fundamental link between economic performance and homo economicus is not challenged, but the idea that everybody is a homo economicus is. It replaces the question of why certain societies had more economic success than others with the question of why certain societies had more entrepreneurial characters in their ranks than others. In this way, global differences are put in terms of human actions and motivations.

Schumpeter’s entrepreneur possessed, however, another important character trait: in order to overcome resistance, he had to be self-aware. The idea of resistance was very important in his analysis, and it made the entrepreneur an extraordinary figure. In fighting resistance from people who were interested in preserving traditional circumstances, the entrepreneur had to be aware of his difference from most others.²¹ Self-awareness is another way of explaining economic differences, but it allows for a preservation of the idea that humans are universally the same. In fact, self-awareness is a crucial aspect of economic man and plays a vital role in the parallel between scientific and economic progress. It leads to a deterministic idea of inequality. By making Western economic progress the measure of things, it is implied that other societies could arrive at a similar success, if they too became self-aware. This is a judgement of rational man towards another, but such judgement might not be an obvious truth. Jack Goody wrote that it is generally true that people see conformity to norms as a mark of the other, while they themselves are governed by individualistic and rational criteria.²² Self-awareness can easily be mistaken for a universal truth by which others are measured. The self-awareness certain societies have constructed, also through scientific discourse, becomes a shortcoming for others. If human nature is unequal, that discourse becomes harder to maintain. Superiority is challenged, and one notion of awareness might not be a universal one. The causal link between self-interested human behaviour and successful economic performance is put into question. At the same time, the one-way association that man made society, and particularly that self-interested man made commercial society, was also challenged.

This allowed for a return to cultural and social explanations in economic theory and consequen...