The risk associated with early modern long-distance trade is an important theme that has received little attention in studies of imperial Spain. Jeremy Baskes’, Staying Afloat, therefore, fills a major gap in our understanding of the institutions of risk management in Spain's trade with its New World colonies.
The perils facing Spanish merchants were no different than those faced by British, Dutch, and French merchants, but the institutions of risk management were different. Merchants outside the Spanish empire developed joint-stock trading companies, such as the Dutch, English, or French East India Companies, the Royal African Company, or the Hudson's Bay Company, that permitted merchants to pool and diversify information and risk. Spanish authorities did not charter monopoly-trading companies for the most important trade routes. Instead, they regulated trade using the Carrera de Indias, or the “fleet system,” which strictly limited trade with the colonies to officially organized imperial “fleets,” or convoys. Only Seville, later Cádiz, and a few colonial ports were authorized for transoceanic trade, and only limited numbers of licenses were issued to merchants to ship goods via these official convoys. This institution governed the main imperial trade routes until 1778, when the liberalizing reforms of the Bourbon monarchy eliminated the fleet system, opened the trade to more ports, and made it easier for new entrants to obtain licenses to trade with the colonies.
The book revises the usual interpretation of the rigid Spanish mercantile regulations. The conventional wisdom emphasizes how limiting access to a small number of merchants privileged the powerful consulados, or merchant guilds, with excessive monopoly rents and hampered broader-based market development in the colonies. Baskes offers a revisionist interpretation by elucidating certain efficiency-enhancing effects of Spanish commercial restrictions that helped merchants collect information and manage risk. The Carrera de Indias filled a role similar to, if not as efficient as, the trading companies in the other imperial powers. Baskes thus contributes to a growing body of research that finds guild regulations, mercantilist policies, and other institutions of early modern Europe, often criticized for their market imperfections, may be explained as institutions intended to reduce transaction costs.
The primary resource is the archives of the consulado at Cádiz. The central problem of the book is to understand how early modern managed the unavoidable high levels of risk in long-distance trade due to outdated and unreliable information, and infrequent communication. The greatest risks, he finds, were not the hazards of the transoceanic voyage but rather the price risk at the end of the journey. A merchant who received news of high prices for goods in Veracruz or Lima might choose to ship goods to the market only to be surprised months later that others had beat him to the punch and the markets became glutted before his goods arrived. Obtaining the best information available about shipments was, therefore, essential to survival.
Spanish merchants employed risk-diversification tactics common to all early modern merchants, including dividing cargoes among many ships, syndicating voyages or credit, and purchasing insurance. Unique to Spain, however, was the Carrera de Indias. This institution for centralizing transatlantic trade at Cádiz helped merchants gather information and manage risk. Membership in the Cádiz merchant guild exceeded one thousand, so the numbers were too great to facilitate effective price collusion among guild members; but the concentration of shipments in place and time did facilitate the aggregation of information about supplies of goods to be shipped each year.
The book spans the years of the Bourbon reforms allowing a comparison of institutions before and after the elimination of the Carrera de Indias and the post-1778 expansion of trade. The first few chapters (Chapters 2 through 5) show that merchants found management of market risk much more difficult after elimination of the fleet system because information about supplies was no longer centralized, because shipments after 1778 could depart at any time from a larger number of ports, without centralized oversight.
The last few chapters of the book (Chapter 7 through 9) focus on marine insurance in Cádiz. Before 1778 the primary insurance contract was the sea loan, by which the lender bore the financial loss if ship or cargo were lost in transit. But sea loans fell into decline after 1778 and were replaced with modern marine insurance contracts. The 84 new insurance partnerships that were chartered between 1790 and 1814 reveal the emergence of a sophisticated market of marine insurance; although, the market remained small compared, say, to London. But Baskes finds the industry remained inadequately diversified because the number of underwriters was small and the number of trade routes on which the Cádiz market specialized was even smaller.
In the final analysis, despite the book's coverage, a long-term assessment of the institutional reforms of the Bourbons, a topic of great interest in the literature, is difficult to make. One problem is that the commercial boom caused by the Bourbon reforms was interrupted by the outbreak of the French revolutionary wars in 1793. There was a rise in the rate of bankruptcies in the transatlantic trade in the decade after 1778, which is explained by the increased volume of trade and lower prices in colonial markets. Unfortunately, it is impossible to determine if this was a permanent consequence of having eradicated the risk-reducing institutions of the fleet system or a temporary problem that would be addressed by institutional modernization. The book, however, lays a solid foundation for future research on the question.
In the final analysis, Baskes offers a critical contribution to the debate on the institutions of the Spanish imperial commercial system. The static analysis of monopoly rents and distributional consequences, on which the literature has relied for so long, will no longer be complete without accounting for the transaction-cost environment of long-distance trade. In this highly risky world, no merchant could survive long without taking measures to mitigate risk, and effective institutions of risk mitigation were necessary for the vitality of imperial trade.
