The canonical view of financial historians explains the growing volume of (European) long-distance trade throughout the eighteenth century in association with the development of means “(to) mediate interest rate and exchange rate risk and facilitate trade through international bills.” Despite the institutional overtones of this literature, scholars conclude that because the “commercial bills market lay largely outside of the scope of government regulation and was global in scope” it fostered the “development of banking and capital markets as complements in the long run” (Atack, Reference Atack, Atack and Neal2009, 10, 17). Thus, “the payments system for private trade by European merchants managed to flourish, notwithstanding the occasional shocks to the system from war finance.” Yet, in the seventeenth and eighteenth centuries, the global scale of the bills of exchange market appears to have been limited to Europe, and to a lesser extent, to transactions among Europeans and within the European East India companies. Indeed, it took an extra hundred years or so to spread to the rest of the world. How did private merchants finance their ventures in long distance overseas trade outside Europe? which other instruments and contracts were available to those engaged in trade beyond Europe in the early modern period? The articles here explore an alternative which, arguably, by the breadth of its circulation, was a more ubiquitous instrument for private finance in international maritime trade into the 19th century.

Given the size of the aggregated intra-European trade, probably the contract - the respondentia- was not as significant an instrument of trade finance and means of remittance as bills of exchange were within Europe (O’Brien, Reference O’Brien1982; De Vries, Reference De Vries2010); albeit similar estimates for the value of intra-Asia trade as whole are lacking, it was far from small (Reid, Reference Reid1997, Reference Reid, Cook and Li2004; Sugihara Reference Sugihara, Riello and Roy2009, Sugihara and Kawamura, Reference Sugihara and Kawamura2013). Nevertheless, respondentia was indeed extensively used in the commerce of Europeans overseas, where the circulation of private bills took much longer to take root.

Among Europeans, the contract was known by various names in their respective trades (correspondencia, cambio marítimo, riesgo marítimo o de mar in Spanish; risco or ganho de mar in Portuguese, risqué or prêt á la grosse aventure in French, cambio marittimo (cambium maritimum) in Italian, bordermerije or bomerie in Dutch and respondentia in English. This was one of the many contracts for trade finance that appeared in the late medieval and early modern period in Europe before the age of the corporate business—although similar instruments were used in Mughal India (Irigoin this volume). Similar contracts had different names in different spatial and temporal contexts and authors here have used slightly different names for the contract in their articles as they view it at work in their own case studies. Respondentia is the name as it was known in English and thus the one used in this introduction.Footnote ¹ It was widely used in the Mediterranean since Roman times, or possibly even earlier, by the Phoenicians, and was particularly associated with Genoese intermediation in the early pepper trade in Byzantium and the Levant (De Roover, Reference De Roover1969). However, the contract was quite similar everywhere. According to Haider (Reference Haider1996, 299; Reference Haider2019) it resembled to the muzarbat that circulated among Indian sarräfs, and to the nagegame of the early seventeenth century’ Sino-Japanese silver for silk trade by accounts of the earlier Portuguese trade in Asia (Oka, Reference Oka2001, Boxer Reference Boxer1948, 107,115–16); Dutch traders used it in Burma in the same decades (Dijk, Reference Dijk2001). On the word of Om Prakash (Reference Prakash2008: 4) the “institution was also widespread” in Pre-colonial India, as it was in Siam (Viraphol Reference Viraphol1977), Indonesia and Bantam (Dermigny Reference Dermigny1964, II 230, 264, III 759) in the eighteenth century. Thus, it is difficult to claim, conclusively, that respondentia had evident European roots, although it makes a fitting case study for a migration of institutions (Harris Reference Harris2020). Yet, with European long-distance sail after 1600, it reached another, global scale as an instrument of private trade finance. It spread from the Mediterranean to the three oceans and the China Seas, at a time when the circulation of bills was evolving into a cashless system of payment at the core of Europe.

Across trades and over time, this contract has common basic features: It comprised an advance of capital—in goods or money—to be reimbursed conditional on the vessel’ successful arrival to a port of destination; it conceived a pre-established return—a premium—lit. a reward; sometimes explicitly specified as percentage of the principal, in other cases it was included in the final amount due via the implicit exchange rate. It did not have an apparent maturity or sight term. Still, everywhere the loan was timed from the date of the ship departure to an additional, defined period following the arrival at the destination. This could be a matter of weeks in the Mediterranean and China Sea, or of months (between one and three) in the intra-Asian trade or in the Atlantic. It might extend over years for sailing across the Pacific and in the private trade around the Cape route to Asia. The destination port was not always specified or was broadly defined. For instance, from Europe it could be issued to “Canton, in China, or any place in the East Indies,” “to China and Persia or elsewhere beyond the Cape of Good Hope without deviation,” to the “Kingdom of China, Coast of Java, and Coast of Coromandel,” to “the (West) Indies” and the Mar del Sud (the South Seas). Sometimes the loan allowed other ports of call on transit, which was a frequent occurrence in the seventeenth-century intra-Asia trade or in the Caribbean; however, lending in Manila was confined to Acapulco only as the terminus of the Pacific line. Round-trip to a specific destination often resulted in different premium rates for each leg.

Most historians currently draw a definition of respondentia from the vast eighteenth-century literature on contractual and legal matters, without much inquiry into the nature and implications of the contract. Those sources describe respondentia along with other commercial and financial instruments —bills, insurance, bottomry, etc.—used in Europe at the time (Targa, Reference Torri1803; Ricard, Reference Ricard1722, Reference Ricard1723; Cunningham, Reference Cunningham1761; Park and Sir, Reference Park and Sir1787/Reference Park and Sir1799; Marshall, Reference Marshall1802; Annesley, Reference Annesley1808—for a sample of titles in English). Most of them pointed out the specificities of the Spanish use of it. For a lack of a clearer definition, English underwriter, merchant, and eighteenth-century publicist John Weskett noted that it was “in Spain where they (respondentia) are more frequent than elsewhere—and better understood” (Weskett, Reference Weskett1781, 466). Yet, Spain’s first legal tracts on commercial and financial contracts—Ordenanzas de Bilbao enacted in 1737—neatly distinguished respondentia for the first time from other contracts in place, like bills, bottomry, policy insurance and other lending instruments after centuries of use.Footnote ² In a 1783 book dealing with commercial contracts, French jurist and arbitrageur Balthazard-Marie Émérigon contended that “the contract à la grosse is adopted in all maritime places. It is neither a sale, nor a partnership, nor a loan properly so called, nor an insurance, nor a monstrous compound of various contracts. […] It has a character and attributes of its own. […] It is different from all other contracts. It forms a special kind of contract.” (Émérigon, /1811: 30 emphasis mine).Footnote ³ So, what sort of contract the respondentia was? Was it a securitized loan or a risky investment? The articles in this collection aim to shed some light on these issues studying the use of respondentia in various maritime trades of Europeans in both Indies.

Earlier historians of the “Commercial Revolution” in continental Europe several decades ago focused on the contracts used in Mediterranean trade for the late medieval period (see Hoover, Reference Hoover1926; See Reference See1928, Sayous, Reference Sayous1927; De Roover, Reference De Roover1946). In the 1960s and 1970s, Flemish, French, and Italian economic historians studied its integration into the Atlantic trade. Because the contract was dominant in sourcing American silver for the Old World after 1600, it was cursorily associated with Spain’s limited financial development (Everaert, Reference Everaert1971; Bernal, Reference Bernal1992). French historians of the 1970s qualified respondentia as “technique menue et archaique de credit commercial” despite its prevalence (Carriere Reference Carriere1970: 231). More recently researchers on French commercial houses invested in the re-export of textiles, slaves, and silver specie to the rest of the world qualified the business as “tantamount to trying luck, to making a good move; … (a) playful conception of business (that) reveals an increased diversion of funds from productive investment” (Chamboredon, Reference Chamboredon1995: 387).

Nevertheless, French commercial houses extensively traded on respondentia. The instrument served to channel private savings into the Atlantic, like that of the Voltaire into the slave trade (Chamboredon, Reference Chamboredon2008). Henceforth, research on respondentia declined, as it was ostensible that this was not much of an “innovation” or leading to a financial modernization or “efficiency improvements”.Footnote ⁴ Financial historians instead turned their focus on bills of exchange, bonds, and sovereign debt instruments of princes and parliaments, leading to the establishment of banks and stable quasi fiat monies. More recently, with the institutionalist “turn,” economic historians have turned their attention to the late medieval innovations in contractual forms and business organization (Kingston Reference Kingston2014, Leonard Reference Leonard, Coffman, Leonard and Neal2013). In the last ten years, scholars have turned back to the institutions of the European commercial revolution —and linked them—with the institutional path to “economic growth” and eventually the onset of the Great Divergence in late Medieval Venice (Gonzalez de Lara Reference De Lara and Wells2018). For example, Pryor (Reference Pryor1983), Gonzalez de Lara (Reference De Lara Gonzalez2001) and Williamson (Reference Williamson2010) stressed the relevance of the commenda in the Mediterranean and the compagnie as innovative forms of business organization in late medieval Venice; Zanini (Reference Zanini, Fusaro, Addobbati and Cham2023) and Van Doosselaere (Reference Van Doosselaere2009) have recapped the virtues of the different variations of sea loans used in late Medieval Genoa. Lamikiz (Reference Lamikiz2023), who contributes to this issue, has elaborated different versions of the contract used by Spaniards in the early modern Atlantic imperial trade. All of them are clearly heirs of DeRoover and Émérigon writings and follow their broad definitions quite closely.Footnote ⁵ This research has well-documented cases that emphasize obvious differences at the expense of the common traits. However, it remains much locked in describing the particulars of some European context at some point in time at the expense of common features that persisted, and which would help to explore the emergence, adaptation, and migrations of institutions -(a la Harris, Reference Harris2020).Footnote ⁶

On the other hand, attention to the incipient corporate finance of early modern chartered and joint-stock companies overshadowed research on private trade finance, which remained locked in a multitude of separate, micro studies on the business of individual merchants or merchant houses. Yet respondentia did not disappear and probably even expanded beyond Europe with her intermediation of global trade. In fact, trade and economic historians have repeatedly bumped into the contract, without much exploration beyond what was considered an “anomaly.” For economic historian of Early America, John J. McCusker, “not all is clear (about the contract), but it was certain there were no bottomry transactions of the usual sortFootnote ⁷” (McCusker, Reference McCusker1978/1992: 295).

Because bottomry loans also consisted of an advance of capital securitized on the ship (bottom), or on freights if taken by shipmasters, trade historians tend to associate both instruments and define respondentia as a “loan cum insurance” (Van Dyke, Reference Van Dyke2011: 45; Carrasco Gonzalez, Reference Carrasco Gonzalez1995: 81; Haider, Reference Haider1996 fn58). Others have alleged some insurance component built into the premiums or emphasized its suitability to bypass usury laws restrictions (Lamikiz Reference Lamikiz2023). They differently interpret the high premiums in the respondentia by a large variety of factors; for example as a result of the “high risks” of the transoceanic trade (Boxer Reference Boxer1959, Mesquida Reference Mesquida2018), of the scarcity of “indigenous capital” (Van Dyke Reference Van Dyke2005: 153) or at destination (Bernal, Reference Bernal1992), of the greater “hazards of coastal navigation” over sailing in open seas (Van Dyke, Reference Van Dyke2011: 47) and, even, of the “exploitative” nature of the financing (Torri Reference Torri2018: 116–17).

Maritime insurance indeed did not displace these contracts as securitization by pledging the ship to a commercial transaction was common practice still in the eighteenth-century Europe (Bernal, Reference Bernal2013: 47; Lo Basso, Reference Lo Basso, Giuffrida, Rossi and Sabatini2016, Weskett, Reference Weskett1781: 58; Annesley, Reference Annesley1808: 173–194). Even after 1720, when the business of marine insurance was finally incorporated in England, lending at respondentia continued in London’s private deals in the East Indies (Steckley, Reference Steckley2001, Irigoin’s contribution to this collection). Leonard recounts how “A good dozen insurers, independent and alternative to Lloyd’s, appeared in India and China between 1780 and 1810, drawing on Indian capital.” These were “multicontinental, multiracial share–holding networks” in West India and later Canton, which provided cover for risk-sharing and underwriting to private shipping within Asia (Leonard, Reference Leonard2012).Footnote ⁸ Neither did the existence of premium insurance in the “tradition of western law merchants” displace respondentia contracts. Apparently, there was a small but profitable outlet for respondentia still in Surat and Bombay from at least 1749, where both local and European merchants borrowed from each other to finance trade cargoes (cited in Leonard, Reference Leonard2012: 988).

The payment of the principal, interest, and premium would occur only if the return of the ship had been accomplished; otherwise, lenders would lose the whole investment.Footnote ⁹ Only lenders could take insurance in France and England, and London insurers did not cover respondentia because they found “inconvenient to price the risk” as the nature of the assets was controversial; they refrained from issuing policies on “such immaterial asset” (Weskett, Reference Weskett1781: 461–467). They saw Respondentia like a “wagering o gaming” contract which raised their concerns.Footnote ¹⁰

Lenders might, and did in some cases, additionally insure their assets or (the value of) capital invested as Leonor Costa study of the Portuguese risco in this collection shows. The Ordenanzas de Bilbao stated that in the case of shipwreck, lenders a la gruesa (respondentia) had preference to receive insurers’ payment in whichever part of the cargo had been recovered (De Bilbao, 1737/1769: 217). Creditors of prets-a-la grosse in France had prelation over other freighters in the case of damage (Émérigon, Reference Émérigon1783/1827: 241) but borrowers were not allowed to take insurance on the lien—goods or money. In Spain, it would be necessary to register the loan with the authorities before departure, along with a precise description of the assets. In England, Chief Justice of the King’s Bench—and an authority in commercial law—Lord Mansfield held that “by the law of England there was neither average nor salvage in bottomry contracts”; however, “this point [had] never been decided”Footnote ¹¹ (Montefiore, Reference Montefiore1803 “Bottomry and respondentia”). Late eighteenth-century treatises on shipping and insurance recapped the issues that an insurance policy had about “some kind of property” which did not fall “under the general denomination of goods in a policy.” In this case, the matter was the undefined nature of gold and silver “coined or uncoined and pearls” whether they were a commodity or money “for the purposes of commerce, which constitutes part of a cargo.” According to Park’ System of the Law of Marine Insurance, “they were indistinctively insured in London and Hamburg but not in Amsterdam, Konisgberg, Middleburg and other cities whose ordinances declared that money shall not be recovered under the denomination of goods or merchandize; but the insurance must in the policy be expressed to be upon money to render it valid” (Park Reference Park1787/Reference Park1809: 25).

Under respondentia, the lender assumed the “sea risk”; that is, total losses if the goods or the ship never arrived at the destination. Risks were conventionally presented as “the risk of fire, sea and unintentional loss”; everywhere this became a fixed clause in all contracts written in a formulaic manner (see examples in Irigoin’s contribution appendix). For instance: a contract in Surat for Batavia in 1749 indicated the risks as “by fire, storm, arrest, war, robbers, or in any other way whatsoever”; one signed in Cadiz for Lima in 1777 defined “risk from the sea, wind, earth, fire, friends, foes and any other wretched events at sea”; while bonds issued in London specified “an utter loss of the said ship by fire, enemies, Men of War or any other casualties shall unavoidable happen.” Thus, while the borrower took the commercial risk, the lender assumed the risk of losing any claim to repayment if the goods or the ship pledged as security failed to reach the destination safely because “an act of God, the fortunes at sea or the assaults of men of war—corsairs, pirates or enemies” (see details in the appendix to Irigoin’ contribution).

Security was placed on the goods on board and eventually on the assets of the person(s), and heirs, who took the goods on lien. Thus, the loan was increasingly void of collateral other than the goods themselves. Bottomry and respondentia became distinct as the separation between capital ownership and management of the investment increased with the scale of the trade:Footnote ¹² the latter by a bond or contract by which money was borrowed on the security of goods, and the former was the same done on the security of the ship or its freight. This separation of the security from the principal accelerated with the expansion of overseas commerce in the seventeenth century; by the eighteenth century, respondentia was overwhelmingly a lien on the merchandize aboard. Unlike insurance, where a premium is paid before the ship leaves port and the insured is reimbursed if a third party files a claim, under respondentia, the lender assumed the risk ex ante in full. He advanced the principal and lost any claim to repayment if the goods pledged as security failed to reach the destination. Therefore, premium seems to be more an estimation of the expected profit than a calculation of the risk.

Notes: All insurance rates were the same in the return journey, other than from Cartagena (*) where the rate was .5% higher if returns were in goods (frutos); (∼) the premium corresponds to the period in which the navigation between Spain and Manila was direct from Cadiz.

Source: “Precio de los Frutos y Metales de Indias, en la plaza de Cadiz. Corrientes”. Campomanes (Reference Campomanes1775–Reference Campomanes1777: 145, 146).

The assumption of very high risks in long-distance trade has led historians to conclude that the high “interest rates” charged on the principal were directly related to such hazards. Premium rates of over 40, 50 or even 70 per cent were frequent in the seventeenth century as recorded by trade historians. As rates tend to correlate with distance, some historians see in this a time dimension of the cost of capital, which reinforces the impression that navigation risks push the rates up. However, the lack of a consistent examination of high-frequency data does not warrant such characterization. An observation of rates for respondentia (riesgos) and insurance premiums in Cadiz in 1777 shows a comparison with the level of freight rates; however, they do not seem to match this interpretation. The data in the table below do not indicate a direct relationship between distance or hazards and the premium for insurance and respondentia rates alike. The insurance rate was similar for distances as different as the Cadiz-Cartagena route as the Cadiz Buenos Aires’ route; the premium on respondentia does not suggest either a relation with hazards or the length of the route, as premium for Veracruz, Lima and Buenos Aires, were within a very similar range.

Ultimately, the commercial risk fell fully on the borrower. As the rate—indeed, the premium—was established ex-ante with the initial capital outlay, the borrower must have been confident that the ventures would yield even higher returns, or had superior information as Costa and Pinto de Albuquerque argue in their article. Arguably, the premium could also be considered the upper bound rate at which borrowers were willing to pay for capital rather than an indication of risk or the opportunity cost of capital. Hence, the characterization of respondentia as a high-profit/high-risk investment is not persuasive.

Reportedly, premium rates declined over the eighteenth century; high rates and a falling trend over the century repeat in most cases across long-distance commerce by 1800 as suggested in the articles in this issue. Similarly, everywhere, rates - i.e. premiums- quoted were systematically much higher than the customary interest rates. Confined to the study of individual trades, these high rates are taken at face value derived from an expected higher risk from presumably longer and untested hazaradous journeys. However, neither their origins, the trends nor the implications have been sufficiently explored. The papers here offer new explorations on the topic based on some early modern cases of overseas trade and offer a comparative look at these rates.

Given the private nature of the contract, i.e., a one-off, termed, and non-negotiable agreement between private parties, and that deals ended with the conclusion of the journey, little hard evidence remains to assemble data of (any) frequency to quantify longitudinal data on values or trends. As in the case of bills, few traces of their systematic use survive unless a dispute was recorded or a notarial intervention occurred. Institutional lenders were an exception rather than the norm, and they notably clustered in the Asia trade, as shown in Ruiz Stovel and Ruiz Moreno’s contribution below. Evidence is more abundant in records of merchant-brokers and the registers of notaries, which are the most common source for this line of inquiry—like the very well-known study on the Carrera de Indias financing by Miguel Bernal (Reference Bernal1992). The role of notaries in maritime commercial contracts differed from that of eighteenth-century France (Hoffman et al., Reference Hoffman, Postel-Vinay and Rosenthal1998). No evidence suggests that borrowers and lenders mobilized capital or liquidity as their primary function. They did not necessarily overcome asymmetric information, but rather established legitimate claims and means to solve disputes in transactions that were realized thousands of miles away and took months—often even years—to settle.

Nevertheless, the qualitative evidence is very abundant, as historians have widely recorded its use in the vast scholarship on different trades, but always done separately, with various and disparate interpretations. This segmented approach to the instrument has led to varying understandings of the contract. Because its use was waning in the later eighteenth century and a cashless means of remittance replaced it in the nineteenth century, financial historians are under the impression of the inadequacy and inefficiency of respondentia (Gelderblom and Jonker (Reference Gelderblom, Jonker, van der Spek and van Leeuwen2018). This is associated with the shallow development of the financial markets, where it was current and where banks, bonds, and bills were absent or were taken overseas by Europeans. Thus, the collection of papers here also reinterprets the financial history literature by analyzing the contract for private trade finance on a global scale for the first time.

Despite the recent revisionist take on the divergent development of the premodern global economy, some significant issues remain blurred; namely, the monetary nature of precious metals trade, the financial aspects of their incorporation in the circulating medium of the European economies, their concurrence with monies of account and cashless means of payments in the transition to nineteenth-century monetary regimes. Indeed, the mechanisms for the European acquisition and re-export of silver coins—money—to the East Indies remain under-researched. There is a relatively better understanding on the broad shipment of silver specie to Asia than about the process through which it circulated through the European economies, beyond its arrival in Spain. It was Europe, the “sink for silver in this period,” which contributed to the monetization and commercialization in Eurasia (Findlay and O’Rourke, Reference Findlay and O’rourke2009: 213). “Playing a monetary role” did not engage trade historians (Williamson and O’Rourke, Reference O’Rourke and Williamson2002: 421). By account of scholars of the Europeans’ East India trade, silver coined in reales, pilaren (pillar), Mexican and Spanish dollars—e.g., that is mostly silver specie procured in America—made the largest share of all Companies’ silver exports to Asia (Pol, Reference Pol1985 Bijlage II 132–129; Prakash, Reference Prakash2008 p. 86 for the VOC; Chaudhuri, Reference Chaudhuri1968, 1978/Reference Chaudhuri1978/2010 Ch 8 for the English East India company, Häggqvist (Reference Häggqvist2024) for the Swedish one; and for China imports (Irigoin, Reference Irigoin, Battilossi, Cassis and Kazuhiko2020, fig 4). However, despite the monetary role of those silver exports, scholarship on exchange rates and currencies in Europe have “refrained from discussing the impact of American silver and gold” (Denzel, Reference Denzel2010: lxii).

Coinage in Europe had always been scarce, as evidenced by the fifteenth century’s “bullion famine,” a scarcity that ceased with the arrival of New World supplies. Since the late seventeenth century, growing European imports from America and exports to Asia were overwhelmingly made of coined gold and silver—i.e., money-not bullion; these coins enjoyed legal tender and had wide currency in both Europe and Asia. Notwithstanding the extensive research on endogenous sources of modern economic growth and the timing of the divergence of Europe of the past 20 years, this trade is crucial to understand the Smithian growth process in—and the integration of—the premodern global economy (Irigoin, Reference Irigoin, Roy and Riello2018; Zwart and Van Zanden, Reference Zwart and Van Zanden2018). How did precious metals reach the European mints? What was the channel by which silver and gold from Iberian America made their way through Northern Europe to be on board the Dutch, English, French or Swedish East India companies bound to Asia? Although England did not coin silver throughout the eighteenth century, the re-export of coined silver to the East made the “supremacy” of the English Company in the eighteenth century (Mayhew, Reference Mayhew, Van der Spek and Van Leeuwen2018; Prakash, Reference Prakash2008, ch 7); How did both East India Companies in England and the VOC, or the Swedish Company procure the silver coins for trade with Asia? (Gaastra, Reference Gaastra and Richards1983). The papers in the collection shed new light on these matters, which deserve proper further examination by monetary and financial historians (Palma, Reference Palma2022, for an exception).

Economic history literature is well acquainted with financial developments in the parts of Europe, “where all began” (Neal, Reference Neal2002). In the rest of the world, where these institutional changes hence “followed,” they did not occur endogenously or did not happen until the nineteenth century—and partially at best. Their trajectory is often explained against the European earlier experience with banks, bills and bonds (Carlos and Neal, Reference Carlos and Neal2011; Atack, Reference Atack, Atack and Neal2009); and conventionally seen through the differences with the European counterfactual. This collection—that started in a session at the WECH in Paris 2022, under the title of the “Great Intermediation”—addresses the partial understanding of the financial environment of the extra-European world, looking at the instruments that featured in European private trade with the rest of the world. These economies remained locked in a cash-based payment system. They had, for a long time, a problematic connection to the international settlement mechanism that emerged in the wake of the Gold Standard.

To fill that void, the collection of articles here offers examples of the use of respondentia in the long-distance trade of Europeans in the seventeenth and eighteenth centuries, as intermediaries who found it a suitable instrument for these global exchanges. It demonstrates how this contract for private trade finance, which linked Europe to the rest of the world, coexisted and coevolved in time and space with bills of exchange within Europe. The articles discuss the alleged “inefficiency”—indeed, the greater adaptability for the trade in question: the intermediation of American commodities, sugar and silver to the Old World.Footnote ¹³ As both were only procured in America as return of trade—not extraction, their intermediation involved a significant export and re-export trade of manufactured goods produced elsewhere in Europe and Asia.Footnote ¹⁴

The relative efficiency of the instrument was contingent on the nature of the trade—an exchange of goods for silver, and silver (or sugar or diamonds) for other goods—throughout more than two centuries. There was nothing flawed in the design, or failure on their setup, to make it such an “archaic” financial instrument. It lacked the virtues of other instruments—like the bills—in providing liquidity, developing a cashless means of payment, and establishing a mechanism for settling trade balances away from precious metals. This was precisely the ethos of the European intermediation in such commerce, which needed to “substitute cash” for the continuation of their trade with Asia.

The widespread and persistent use of respondentia by Europeans outside Europe can be attributed to its suitability in handling uncertainties and risks inherent to long-distance trade, which often involves dealing with long waiting times. Two articles approach these aspects from different points of view; Leonor Costa Freire and Pinto de Albuquerque’ essay addresses the role of resulting information asymmetries and the risk of moral hazard, and the institutional solutions that in their view explain the prevalence and decline of this type of contract to finance long-distance Portuguese trade in America and Asia. The other one, by Irigoin, considers the uncertainty in future prices (currency or exchange rate risk) inherent in overseas transactions incurred in operations involving exchange with foreign currencies. She finds that respondentia, as a collateralized loan, was instead an indirect financing vehicle, a form of debt to acquire foreign exchange without conversion, an advantage the contract offered to such trade over other financial alternatives. In the absence of a centralized financial system, the instrument reduced information costs and ensured future purchasing power; it might also enable the gain from markups and arbitrage in goods and money, although both authors do not entirely agree on that point. Both coincide, though, that respondentia persisted while the structure of global trade maintained such rationale.

Thus, the papers here offer a revision to the understanding of the early-modern financial history with other counterfactuals, revealing the rationale for financial instruments otherwise considered “inferior,” “inadequate,” “archaic” in contrast with Europe’s trajectory within. They resulted from their adaptation to the current economic and monetary circumstances or the navigation system in the global economy. In so doing, the collection helps to qualify the process by which Europe “diverged,” adapting its financial institutions and monetary regimes to the great intermediation they carried between the Old and the New World.

Two case studies examine its suitability for Spanish maritime commerce, despite differences in shipping organization between the Atlantic and Pacific oceans. Both trades converged over the Spanish New World to exchange goods for silver. This trade was organized around fairs, for the most part, where Spanish American importers and large merchants were the primary price makers due to their leverage in the silver business. The finance of exporters to Spanish America was organized differently, despite the composition of their trade being quite comparable, making them natural competitors. Although their journeys had different durations, and freight was organized very differently, the capital invested in the origin had similar rates of return. The trend of the returns over time was different, however, due to the competition between the Atlantic and Pacific sources of American imports. Unsurprisingly, a less open and nearly monopsonic route on the Pacific shows stickier rates in comparison. Interestingly, Costa Freire’s comparison of the rate of return on Portuguese capital in the Atlantic and Indian Ocean trade shows a similar pattern, inviting us to expand the comparison to the Iberian trade.

The first contribution by Xabier Lamikiz examines the reasons for the use and decline of the instrument—sea loans, as he calls it—in the Spanish Atlantic trade over the three centuries of colonial commerce. It reveals an organization of maritime trade that was equally distinct from the contemporary Portuguese case as from the better-known chartered companies of other European nations. Lamikiz argues for a “heavily regulated” commerce that Spain organized until the late eighteenth century, in which the sail of periodical fleets restricted exchanges to Spaniards’ participation. Thus, this Spanish version of mercantilism, like Navigation Acts or l’Exclusif, reduced market risk and unpredictability,” and intentionally “maintained the colonies undersupplied” resulting in “higher maritime interest rates” and significant, though volatile profits” for the privileged merchants. Pivoting on Cadiz to appraise the Atlantic trade, Lamikiz argues that the maritime loan became an “appropriate credit instrument” because the lender’s sea risk bearing, which characterized the contract, propitiated to charge high interest rates well above the legal limit of usury laws, offering greater returns to capital than otherwise. Lamikiz finds that the “mild deregulation” of the system and the expansion previous to the opening of the trade in 1778 to more ports—in Spain and in Spanish America- to colonial trade “brought about more competition, unpredictability” and “shrinking profit margins.” This, he argues, made interest rates to drop converging with the standard commercial rate, affecting the qualities that had made the maritime loan the trait of trade finance in the Spanish colonial trade on the Atlantic.

The second article by Rivas Moreno and Ruiz Stovel takes on the use of the contract the Spaniards made in the Pacific trade in the eighteenth century—correspondencias. The Pacific trade was the most direct route for the exchange between silver-producing regions—Mexico—and the main market, Asia, with China being more particular. The article examines the contractual elements that channeled a large flow of coined silver through Manila, that—they argue—performed as a very liquid capital market for the larger intra-Asia trade as well. The authors emphasize the role of correspondencias—the iteration of respondentia over the Pacific—in “solving the fundamental problem of exchange.” They argue for the qualities of the contract that allowed a diverse body of participants in the larger exchange of silver for merchandize, which comprised most of Eurasian trade at the time. Hence, correspondencias, as a private order solution, provided “security and guarantees” to a truly cross-cultural trade within Asia. Lacking institutional frameworks that organized long-distance capital flows and exchanges, the instrument “enabled individuals to invest, to make claims on future returns, and to adequately apportion risks.” The piece, on a relatively under-researched and often mischaracterized subject, is the first systematic exploration of the capital market in Manila and, by revealing the backbones of the exchange in the Pacific, makes a novel contribution to the history of trade finance in early modern global history.

Leonor Costa Freire’s article takes on another yet comparable long-distance commerce where the instrument—i.e., sea loans—dominated: the Portuguese trade on the Atlantic and the Indian oceans in the seventeenth and eighteenth centuries. Comparing the use of sea loans—riscos do mar—in both trades, Costa Freire argues that the prevalence and obsolescence of the instrument relate to the management of private risk involved in the institutions and organization, and regularity, of shipping in each route. Her study is one rare case of a comparison of private trade finance in the same market—Lisbon. Her article makes several important contributions; for one, this is also a first systematic analysis of high frequency data from hard-to-collect information drawn from notarial sources that echoes Miguel Bernal’s seminal work on the Carrera del Atlántico. Footnote ¹⁵ Costa takes on Bernal untested interpretation of the role of markups in European maritime trade to make her arguments for the currency of sea loans (respondentia)—in lieu of equity finance—as other legal and institutionalist historians of European trade assert. Her point on the results of the shipping organization and private order institutions in the Portuguese commerce in both Indies mirrors the different trends of the respective rates of return on capital vested in risks in the Atlantic and India trades. This contrast arises from differences in the “moral hazard mitigation” for lenders and the “perception of the borrowers’ one protection” that a higher “quality of information” that the navigation system in one route allowed. This suggests a contrast to the Spanish case, traditionally associated with “highly regulated” and “monopsonic commercial schemes” where competition of “freer trade” brought about lower rates of return; in the Portuguese case—according to Costa Freire—the unorganized (neither privately self-organized or by the crown) sailing of individual “free-entry” ships to Brazil inflicted “capital losses.” This alleged difference is worthwhile for further exploration. It is impossible—and not the point here—to establish whether this is the result of interpretative or factual differences; so, this is not settled here. On the contrary, it should be an invitation to more reciprocal comparisons between both Iberian trades beyond the conventional wisdom on commercial templates, and to pay more attention to the local procurement (and financing) of the export goods in the place of production and the ultimate destination of such imports, in addition to their shipping overseas.

A fourth article complements these institutional aspects of the long-distance Iberian trade using another approach to explain the extensive use of respondentia in early modern maritime commerce. This last essay highlights the character of respondentia—also known as cambium maritimum—as the chief instrument for exchange. As silver was “a necessity” for Asia and it had to be procured from trade in Spanish America, Irigoin’ article argues that the instrument was key for the continuation of Europeans’ intermediation. Because imported silver was indeed specie, where multiple means of payment existed and silver was the preferred one, it performed as foreign currency. Lacking a common standard for metallic monies, and with various monies in circulation, foreign coins created issues for trade, prices and exchange rates that affected trade returns and remittances. After documenting the global scope of the instrument and discussing the nature of the contract, the article emphasizes one feature that was common to all trades, from the Mediterranean to China: the specific denomination of the specie in which capital was to be reimbursed. This, Irigoin argues, offered advantages over alternative instruments in terms of certainty on future prices and allowed the capture of arbitrage profits. European intermediation had the advantage of using monies of account and financial institution that overvalued their own currencies at home, with which they regulated the pricing of species and exchange away from private markets, as in Asia, attractting foreign specie to their realms for re-exports. So they separately used bills within Europe, or through European companies, but used respondentia when dealing in Asia and Spanish America; thus, instruments coexisted and complemented each other rather than substitute one another. Bills as means of remittance were indeed an impossibility since silver specie had a persistent “premium in Asia” and was undervalued in relation to European currencies.

Thus, the four articles here elaborate on the use of instruments for private finance—different from the bills of exchange—in various cases of the most conspicuous trades in the long-distance commerce of the period, like that of silver, sugar and textiles. All of them offer a slightly different characterization of the instrument for each trade as they focus on the use of the contract in their specific geographical and temporal context. There has been no attempt to standardize features into a canonical definition or to offer a prescription for its understanding and working. Instead, the articles retain the specific details of each author’ interpretation to draw attention to a largely under-researched financial instrument for financing trade in the early modern period. Some consider it as a mix of a loan and insurance; others see it as a vehicle for investment, like a private equity of today, or a limited partnership, even as a sort of precocious forward-swap. Together, the articles cover various instances of the global intermediation of Europeans and provide a comprehensive look at the scope of the instrument and its rationale in conjunction with, or as an alternative to, other better-known institutions and instruments, such as the cashless means for payments and remittances that characterize the canonical European case.

A selection of contracts in the appendix serves to illustrate the structure and nature of the instrument.