Caravan Merchants and the Silk Road

Caravane sur la Route de la soie - Caravan on the Silk Road. Source: Atlas Catalan via Wikimedia Commons

The above illustration shows a caravan of merchants traversing the famed Silk Road. As evidenced here, caravan merchants usually consisted of large groups of travellers, often on camelback as well as horses.

The Political Economy of Merchants

 

Merchants operating in foreign countries could face a variety of challenges. The receptiveness of the host government was one such issue. If the host country's government was hostile to foreign mercantile activity, laws could be created to prevent entry to the country. In some cases, the immigration laws were worded in such a loose fashion that the government could arbitrarily choose to eject any undesirable immigrants. 

A Belgian (?) 1934 Bill of Exchange

 


Source: Minerva Archives, taken from Wikipedia

This bill of exchange dates back to 1934. It looks to be Belgian in provenance. The stamps suggest that, like many bills of exchange subject to government regulation, it incurred stamp duty.

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Did merchants use trust when they used negotiable instruments of credit?

Merchant networks frequently operated with reputation at the forefront of transactions. If a merchant had a weak reputation or was unestablished, any credit he obtained is likely to have been at a higher rate of interest, to reflect potential risk. Altruistic trust didn't feature in any prominent sense in these networks; there was inevitably a large measure of calculation involved based on repeated transactions of the past. In family firms, the reputation of the firm as a whole was paramount, such that any absconding or disreputable actions by agents or representatives of the firm were held as damaging to the firm's overall reputation, even if such parties were not family members.

Formality, Informality and the Grey Zone

This week I am redirecting you to a post entitled: 'Between Informality and Formality: Hundi/Hawala in India', which I wrote for the 'India at LSE' blog. The article discusses how a South Asian indigenous financial institution known as hundi  or hawala - a living institution - often occupies uneasy ground between the 'black' economy, the grey middle zone, and an older more formal past, due to the changing nature of laws and financial culture.

What determined Interest Rates on Bills of Exchange?

An English Bill of Exchange dated 1810.

Image courtesy of the British Museum Trustees.

 Interest rates on bills of exchange could fluctuate considerably. These rates depended on several factors: the prevailing market rate, the particular usage of the bill, the riskiness of the transaction, or the familiarity and strength of the connections involved in the exchange. Main commercial hubs which connected long-distance trading, often featured more favourable rates. Merchants frequently borrowed money through bills where interest rates were low, and sold where rates were high. In this way, complex systems of arbitrage evolved.