The Fruits of Civilization – The Early Modern Period

The Early Modern Period

The economic revival that began in earnest in western Europe in the mid-15th century continued through the 16th. Western Europeans were traveling the globe. Early in the 17th century, the usual checks of plague, famine, and war decimated the population of central Europe.

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The roots of unbalanced development and inequality around the world today grew from European expansion. The Western industrializing world was able to live beyond the constraints of its resource base by pillaging other lands and seas. This formed the basis for a vast increase in unsustainable consumption, and an obscene standard of living for masters of capital in the upper class. Much of the price of that achievement was paid for by the poverty and suffering of people in the places exploited: in Africa, Asia, the Caribbean, and central and south America. The current economic and environmental problems in the world can only be understood in the context of global dynamics that evolved from the 15th century.

Age of Discovery

The introduction of foreign technologies to Europe, as well as domestic advances, enabled the Age of Imperialism: pillaging on a massive scale; but what history books kindly call the Age of Discovery, starting in the early 15th century and continuing to the end of the 18th.

Before the Europeans set sail, Beijing was the world’s largest city and nearly all the other sizable cosmopolitan centers were in warm regions outside Europe. European explorers sought reliable routes to Asia partly because technologically advanced civilizations were there.

The Europeans saw the rest of the world not just as potential suppliers of luxury foods and industrial crops but also a source of timber, minerals, and other raw materials. The impact of these trades also produced dependent economies characterised by underdevelopment and poverty. ~ English historian Clive Ponting

Developments in navigation and shipbuilding were vital to seaborne exploration. The Chinese magnetic compass came to Europe by way of the Arabs, reducing guesswork. Cartography improved. Larger, more seaworthy ships, with more masts and better sails, and greater cargo area, enabled longer voyages.

The practical mechanics that started with clocks was applied to firearms, which were crucial for conquest when outnumbered. Like the compass, gunpowder came from trading with Muslims.

There were no major technological breakthroughs in Europe, either in industry or agriculture, in the 15th and 16th centuries. Instead, incremental improvements were enough to set sail and subdue resource-rich savages wherever they may be found.

Prior to having magnetic compasses, the Italians were ahead of others in navigation. As early as 1291, a Genoese expedition in oared galleys headed down the west coast of Africa in search of India. They were never seen again.

Among the Italians were excellent explorers who were leaders in the art of navigation; among them were Columbus, Cabot, Vespucci, and da Verrazano. Italian ship designs were conservative, so their lead in the open sea was lost to the Flemish, Dutch, and Portuguese.


A small, backward country, Portugal was the most surprising success in Europe’s imperialist impulse. It owed to fortuitous timing, as well to the skill and courage of Portuguese shipbuilders and explorers.

Henry the Navigator (1394–1460), the 3rd child of the king of Portugal, was devoted to reaching the India by sea. He set up an institute to study navigation and cartography, and, from 1418, sent expeditions down the African coast almost every year until he died.

Henry did not live to realize his ambition. During his life Portuguese sailors had barely passed Cape Verde, the westernmost point of Africa. But the work carried out under his patronage laid the foundation for subsequent exploration.

After Henry’s death, exploration slackened for lack of royal patronage. But when a new king, John II, came to the throne in 1481, sailing to the India got fresh wind in its sails.

Portuguese explorer Vasco da Gama succeeded in his 1497–1499 voyage, at a cost of 2 of his 4 ships and 2/3rds of his crew: to disease, mutiny, storms, and unpleasant encounters with Arab merchants and his Hindu hosts. But the spices in his cargo hold paid for the expedition many times over.

Feeling flush, the Portuguese lost no time in sailing forth to further profits. Within a dozen years they had swept the Arabs off the Indian Ocean and had established trading forts from Mozambique and the Persian Gulf to the fabled Spice Islands.

The Portuguese reached South China in 1513. They arrived in Japan in 1543: the first Europeans to do so. Trade followed.

The Portuguese were masters of the Indian Ocean by 1515. Despite the mocking references to the Portuguese ruler as the “Pepper Potentate” and “Grocer King,” the Portuguese were unable to secure the spice trade monopoly they sought.

At the beginning of the 16th century Portugal had only a million inhabitants. Other than a few small cities, the economy was predominantly subsistence. On the coast, fishing and salt-panning were the primary occupations outside agriculture.

Portuguese economic prowess entirely owed to the small number of able-bodied seamen who sought their fortunes overseas: a number which averaged at any time only about 2,400.

Rather than conquer or colonize territory, the Portuguese focused on controlling the sea lanes from strategic seaside locations, thus facilitating hugely lucrative trade. Their initial success in the Indian Ocean disrupted the traditional trade routes, but these were gradually reestablished. By the end of the 16th century those routes handled more trade than the Portuguese fleet.

Owing to a paucity of people the Portuguese were spread thin. Even at their peak maritime strength in the 1530s, they possessed only about 300 ocean-going ships, with some of those on the Atlantic Ocean – African and Brazilian – routes.

It proved impossible to police routes over 2 oceans with so few ships. The crown was obliged to rely upon on contractors as well as royal officials. Both were inefficient and corrupt. Royal officials, while endowed with extensive powers, were poorly paid, so they supplemented their scant salaries by bribes from smugglers or their own illicit trading. Crown contractors simply took what they could when they could.

While the spice trade is most famous, it was only one of several that Portuguese kings attempted to monopolize for fiscal solvency. Among them were gold, ivory, and slaves. Attempts were even made to monopolize maritime trade with domestically produced staples, such as salt and soap.

What the crown could not monopolize it tried to heavily tax. This of course encouraged evasion, which was widespread. The higher the tax, the greater the incentive to smuggle.

The upshot was that Portuguese kings, like their Spanish counterparts, had to borrow to support their lavishness. This was mostly for short terms at high interest rates, against future deliveries of highly salable commodities such as pepper. The lenders were most often foreigners – Italians and Flemish – or those that had effectively been forced to specialize in portable wealth: Jews.

In the 1530s the Portuguese crown became alarmed at French freebooters along the Brazilian coast. As the English did in the 17 century, the king made land grants to private individuals in hopes of securing settlers at little expense.

The early Portuguese colonies did not flourish. The natives were often hostile and provided neither a market for Portuguese products nor reliable labor for the Brazilian economy. Not until the 1570s, with sugarcane and African slave labor, did Brazil amount to much to the Portuguese imperial economy.

In 1580 Portugal fell to the Spanish crown. From there its colonial legacy was picked apart by depredations from the Dutch and others.

 Christopher Columbus

For the execution of the voyage to the Indies, I did not make use of intelligence, mathematics or maps. ~ Christopher Columbus

In 1484 a Genoese who had sailed for the Portuguese and had a Portuguese wife asked Portuguese King John II to finance a voyage to the East by heading west, across the Atlantic Ocean.

As the world was generally thought a globe by that time, the proposal had possibility, if not feasibility. John’s advisors, with a better sense of the planet’s girth than the optimistic Christopher Columbus, were skeptical.

The Portuguese King stuck to rounding Africa, so Columbus shopped his proposal to the rulers of Spain, England, and France without success.

Catholic Monarchs Ferdinand and Isabella of Spain, who were preoccupied and financially drained by their Spanish Inquisition and war against the Moors, at first turned Columbus away. But in 1492 Isabella relented.

As something of a victory celebration, she agreed to finish underwriting the expedition, even as she did not really believe Columbus would ever return. Columbus had already secured half of the financial backing from Italian merchants.

Columbus set sail on 3 August 1492. A little over 2 months later he spied land.

In landing in the West Indies, Columbus believed he had made his way to the Indian subcontinent. Though dismayed by the poverty of the natives, he dubbed the inhabitants Indians.

Columbus spent a few weeks reconnoitering the islands, then sailed back. He returned the following year with 17 ships, 1,500 men, and enough livestock and cargo to establish a permanent settlement.

Altogether, Columbus made 4 voyages to the West Indies. His deluded belief that he had discovered a direct route to Asia remained unshaken.

Columbus’ voyages brought a plague to the natives.

European contact transmitted diseases to previously isolated communities, causing devastation far exceeding that of even the Black Death in 14th-century Europe. ~ Canadian economist Nathan Nunn & Chinese American economist Nancy Qian


Immediately upon Columbus’ return, Ferdinand and Isabella petitioned the Pope to bifurcate the non-Christian world. The western half, from pole to pole, was to be titled to Spain, while the eastern half went to Portugal.

The news of Columbus’ discovery galvanized merchants more than the courts of other countries, though kings commissioned ventures which were largely privately financed.

In 1497, Italian John Cabot, backed by Bristol merchants and under commission of Henry VII of England, sailed forth to discover Newfoundland and Nova Scotia. The next year he made a 2nd voyage.

Cabot’s failure to return with marketable commodities, such as spices or precious metals, meant that his commercial backers lost interest. So it went with other efforts to find a western passage to India, even as new lands were discovered.

Meanwhile, sovereigns who backed these ventures laid claim to the future countries of the New World. What started as a gold rush ended up as a land grab, though lunging for lucre never went out of fashion. Persistence did pay off in riches for some while claims for nascent empires were being laid.

 Spanish Conquistadors

Although Spain got off to a slow start, with only trinkets plundered from savages on Caribbean islands to show for their efforts, they quickly switched to pursuit of precious metals. Continued efforts for the westward passage to India revealed wealthy civilizations on the Mexico mainland and northern South America.

Spanish conquistador Hernán Cortés conquered the Aztec Empire 1519–1521. Following in the moral tradition of the Inquisition, as a demonstration designed to invoke fear, Cortés massacred thousands of unarmed nobility on his way to Tenochtitlan, the capitol city, for a meeting with Moctezuma II, the Aztec ruler.

Though death tolls and situations varied, such atrocities would become commonplace by conquerors, and carried on in wars throughout the world to the present day. Metals may be precious but human life is always cheap.

Spanish conquistador Francisco Pizarro, on his 3rd attempt, conquered the Peruvian Inca Empire in the 1533. In 1532, Pizarro invited Atahualpa, the Incan emperor, to parley. Instead of diplomacy, Atahualpa received an ambush. Pizarro slaughtered Atahualpa’s entire retinue. Pizarro held the emperor for ransom, which was paid.

Pizarro then decided to kill Atahualpa. Atahualpa was to be burned alive, but was told that if he converted to Catholicism, he would be spared. As the Incas believed that a soul could not go to the afterlife if its body was burned, Atahualpa agreed; whereupon Atahualpa was garroted instead.

By the end of the 16th century, Spain wielded effective power over much of the hemisphere from Florida and Southern California down through South America, Brazil excepted.

The Spaniards at first merely plundered the natives of all their portable wealth. After quickly exhausting that, they introduced European mining methods to gouge silver out of the ground in Mexico and the Andes.

Unlike the Portuguese, who lacked population to spare, the Spanish colonized the areas they conquered. That meant forcibly importing their civilization: people, equipment, firearms, institutions, religion, crops, livestock, and disease.

Before the Spanish arrived, the native population numbered well over 25 million. By the end of the 16th century only a few million indigenes remained.

Beginning in 1501, African slaves were shipped over to address the labor shortage. By 1600, the majority of people in the West Indies were Africans and those of mixed races.


Much flowed back to Europe from conquest besides great quantities of precious metals. Exotic dyestuffs, such as indigo, spruced up European clothing, making a more tradable commodity at home and overseas.

Tea from Asia, coffee from Africa, and cocoa from America became staple European beverages. Cotton and sugar, though previously known, came in larger quantities than ever before. Numerous new foodstuffs made their way to Europe: corn, potatoes, tomatoes, peppers, pumpkins, squash, string beans, and turkey, all from the western hemisphere. Rice imported from Asia adapted to both European and American climates. Tobacco from America arrived and thrived in Europe, despite determined efforts by both church and state to stamp it out. In later years, tropical fruits, nuts, and exotic woods were imported, as well as the valued remains of animals slaughtered on a horrific scale: furs and hides.


The great influx of commodities and monetary metals spurred prolonged inflation. By the end of the 16th century most prices were 3 to 4 times what they had been at the beginning. Many causal factors were influential, but monetary debasements by impecunious and unscrupulous sovereigns must be near the top of the list.

The effect was to redistribute wealth. Those with assets and price-elastic incomes – merchants, manufacturers, and landowners – made out relatively well. Workers, peasants, and pensioners paid the price.

Population dynamics played a part. A booming population in the 16th century begat surplus labor which suppressed wages. That agricultural productivity did not keep pace exacerbated the situation, at least as far as food prices went. Population growth ceased in the 17th century after it became fatally obvious that there were too many people and not enough to eat for those on the bottom rungs of the socioeconomic ladder.

In the eastern, more backward region of Europe, the situation provided an exploitative opportunity. In Russia and parts of Poland, peasant status, already parlous in the 15th century, took a turn for the worse: those who worked the land did so on terms tantamount to slavery.

In contrast, the Low Countries were a paradigm of productivity. By the end of the 15th century Dutch and Flemish agriculture had already outpaced the European average. The reason was historical. The settlement of the region during the Middle Ages left the people freer than those under manorialism. Agricultural innovation was practically a tradition.

30 Years’ War

The 30 Years’ War (1618–1648) was a continuous series of conflicts involving most European countries. It amounted to one of the longest and most destructive wars in modern history.

The conflict began as a war between Catholics and Protestants for the religious domination of the Holy Roman Empire, although political disputes were also involved. As the struggle continued, it turned into an escalation of the Bourbon–Habsburg rivalry (the rulers of the kingdoms of France and the Holy Roman Empire, respectively), which had simmered since 1516, and would ultimately continue to 1756.

Even as the quarrels that provoked the 30 Years’ War went unresolved, armed conflict ended with treaties in 1648, termed as a whole the Peace of Westphalia. This Peace also ended the hostilities of the 80 Years’ War (1568–1648), which was the Dutch war of independence from Spain.

These wars devastated entire regions: denuded by foraging armies. Famine and disease followed.

The armies involved, although not strictly mercenary, were expected to be largely self-funding. That translated in practice to pillaging the settlements encountered.

The Dutch Golden Age

The 17th century was the Dutch Golden Age, in which the Dutch excelled in trade, science, and art, and in military prowess. The United Provinces – Netherlands, Belgium, and Luxembourg – gained independence from Spain in 1648, when the 80 Years’ War ended.

During the course of the 16th–17th centuries, the industrious Dutch created a capitalist economy of the 1st degree, both in agriculture and commercial enterprise.

The Dutch East India Company was chartered in 1602. It was the first company to issue stock and became the first multinational corporation. The Dutch stock exchange, the oldest in the world, also started up in 1602.

One of the keys to Dutch success, particularly in cultivation, was specialization, coupled with an interdependence between commercial and agricultural sectors. Neither would have advanced so well without the other.

The key was buoyant demand from the prosperous and growing Dutch cities. Instead of striving to produce as much as possible, either on the farm or in the workshop, the Dutch produced to meet market demand.

The Dutch also relied upon the market for their own needs, both for capital and intermediate goods. In some instances, farmers would sell their entire wheat crop and buy cheap rye for their own consumption.

The efficiency of Dutch shipping, and the commercial aggressiveness of Dutch merchants, meant that food imports could often be had cheaper than growing domestically, especially from the backward Baltic region. In the mid-17th century over 25% of the food consumed by the Dutch was imported; much of it lesser grains for the lower classes.

The demand for fertilizer was so great that some entrepreneurs profitably specialized in collecting urban night soil and pigeon droppings, which they sold by the cart or boat load. One positive externality of this was keeping Dutch cities more sanitary than they would have been otherwise.

 Tulip Mania

In 1551, Flemish herbalist and diplomat Ogier de Besbeque was the Viennese ambassador to the Ottoman Empire. He found an unusual flower there, having a long stem leading to a cup-shaped blossom with silken petals.

de Besbeque wrote of his find to a botanist friend in Flanders, Carolus Clusius. Seeds soon followed the letter, and subsequently a crate of bulbs.

Inspired by Marco Polo and others, Europeans had been intrigued by exotic imports from the East for more than 2 centuries. The tulip was a flower of rare beauty.

In their natural state, unaffected by disease, tulips are a solid color in every hue except true blue: from pure white to an almost-black deep purple.

Attacked by the mosaic virus, tulip flowers display what is known as breaking: the natural color interrupted by irregular streaks. Once infected, a tulip bulb will produce flowers of the same pattern year after year.

The mosaic virus does no harm to a bulb or its longevity. It affects only the regularity of a flower’s coloring.

A desirable broken pattern can be replicated by planting a solid-color flower bulb in the same soil. The virus creates a known pattern in what may be a distinctive color. Hence, variety can be controlled: rendering the tulip a flower both unique and selectively variable. Clusius sussed this and laid the foundations for Dutch tulip breeding. (That tulip breaking was caused by a virus was not discovered until the late 19th century.)

Starting as a fad of prized beauty, tulips soon grew in demand. With such a long supply chain in the 16th century, demand quickly created scarcity; whence the first speculative economic bubble bloomed.

By the start of the 17th century, single bulbs of new tulip varieties were considered acceptable dowry payments for brides in many parts of Europe. One French businessman traded his flourishing brewery for a particular tulip bulb.

What was generally true in Europe struck strongly in the Netherlands. In a small, homogeneous society, word travels fast. Greedy impulse feeds the social fear of being left behind. The impetus for mass hysteria was in place.

Geology favored the Dutch. Tulips flourish best in sandy, well-drained soil. For eons, the mountains of Europe eroded into sand that flowed out to the Low Countries. Large tracts of the Netherlands were tulip fields in waiting.

Maritime trade had made the Dutch people relatively prosperous, especially after the Netherlands had won its independence from Spain in the wake of the 80 Years’ War.

Bitter religious wars would punctuate the decades ahead. But at the start of the 17th century, Amsterdam – long one of northern Europe’s principal trading centers, and free of sectarian strife – was ready to head the Netherlands to continental ascendance.

Had they been merely pretty flowers, tulips might have simply taken their place in Dutch gardens. Instead, their beauty came an increasingly steep price; hence, tulips became badges of prosperity: a way of announcing social standing.

Many individuals grew suddenly rich. A golden bait hung temptingly out before the people, and, one after the other, they rushed to the tulip marts, like flies around a honeypot. Everyone imagined that the passion for tulips would last forever, and that the wealthy from every part of the world would send to Holland, and pay whatever prices were asked for them. The riches of Europe would be concentrated on the shores of the Zuyder Zee, and poverty banished from the favoured clime of Holland. Nobles, citizens, farmers, mechanics, seamen, footmen, maidservants, even chimney sweeps and old clotheswomen, dabbled in tulips. ~ Scottish journalist Charles Mackay in Extraordinary Popular Delusions and the Madness of Crowds (1841)

The bubble peaked when contract prices for bulbs of a recently introduced tulip briefly went for more than 10 times the annual income of a skilled craftsman; then the market abruptly collapsed.

Haarlem was a major trading center for tulips and other flowers. Market disintegration began in Haarlem, when, for the first time, there were no buyers at a routine auction. The no-show auction coincided with the height of an outbreak of bubonic plague.

Tulip mania was only the first of innumerable speculative bubbles, all flowing from the same mass psychology that fuels capitalism at its greediest: the prospect of profit for little effort.


The profitability of Dutch agriculture is attested to by intensive land reclamation efforts. These included reclaiming land from the sea, by draining marshes and lakes, and by planting peat bogs after the peat had been taken for fuel.

Efforts to reclaim land began in the Middle Ages, but gathered pace in the 16th–17th centuries, particularly when prices were high for farm products. Farmers were not the only ones involved.

Dikes and drainage required large capital spending. Urban merchants and other investors formed companies to reclaim land which they then sold or leased to farmers.

Diffusion of Dutch agriculture and business techniques did occur in the 16th–17th centuries, notably to England and northern France, but to a limited extent. Other countries lacked Dutch productivity, and their markets were not developed enough to justify the specialization that characterized Dutch agriculture.

Early Modern Industrial Technology

Nothing dramatic distinguished the Middle Ages from the early modern period in either agriculture or industry. Innovation was incremental: mostly refinements to known technologies. But some improvements possessed latency to much larger economic effects later on.


The first-known movable-type printing system was invented in China ~1040 by Bi Shēng, using ceramics. Wood was tried but uneven swelling resulted after the wood was soaked in ink. (Wang Zhen reinvented wood type in 1298, which was used in China for centuries.) Metal movable type was invented in Korea in 1234 by Choe Yun-ui. This meant little to the Chinese, who had been using copper blocks to print money from the beginning of the 12th century.

German blacksmith and goldsmith Johannes Gutenberg introduced printing via metal movable-type to Europe in 1450. While a technological breakthrough, the immediate economic impact of printing was miniscule outside the book trade in terms of employment or the value of goods.


Other innovations of the period – weaponry, navigational instruments, clocks and watches – had minor economic effect at the time, though their cultural and political significance was enormous; which meant, in time, the productivity improvements of these inventions made a large and lasting economic impression.

Somewhat similarly, in the 20th century computers had a time lag between invention and economic effect. Much of this owed to the difficulty of squeezing more productivity from machines that were hard to program and use owing to deficient design.

The Dutch excepted, the market orientation in Europe during the early modern period was greater in industry than agriculture. This encouraged entrepreneurs to reduce production costs and respond to changes in consumer demand. There were powerful forces aligned against innovation, especially opposition by political authorities who feared the effects on unemployment from labor-saving devices.

 Knitting Trouble

English parson William Lee invented the stocking frame knitting machine in 1589. He did so because the woman whom he was courting was more interested in knitting than him.

Lee’s machine was the only such one in use for centuries, and its principle of operation remains to this day. Whereas a skilled knitter could make 100 stitches per minute by hand, the stocking frame averaged 1,000.

That sort of thing was dangerous. Lee was refused a patent by Queen Elizabeth I. When he attempted to introduce frames in Nottinghamshire, they were destroyed by mobs of hand knitters.

Lee took refuge in France, where he established a factory under the patronage of Henry IV. When Good King Henry died the factory failed, but the technology continued to spread.


England was especially active in banning machines that took jobs, beginning in 1551, when Parliament passed a law prohibiting gig-mills, a device used for cloth finishing. Despite the law, new gig-mills continued to be built.

Market opportunities repeatedly overcame legislation. The swivel-loom, a Dutch invention, could weave a dozen or more ribbons simultaneously. It was banned in England in 1638 but spread anyway, especially in the Manchester area.


The textiles trade, followed closely by the building industry, offered the most employment in the early modern period.

The typical textile product during the Middle Ages was a coarse heavy wool fabric. In the late 15th century, Flemish cloth makers introduced a lighter, cheaper cloth, termed new draperies, which gained popularity throughout Europe by the end of the 16th century.

Mexicans had cotton fabric by 5000 BCE. Cotton clothing was widespread in India by 1000 BCE.

Europe got a late start. In late medieval times, cotton fiber was imported into northern Europe without knowing anything more about it than that it came from a plant.

Cotton was produced in Italy in the Middle Ages, with raw material from the eastern Mediterranean. The fabric gradually spread northward during the 16th century, reaching Lancashire, England around 1620.

The organization of the textile industry in Europe remained largely unchanged from the later Middle Ages. Clothing manufacture was widely dispersed.

Most production for households and the local market was locally made. But some regions specialized in export production.

The prominence of the once-great Italians declined from competition, losing market share to Dutch, French, and English producers. Spain expanded briskly during the 1st half of the 16th century, until its clothing industry was waylaid by high taxes and government interference.

For the first 70 years of the 17th century, the locus of the export cloth industry, in both woolens and linens, was the Low Countries: Flanders and Brabant in particular; but the Dutch revolt against Spain severely damaged clothing commerce until decades after the war.

During the Middle Ages, raw wool was England’s principal export. In 1660, woolen and worsted cloth accounted for 2/3rds of English exports by value. These were undyed and undressed. Then the English textile industry went upscale. By the end of the 17th century, virtually all cloth exported from England was in finished condition. Well before the rise of modern industry, England became the largest exporter of clothing, which was Europe’s largest industry.

Clothing continued as the principal English export into the industrial age. From the late 18th century, the city of Manchester was known as Cottonopolis.


In the late 15th century and early 16th century, Italian polymath Leonardo da Vinci designed several machines that could not be built at the time for lack of proper materials and machine power. These same obstacles – of power sources, and adequate supplies of materials – frustrated greater industrial productivity.

The sophistication of waterwheels and windmills was well developed by the 17th century, but their obvious limitations limited their employment. Still, water-powered mills for spinning silk proliferated in the Po Valley in northern Italy and the Rhone Valley in eastern France. The large size and complexity of the machinery involved required factory buildings. These production facilities were precursors to modern industrial installations.


Construction of buildings underwent little technological change from medieval times; but one specialized sector in the construction industry did, especially in one country. Shipbuilding in the Dutch Netherlands underwent a profound transformation.

Thanks to flourishing Dutch commerce, in the 150 years to the mid-17th century there was a 10-fold increase in the size of the Dutch merchant fleet, and a more manifold multiplication in tonnage. The Dutch merchant fleet was 3 times that of the English, which was 2nd, and probably larger than the rest of Europe combined. That meant a huge demand for shipbuilding, considering the short life of wooden sailing ships. The Dutch responded by rationalizing their shipyards, including introducing mass production. Windmills powered mechanical saws and hoists. Interchangeable parts were produced and stored.

Merchant ships in the Atlantic trades went from 180 to 540 tonnes during the 16th century. Some warships bulked to over 1,300 tonnes.

While incremental improvements abounded, there were few radical innovations in ship design between the late 15th and 19th centuries. The most significant was the specialized cargo carrier introduced by the Dutch at the end of the 16th century, known as the vlieboot (flyboat). Its great advantage was a draft shallow enough to navigate a river estuary.

The flyboat was designed for bulky, low-value loads, such as grain and timber. It could be operated with a smaller crew complement than conventional ships.


Europe was never naturally rich with precious metals, though more ordinary ores were relatively abundant.

Silver mining was well-established in the Middle Ages. It hit a boom in the early 16th century with the discovery of the mercury amalgamation process which concentrated silver ore. The rather obvious toxicity of mercury went largely unappreciated.

Copper, iron, lead, and zinc were found in many areas of Europe, and have been mined since prehistoric times. Tin was more localized, found most abundantly near Cornwall. Tin had been an item of commerce before the Romans conquered Britain.

Responding to demand, mining techniques improved in the 16th–17th centuries: deeper shafts, better ventilation, and pumping machinery. Most mining innovations came from Germany. The technology spread as German miners went abroad. In the 1560s, the British government granted monopolies to brass and copper companies which then hired in German engineers.

In medieval times, iron was wrought from various types of bloomeries. The iron was heated using charcoal until it became a pasty bloom, whereupon it was alternately hammered and heated to drive the impurities out. Output was small, owing to a slow, laborious, inefficient, and costly process in terms of ore and fuel.

The blast furnace was invented in China in the 1st century, and incrementally reinvented in Europe, beginning in the late 14th century, with the height of furnaces progressively increasing. The same fuel – charcoal – was used, but the process was different.

Fuel, ore, and a flux to remove impurities – typically limestone – go in from the top. A blast of air from a bellows increases the heat. Chemical reactions take place as the material flows down the furnace. Metal and slag emerge at the bottom while flue gases escape from the top. Thus, in the 16th century, the blast furnace evolved.

Numerous innovations occurred to facilitate the blast furnace, including water-powered bellows, tilt hammers, and stamping mills for crushing ore. Other related inventions followed, including rolling and slitting mills, and wire-drawing machines. While more efficient, blast furnaces were also more capital-intensive, though much of that went to maintaining inventories of ore and charcoal.

The Low Countries, particularly the southeast region around Liège and Wallonia, were involved with metallurgy during the Middle Ages. At the beginning of the 16th century, this region led Europe in iron-making innovation. Germany, northern Italy, and northern Spain were also major centers, with Germany accounting for around half the production by volume.

Metallurgy technology spread over the next 100 years. England especially embraced iron. By 1625 it had 100 furnaces producing 23,000 tonnes per year.

The iron industry was a voracious consumer of fuel. In the 17th century, the high price of charcoal hindered expansion. In a larger context, energy resources became a limitation to industrial growth throughout Europe.

Early Modern Energy Production

There was great demand for timber for various purposes: construction, shipbuilding, metallurgy, and home heating. Norway and Sweden were integrated into the more industrially advanced western Europe for both their timber and metal resources, much as, centuries later, Australia would prosper primarily from exploiting its natural resources of raw materials.

In the 17th and 18th centuries, North America too faced rising timber prices. The trees could not be chopped down fast enough to meet demand.

Insufficient lumber led to a search for substitute materials and fuels: coal and peat for energy, brick and stone for building. Iron and other metals could also substitute, though those ironically exacerbated the energy shortage, especially the timber these metals were intended to replace. England reserved some of its forests for its royal navy.

Coal had been mined since medieval times in Germany, England, and the Low Countries. This noxious fuel was often legally banned, but that did not stop it from being used, especially in energy-intensive industries.

Early Modern Trade

Though capitalism was in its salad days in the early modern period, its dynamics were already established. New raw materials created opportunities for new goods, thus stimulating new industries.

The printing press inspired a new industry, as well as adding to timber demand. By the end of the 15th century, there were more than 200 printing presses in Europe, and 15 million copies of 35,000 books had been published.

The numbers grew exponentially. By the last half of the 17th century, Europe’s largest book fair, in Frankfurt, listed 40,000 current titles.

Commerce itself drove the European economy between the 15th and 18th centuries. By far the greatest volume and value remained in local trade. But overseas trade became increasingly important. There, country leadership changed through the centuries, from the Italians to the Portuguese to the Dutch. The English determinably kept up.

Early on, the Italians realized they had lost their edge, and made an impotent stab at recovery. In 1521, in an attempt to recover their monopoly in the spice trade, the Venetians offered to purchase the entire Portuguese import. They were refused.

There were other European East India Companies besides the Dutch (founded in 1602): the English (1600); Danish (1616), Portuguese (1628), French (1664), and Swedish (1731).

The British Company got its 15-year monopoly charter from Queen Elizabeth. The crown held no shares and had only indirect control. The company was owned by aristocrats and wealthy merchants.

Chartered under King Christian IV, the Danish East India Company got off to a poor start. Its first expedition took 2 years to reach Ceylon, losing over half its crew on the way. By the time the Danes arrived, the island had already been claimed by Portugal. The Danes unsuccessfully tried to fight the Portuguese off. Instead, the Danes settled on the mainland.

During its heyday, the Danish Company smuggled more tea into England than the native Brits managed to import, making a huge profit. It was not to last. The original Danish East India Company dissolved in 1650, ruined by wars in which Denmark partook.

The character of the commodities that constituted distant trade changed somewhat during the 16th and 17th centuries. In the Middle Ages, European imports were of luxury goods. By the 16th century, a much larger proportion was of staples: metals, timber, textiles, grains, salts, fish, and wine.

At the end of the 17th century, half of English imports by volume was timber. More than half the volume of England’s exports was coal, though its cloth exports were more valuable.

Trade in bulky staples was made possible by better ships and navigation. It helped that royal navies kept piracy in check. The Portuguese navy doubled as a merchant fleet.

The significance of precious-metal imports subsided in the 17th century. As several countries had colonies in the western hemisphere, European imports from there increasingly became sugar, tobacco, hides, and even timber. To their colonies the Europeans exported manufactured goods and emigrants.

European trade with the East had an altogether distinctive character. From the onset of direct contact, Europeans had little to offer in exchange for the spices and other goods they wanted. Hence, what constituted “trade” was actually plunder. Where pillage was not possible, Asians accepted firearms, but the dominant demand was for gold and silver, which was hoarded, albeit some turned into jewelry.

Asia became a sink for European monetary metals. This was not reversed until the British conquest of India in the 18th century.

 The Slave Trade

The blunting effects of slavery upon the slaveholder’s moral perceptions are known and conceded the world over; and a privileged class, an aristocracy, is but a band of slaveholders under another name. ~ American author Mark Twain

Though the largest purchases of slaves were for Spain’s colonies, the Spanish themselves were not very actively engaged in the trade. Instead, slaves were acquired by contract with traders of other nations.

The slave trade was dominated first by the Portuguese, then successively by the Dutch, French, and British. Trade was typically triangular in nature.

A European ship carrying firearms, knives, and other metal wares, cheap trinkets, colorful cloth, and liquor, would sail for the west African coast. The cargo would be exchanged for slaves with local African chieftains, who traded in war captives or undesirables in their own tribes.

When a slave trader had filled his ship with as many manacled and chained slaves as it could possibly carry, he sailed across the Atlantic to the West Indies, or to the mainland of North or South America. Once the slave cargo was unloaded, a trader would return to Europe with desired goods.

The spoilage rate of slaves in transit was fearsome. Often over 50% died from disease or other causes. But the profits were handsome. All told, an estimated 12 million Africans were taken as slaves by both Europeans and Arabs.

The slave trade flourished despite its illegality. Spain was the first country to abolish slavery, in 1542, by imperial decree. Though slavery was illegal in the Netherlands, it thrived there, helping to support the economy. By 1650, the Dutch were the preeminent European slave traders.

The ever-determined Brits overtook the Dutch around 1700, with something akin to religious fervor. The Church of England had slaves on its sugar plantations in the West Indies and used them domestically.

When England entirely outlawed slavery in 1834, the government compensated slave owners. The Bishop of Exeter in Canterbury was among them.

The profitability of slavery and threats of a war between races retarded abolition movements. Of the numerous slave revolts in the Caribbean, only one was successful. In the 1790s, slaves in the French colony of Haiti rose up and slaughtered the whites and mulattoes there and established an independent republic. Europe recoiled in horror.

While the northern states in the United States outlawed slavery between 1777 and 1804, it took a bloody Civil War (1860–1865) for the south to be coerced into abolition. Even then, racial discrimination and exploitation enthusiastically continued.

Brazil and Cuba ended slavery in the 1880s, only after it was no longer profitable for owners. Meanwhile, slavery continued in Africa, where Arabs slavers raided for new captives to be sold. European colonial rule and diplomatic pressure brought the slave trade to a supposed end in Africa.

In Europe, Asia, and elsewhere, slavery persists. Millions are enslaved for sexual and economic exploitation.

 The Slave Trade

The blunting effects of slavery upon the slaveholder’s moral perceptions are known and conceded the world over; and a privileged class, an aristocracy, is but a band of slaveholders under another name. ~ American author Mark Twain

Though the largest purchases of slaves were for Spain’s colonies, the Spanish themselves were not very actively engaged in the trade. Instead, slaves were acquired by contract with traders of other nations.

The slave trade was dominated first by the Portuguese, then successively by the Dutch, French, and British. Trade was typically triangular in nature.

A European ship carrying firearms, knives, and other metal wares, cheap trinkets, colorful cloth, and liquor, would sail for the west African coast. The cargo would be exchanged for slaves with local African chieftains, who traded in war captives or undesirables in their own tribes.

When a slave trader had filled his ship with as many manacled and chained slaves as it could possibly carry, he sailed across the Atlantic to the West Indies, or to the mainland of North or South America. Once the slave cargo was unloaded, a trader would return to Europe with desired goods.

The spoilage rate of slaves in transit was fearsome. Often over 50% died from disease or other causes. But the profits were handsome. All told, an estimated 12 million Africans were taken as slaves by both Europeans and Arabs.

The slave trade flourished despite its illegality. Spain was the first country to abolish slavery, in 1542, by imperial decree. Though slavery was illegal in the Netherlands, it thrived there, helping to support the economy. By 1650, the Dutch were the preeminent European slave traders.

The ever-determined Brits overtook the Dutch around 1700, with something akin to religious fervor. The Church of England had slaves on its sugar plantations in the West Indies and used them domestically.

When England entirely outlawed slavery in 1834, the government compensated slave owners. The Bishop of Exeter in Canterbury was among them.

The profitability of slavery and threats of a war between races retarded abolition movements. Of the numerous slave revolts in the Caribbean, only one was successful. In the 1790s, slaves in the French colony of Haiti rose up and slaughtered the whites and mulattoes there and established an independent republic. Europe recoiled in horror.

While the northern states in the United States outlawed slavery between 1777 and 1804, it took a bloody Civil War (1860–1865) for the south to be coerced into abolition. Even then, racial discrimination and exploitation enthusiastically continued.

Brazil and Cuba ended slavery in the 1880s, only after it was no longer profitable for owners. Meanwhile, slavery continued in Africa, where Arabs slavers raided for new captives to be sold. European colonial rule and diplomatic pressure brought the slave trade to a supposed end in Africa.

In Europe, Asia, and elsewhere, slavery persists. Millions are enslaved for sexual and economic exploitation.


“Nationalism is power hunger tempered by self-deception.” ~ English author George Orwell

A nation-state is a historical artifact: the product of power over peoples, and, occasionally, of people revolting against power. States vary considerably in character, by their history, and geographic circumstances.

In the early modern period, most continental powers were absolute monarchies. England’s monarchy was more measured, in the crown being checked by social contract dating from the early 13th century. In contrast, the United Provinces, Swiss, and Hanseatic cities had burgher republics.

Whatever their schisms in sovereignty, all states at the time shared a commonality: nationalism rested upon the upper class, not the mass of its people. Differences in economic policy depended upon the composition and interests of the ruling classes.

Sovereign wishes superseded all other concerns in absolute monarchies. Whatever scant understanding they may have had of economics, kings were accustomed to having their orders obeyed.

Day-to-day administration of kingdoms filtered through a hierarchy of ministers and civil servants who were unfamiliar with commercial and industrial enterprise. Their concerns echoed the attitudes and values of their master.

Regulations added to the cost of doing business. This engendered evasion.

Ignorance and indifference meant that monarchs often sacrificed the economic well-being of subjects, and by doing so undermined the foundation of their own power.

In the 16th century, Spanish kings relied upon regressive taxes for revenue. With 97% of the land being owned by 2% of the population, landowners were exempt from taxation. The tax burden fell upon artisans and tradesmen, and especially peasants. Hence, in spite of a great empire, with vast quantities of monetary metals flowing from their colonies, Spain’s rulers continually outspent their income while hindering commerce, ensuring inexorable decline.

Even France, the most populous and powerful European nation, struggled to support the territorial ambitions and pomp of Louis XIV’s court. When Louis the Great died in 1715, the staunch advocate of the divine right of kings and grand government centralizer left as a legacy a country on the brink of bankruptcy.

In contrast, the United Netherlands had an absolute monarchy of merchants. The wealthy commercial class controlled the principal cities with a more informed economic program. Themselves having prospered from trade, they knew well enough not to view commerce as a form of undeclared war. Their ports and markets were welcome to merchants of all nations.


England sat in the center of the spectrum. The upper class was politically well-aligned by the landed aristocracy intermarried with wealthy merchant families, lawyers, and officials.

After the Glorious Revolution of 1688, a plutocratic Parliament took power. Laws concerning economic regulation reflected the balance of interests between the agricultural aristocracy and the commercial combine of domestic manufacturers and traders.

With public finances under the control of Parliament, debt was contained, which brought down the cost of borrowing, and freed up capital for private investment. Capital concentration was assisted by highly regressive taxation which robbed the poor while leaving the wealthy flush. In the large, this capital accumulation had little to do with direct investment, as most industrial enterprises were started by small-time entrepreneurs and organically grew by reinvesting profits.

The euphoria engendered by the Glorious Revolution resulted in the creation of several joint-stock companies in the 1690s. Some of them, like the Bank of England, had royal charters and monopoly grants. At the time, the law was ambiguous about business organizations.

 The South Sea Bubble

The South Sea Company was a joint-stock company chartered in 1711. Its monopoly grant was trade in South America, at a time that Spain controlled that trade.

The South Sea Company was a public-private partnership to fund England’s portion of the War of Spanish Succession (1701–1714). There was never any realistic prospect that any trade would take place. No profit was ever realized.

Yet shares of the stock soared as the Company expanded its government debt operations. The South Sea Bubble burst in 1720, when Parliament passed the Bubble Act, which forbade all joint-stock companies not authorized by royal charter. Share prices plummeted to a less than the original flotation price, even though the South Sea Company had a charter.

(The motivation behind the Bubble Act is obscured: whether it was to protect unwary investors, or whether the South Sea Company itself finessed the legislation to ward off other bubble companies. Either way, the Act cast the South Sea Company in a light which doomed it.)

Many moneyed men were ruined by the collapse. The national economy was diminished.

The South Sea Bubble was fostered by insider trading. Founders finagled handsome profits by purchasing debt in advance of its consolidation. Politicians profited from huge bribes to support the scheme.

Company money was employed to deal in its own shares. Privileged persons purchasing stock were given loans backed by those same shares to spend on buying more shares.

The expectation of vast wealth from South American trade was foisted upon an unsuspecting public, despite its improbability. The only consequential trading that did take place was in slaves, and the company managed that at a loss.

A parliamentary inquiry afterwards garnered the disgrace of some politicians, and men found to have illicitly profited had assets confiscated commensurate with their gains. These rich men remained comfortably so.

Parliament was loath to grant authorization for joint-stock companies after the Bubble Act. England entered the industrial era bereft of the business organization that would predominate modern capitalism. Most enterprises were partnerships or simple proprietorships.


 The Mississippi Bubble

“Some in clandestine companies combine; erect new stocks to trade beyond the line; with air and empty names beguile the town, and raise new credits first, then cry ’em down; divide the empty nothing into shares, and set the crowd together by the ears.” ~ English trader, writer, and spy Daniel Defoe

While England was sinking from the South Sea debacle, France was blowing its own Mississippi Bubble, ostensibly over French possessions in North America, then called Mississippi.

Scottish economist and gambler John Law (1671–1729) believed that money was merely a means of exchange that did not, in of itself, constitute wealth. Law thought that national wealth was based upon trade.

Law had a mind for math. He won card games by mentally calculating the odds.

Anticipating monetarism, Law held that printing money would stimulate the economy. Law favored paper money rather than metal, which he would have banned.

To Law, shares were a superior currency, as they paid dividends. Stock punters would forever agree.

The War of the Spanish Succession had left France’s economy stagnant, and its national debt crippling. Law proposed simulating the economy by replacing gold with paper money, then increasing the country’s capital stock. Sovereign debt would be salved by replacing it with shares in economic ventures.

Desperate, France’s Regent, Philippe d’Orléans, appointed Law as Controller General of Finance in 1715. Law instituted numerous reforms: he endeavored to break up large land holdings to benefit the peasants, abolished road and canal tolls, encouraged road building and new industry through low-interest loans, and aimed to revive maritime trade.

In 2 years, industrial production leapt 60% The number of French trading ships went from 16 to 300.

Law set up General Private Bank in 1716. Although a private bank, 3/4ths of its capital came from government bills and government-accepted notes.

The next year, Law established the joint-stock Mississippi Company, for which he obtained a trade monopoly in the West Indies and North America from the French government.

In 1718, Law’s bank became the Royal Bank, meaning that its notes were guaranteed by the king. Meantime, the Mississippi Company absorbed rival trading companies.

By 1719, the engorged entity had a monopoly on all overseas trade. Simultaneously, the Royal Bank was issuing more notes than it could back. This led to inflation.

Meanwhile, Law was hustling the fabulous wealth of Louisiana in an effective marketing dodge. Wild speculation over the Company ensued, which sparked printing more paper banknotes. When shares generated profits, they were paid in the notes.

In 1720 the Company and Bank merged. To attract capital the Regent appointed Law as Comptroller General of Finances.

The bubble burst at the end of 1720. The government admitted that there were more paper notes than precious-metal coinage could cover.

Investors attempted en masse to cash in. The Royal Bank had to stop payment on its notes.

The Regent dismissed Law. Impoverished, Law fled to Brussels.

Law spent years gambling in Rome, Copenhagen, and Venice, but never regained prosperity. In Venice, Law contracted pneumonia and died a poor man.

The fiasco haunted French memories for generations, eliminating banknote issuance in France on a wide-scale basis until 1790. This tardiness in financial evolution, along with irresponsible governance, retarded the country’s industrial development through the next century.


Owing to a scarcity of coinage, deflation gripped Europe from 1780, disrupting trade and business. France’s precarious fiscal situation in the face of the recession resulted in the notorious Revolution of 1789.

The new government set about printing paper money, at first judiciously. But the unrest did not abate, and so France provoked the Revolutionary Wars (1792–1802), as much to distract its people from the internal political and economic tribulations as from the supposed threat of invasion.

So much paper money was printed as to provoke severe inflation, creating an economic crisis that peaked in May 1795, with starving Parisians rioting in the streets.

In 1796, France’s currency reverted back to silver and gold coins. Deflation was dodged by France’s success in its military ventures, which resulted in inflows of precious metals from abroad.

Beyond the meteoric rise of Napoléon Bonaparte, the French Revolutionary Wars had lasting consequences: spreading revolutionary principles over much of Europe and the Middle East, inciting the rebirth of professional armies, and the emergence of total war, which defined future conflicts, most immediately the 1st World War.

 Merchant Navies

States valued a large merchant navy, as it took revenue from foreigners for shipping services and encouraged domestic exports on the cheap, at least in theory. Moreover, as the chief difference between a merchant vessel and a warship was merely the number of guns that it carried, a merchant fleet could be converted into a navy if war broke out.

The mental milieu of European policy makers in the 17th–18th centuries was that trade was a form of undeclared warfare: a zero-sum game. Underlying this was the silly assumption that there was a fixed volume of international trade; so, the fight there was over market share.

Britain and other countries sought to maximize their advantage while minimizing that of rival nations. The primary weapon in this war was a tariff on imported goods. Exports were lauded as money spinners, whereas imports were disdained as a financial drain. Most nations had “navigation laws” which aimed to restrict seaborne carriage to domestic ships.

Governments encouraged fisheries, both as a means for greater self-sufficiency in food supply, and for furnishing an export commodity. It also helped in training seamen and stimulated shipbuilding.


During the 16th and 17th centuries, Russia developed largely in isolation from the West, both economically and politically. Virtually landlocked, the boyars (great nobles) of this feudal empire crafted a centralized bureaucracy.

During the 16th century, early in the Romanov dynasty, the state sanctioned serfdom by curtailing peasant rights to leave a landlord. Taxation left those tethered to the land impoverished.

The movement of tradesman and craftsman was similarly restricted. All segments of the working population were subject to heavy taxes. This guaranteed regular peasant riots. The greatest peasant revolt in 17th century Europe was in 1667, as the Cossacks – free settlers of south Russia – reacted against state centralization and heavy tax burden.

Serfs escaped their landlords and joined the rebels. The Cossack leader, Stenka Razin, incited peasant uprisings as he led his followers up the Volga River. The tsar’s army finally crushed the rebellion in 1670. Razin was captured and beheaded a year later.

Urban citizens were equally bumptious. Muscovites revolted against the Romanovs over taxes in the Salt Riot (1648); the Copper Riot (1662), over inflation from debasing the currency; and the Streltsy Uprising (1682), a civil revolt by state-employed guards (streltsy) in Moscow, who easily incited mobs of impoverished residents to riot and loot.

The coming to power of Peter the Great in 1682 led to Russia becoming a more modern and bellicose state. Peter deliberately set out to economically modernize and culturally westernize his country. Peter subsidized western European entrepreneurs and artisans to settle in Russia and practice their commerce and crafts. He built St. Petersburg on land conquered from Sweden. This provided a convenient port onto the Gulf of Finland, which led into the Baltic Sea. Peter set out to build a navy.

All of Peter’s policies and reforms had a singular goal: to render Russia a great military power. The country was at war, mostly offensively, for all but 2 years of Peter’s reign.

Government administration was centralized and rationalized. An efficient tax system was devised, as Peter put it: “to collect money, as much as possible, for the artery of war.”

When domestic industries could not produce government demand for armaments, Peter set up state-owned mines, foundries, factories, and shipyards, staffed by Western managers and technicians.

These managers were supposed to train a native labor force. But since the labor supply consisted of illiterate serfs, the effort met with scant success. Only copper and iron industries in the Ural Mountains, where ore, timber, and waterpower were plentiful and cheap, became viable.

Peter’s highly regressive tax regime failed to deliver sufficient income to fund his army and bureaucracy. All the while, the only truly productive force in the economy – peasants – toiled away for a bare subsistence after the extractions of their masters and the state.

 The American Revolution

The newly established colonies in the Americas were an opportunity to exploit raw materials and garner crops for the British luxury market that could not be grown at home, either owing to unsuitable climate or because the requisite cheap labor was unavailable. Despite the empire’s best efforts, things got out of hand with the uppity colonists.

Britain did not furnish coins to the American colonies and forbade colonials from making them. The British hoped that keeping money scarce would force colonists to trade exclusively with England. Economic development in the American colonies was stymied as the colonies could not issue convertible banknotes.

To circumvent the shortage of precious metals upon which to found a decent currency, some colonies issued paper notes which were treated as legal tender. Some southern states had long used tobacco leaves in lieu of printed paper. The notes were labeled in values of rare coins, notably English pounds, but especially Spanish dollars. These notes were bogus in not being backed by deposits of the currencies they claimed – but it worked, as it was backed by trust in the local colonial government.

This monetary system resembled the Roman Empire, in that monetary creation was entirely in the hands of the government. Scriptural money was not created via synergy between individuals and private banks, as was happening contemporaneously in England.

The indebtedness which Britain had incurred during the 7 Years’ War (1756–1763) caused consternation among the British political elite. This led to novel forms of taxation. Among them was trying to milk the American colonies with a variety of taxes. The response was revolt.

When war broke out in 1775, the confederation of states did not want to resort to taxation, which was the wellspring of the revolution, and therefore hated by most Americans. The Continental Congress had no choice but to finance itself by printing credit notes, called “continentals.”

Acceptance of continentals was voluntary. The artifice that justified their fabrication was the promise of later exchange for gold or silver, with interest.

American continentals constituted history’s first large issue of fiat money: inconvertible paper currency backed only by assurance. By comparison, banknotes were an intermediate commodity, while credit notes approached pure money.

Paper money was immediately controversial. The Quakers of Pennsylvania refused it on religious grounds. For their righteousness (some thought it avarice) they were fined, imprisoned, and their property confiscated. The American way got off to an early start.

Individual states followed the confederation’s lead. The egregious exercise of printing presses for fiat notes took the nascent nation from deflation from want of currency to hyperinflation that was matched only by Germany in the wake of the 1st World War.

In 1781, American soldiers paid in valueless paper money mutinied, leaving the American army on the brink of collapse. France saved the day, sending warships and reinforcements, as well as precious silver coins.

With that, continentals became utterly worthless. Despite victory in the War of Independence, the country was wracked by financial chaos and attendant violence.

“Paper money polluted the equity of our laws, turned them into engines of oppression, corrupted the justice of our public administration, destroyed the fortunes of thousands who had confidence in it, and went far to destroy the morality of our people.” ~ American merchant and economist Pelatiah Webster

With the war over in 1783, the new American government had the power to keep its promise to repurchase continentals. In 1791, those still holding the paper were “generously” offered exchange at 1/100 their face value in Federal Treasury bonds, not noble metal.

The federal government repurchased and exchanged state notes in the same way. Treasury bonds were denominated in the new currency, which was ostensibly based upon a bimetallic standard (gold and silver).

To grease the acceptance of government bonds via increased liquidity, Alexander Hamilton, the first Treasury Secretary, favored creation of a financial market. His envisioned stock and bond exchange opened in 1792, when 24 merchants met under a buttonwood tree in New York City. This followed the establishment of the Philadelphia stock exchange 2 years earlier.

Initially influenced by the inflation brought about by Continental currency, the new country’s financial policy was conservative. The Constitution forbade the federal government and the states from issuing paper money. Business was to be done with gold and silver, and bank notes redeemable in these precious metals. A central bank, the First Bank of the United States, was created in 1791 to enforce discipline on state-chartered banks, by refusing to accept the notes of those that did not pay out in specie on demand.

The by-now conservative northeastern states approved. The needy south and west most certainly did not: they valued easy credit. So, in 1810, under attack for its financial rigor, the charter of the First Bank was not renewed.

Prices rose in the wake of the War of 1812 (1812–1815), which was financed by public borrowing. State banks, relieved of the burden of forced redemption, were chartered with abandon. These banks issued notes, as did other trustworthy establishments, from barbers to bartenders. Leverage magically levitated throughout the country.

Following the War, property values rose wonderfully, attracting speculation from those who were convinced that greater increases were in the offing. This gave rise to the feeling that a higher regulatory authority was once again needed.

The Second Bank of the United States was chartered in 1816. It initially added to the boom by enthusiastically involving itself in real estate loans.

The boom collapsed in 1819. Prices and property values plummeted. Loans were foreclosed. Bankruptcies soared.

In this first speculative episode in American history, the term panic entered the language as pertaining to money. Later, capitalist apologists sought less alarming references; hence: crisis, depression, recession, and growth adjustment successively denoted the aftermaths of greedy optimism run amok.

Sobering up before the bottom fell out in 1819, the Second Bank had begun calling in some notes for payment. So, in the aftermath, it was pinned with the blame.

Populist President Andrew Jackson derided the Bank, and so rallied opinion against renewing its charter. Nearly a century would pass before a central bank was again tolerated in the United States.

“Suspicions are entertained, and charges are made, of gross abuse and violation of its charter.” ~ President Andrew Jackson to Congress in 1832 on the Second National Bank

With no central bank, new banks sprang up like weeds, pollinating the economy with a flood of notes. The speculative bubble was once again in real estate, especially in the west, including claims on public lands.

Manufacturing and commodities took advantage of the ample liquidity, which poured in from across the Atlantic, especially Britain. State-backed infrastructure investments, such as canals and turnpikes, were especially considered safe. Meanwhile, small investors across America and Europe were snapping up exotic financial instruments based on slave holdings.

The inevitable disenchantment and collapse came in 1837. A period of marked depression ensued. With it arose the distinctly modern attitude toward outstanding loans: repudiation. Several states dismissed their debts, expressing anger that foreign banks and investors should now, in hard times, demand payment for capital so foolishly given. This sentiment would echo over a century later when Third World debtor nations went insolvent.