As Jeremy Baskes points out in this excellent monograph, Spanish merchants faced daunting uncertainties and risks in their trade with the American colonies. While the Spanish monarchy profited from its colonies through taxes imposed on its colonial subjects, the merchants had to ship merchandise across the perilous Atlantic to obtain a share of the gold, silver, dyestuffs, tobacco, hides, and other goods produced in the Americas. Early on, they did this through the fleet system, established by Charles V in the early sixteenth century to convoy European goods to the colonies and bring back American bullion and other products. The galeones and flotas, as the fleets were known, departed from Seville/Cádiz and landed at Portobelo (Panama) and Veracruz, from whence American merchants purchased the imported merchandise. Such convoys allowed the Crown to regulate and tax this commerce, but as Baskes skillfully demonstrates, the fleets also helped reduce the threats from overseas trade to the profits of the merchant guilds (consulados).
Such commerce generated great wealth for some traders, yet it involved great uncertainty and risk. Merchants confronted the dangers of market oversupply, shipwrecks, piracy, and wartime privateers. Indeed, “long-distance trade entailed a notable element of gambling” (p. 3). Uncertainty—defined as dangers that were unmeasurable—could be overcome only by a merchant's intuition and experience, although the slow transmission of information regarding market conditions complicated commerce for even the most seasoned merchants. Contraband trade with the Spanish colonies by other European powers, which was especially widespread in the Caribbean, must have complicated Spanish merchants’ estimation of market risks, although Baskes says little about such smuggling.
Unlike uncertainty, risk was quantifiable, and by the eighteenth century merchants had developed sophisticated means of reducing it. The chief method of cutting risk was by consolidating or pooling it. The fleet system was one way of doing this, because traders could spread their merchandise over a number of ships instead of risking it all in a single vessel or place their cargo in an armed naval ship rather than in an unarmed merchantman. Sea loans were another way of reducing risk: a merchant would finance his shipment by obtaining loans for which the lenders assumed the risks, in return for interest on the loan and a premium for the anticipated risk. Once the merchandise arrived at the American destination, the loan was immediately due. Those making sea loans did not insure entire cargoes, but small portions, in an attempt to reduce their own risk. The use of sea loans declined in the late 1700s, replaced by maritime insurance.
The first six chapters of Staying Afloat are a masterful exposition of the nature of the risks that merchants faced and their struggles to stay abreast of market conditions when information could take several months or even a year to make the voyage from Cádiz to the Americas and back to Cádiz. In chapters 7, 8, and 9, Baskes turns to a detailed examination of how the maritime insurance business developed in Cádiz in the second half of the eighteenth century, including an analysis of eight hundred insurance contracts and a discussion of the effect on insurance companies and trade by the fallout from the royal proclamation in 1778 of intra-imperial “free” trade (comercio libre) and the wars that engulfed the Spanish empire after 1793.
With its focus on merchants and how they dealt with risk, Staying Afloat has less to say about the impact of commercial reforms in the colonies. Baskes rightly notes that the transatlantic merchants did not monopolize New World trade, even before 1778, nor were they able to command exorbitant prices for their wares. They did enjoy a privileged position, however, dominating cargo space within the ships, using their political influence to restrict the number of ships authorized to sail if competition seemed to intensify, and largely controlling import markets in the colonies through the consulados of Seville/Cádiz, Mexico City, and Lima.
By partially controlling supply, the consulados made the shallow colonial markets more profitable than they otherwise would have been. This proved less true after the Bourbon commercial reforms of the late 1700s and, particularly, with the “free” trade decree of 1778. Although the Cádiz consulado continued to dominate, the new regulations allowed other Spanish ports to trade with the colonies (Mexico was excluded until 1789) in a royal attempt to stimulate commerce, which in turn would promote Spanish manufacturing and increase the Crown's revenues through commercial taxation. By the early 1790s, colonial markets were awash with overseas merchandise, undercutting customary profit levels. This was obviously harmful to the interests of the traditional privileged merchants but did not stimulate metropolitan industrial output as much as the government had hoped. Nonetheless, colonial consumers of imported goods probably benefited from lower prices.
Assessment of the success or failure of commercial reforms is hampered by the chaotic era in which they were enacted. Spain was engaged in the war of the American Revolution when the Crown proclaimed comercio libre. Peace returned from 1783 to 1793, but thereafter the hostilities associated with the French Revolution and the Napoleonic Wars made the Atlantic so dangerous to Spanish shipping that overseas commerce became unprofitable and nearly impossible to insure.
Staying Afloat adroitly combines theoretical works—including those of Frank Hyneman Knight on risk and uncertainty, Antonio Miguel Bernal on sea loans, and Douglass North on the importance of institutions to economic life—with studies about the volume of imperial trade, by scholars such as Javier Cuenca-Esteban, Antonio García-Baquero, and John Fisher. Baskes then adds his own important archival work on the activities of the insurance companies. His interpretation is both cogent and accessible. The book is essential reading for anyone interested in early modern Atlantic commerce and the ways merchants dealt with the perils inherent in overseas trade.
