'Moorish Bazaar'

'Moorish Bazaar' by Rudolf Ernst 1854-1932 via Wikimedia Commons

It is not clear where this was painted. The Austrian painter Rudolf Ernst travelled to Spain, Morocco, Istanbul and Egypt to document life as he saw it.

The Bazaar: Not a Quaint Market

Bazaar of Athens during the Ottoman Empire. Source Edward Dodwell, Views in Greece, 1821, via Wikimedia Commons.

The Eastern notion of the Bazaar was not just a marketplace, but also a nexus for craftsmen and merchants, where interest rates on credit, and currency trading values were set, much like a stock exchange.These rates and values could differ quite radically from one bazaar to another, which is why arbitrage often took place. However, distances between bazaars, and the hardship and danger involved with getting from one bazaar to another, could make arbitrage very complex.

 Bazaars were, in other words, wholesale hubs for commerce and they provided key arteries for the flow of capital across trading routes around the globe. This is important because it would indicate that West or East Asian capital had vast linkages that were not defined by European colonial capital alone. These bazaars were also not 'informal' although colonial authorities were often keen to describe them as such. In India for example, the most important mercantile communities would report their monthly bazaar rates to monetary authorities of British India. These bazaar rates would have a significant influence on official bank rates. If you are interested in a more detailed academic account of this see Rajat Kanta Ray's influential article: 'Asian Capital in the Age of European Domination: The Rise of the Bazaar, 1800-1914.'

The Pepper Trade

14th Century Painting, Harvesting of Pepper in Coilum (Quilon/Kollam) in Southern India. Source: Wikimedia Commons

"Worth its weight in gold" was not just a figurative expression when it came to pepper in history. It might be your standard table fixture today, but back in medieval times, black pepper was the height of luxury. Native to the Malabar coast of south west India, in the state known as Kerala today, black pepper was the most important spice in the world during this period. A pound of pepper could literally rival the value of a pound of gold. Arab mariners travelled to the Malabar coast to procure the lucrative pepper and other spices (such as cardamom, cloves, cinnamon, and many more) for many centuries, long before the arrival of Europeans. The Mappilah (Mappila, Moplah) muslims who live in Kerala today are the intermarried descendants of these Levantine traders.

Was Hundi a Merchant Guild? The Question of Contract Enforcement

Merchant guilds are an important subject for economic historians because of their importance in understanding merchant organisation or networks in trade. One question that particularly occupies occupies economic historians is the question of contract enforcement. How did merchants cooperate and transact with each other, and minimise the risk of defaulting? Today we tend to think of contracts as a necessary prerequisite for transactions, backed up by a legal system. In times past, promises would have formed the basis for the earliest form of contract. A promise was regarded as less risky where parties were known to each other because peer pressure and collective reprisals in the community were more likely to reduce the risk of someone reneging on a promise. As long-distance trade with foreign entities developed, the risk of defaulting would have been greater. 

What on Earth is Hundi? The foibles of 'informality' and 'indigeneity'.

It is perhaps ironic that an ancient South Asian banking system which had earned a reputation for trust should today be widely regarded as an opprobious marker of the black market economy. Also known as hawala, havala, or havale, hundi's disrepute is relected in the in the many villainous descriptions awash in the in the international press: 'illegal financial transactions market', 'black money' and 'drug money', 'system of tax evasion', illegal transfers of foreign exchange', 'illegal money laundering network' and Hindi word meaning 'providing a code'. In a similar vein, the descriptions of hawala and hundi as informal  or alternative  have developed because they are perceived as both unofficial and lacking in legal accountability. The confusion does not cease there; there is not universal agreement over whether hundi and hawala are in fact the same, and just as press descriptions have been wildly different, this uncertainty has much to do with diverging opinions of what hundi and hawala respectively are.

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. 

I Promise

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.

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.

Did you Know that Hundi was Used by the East India Companies to Expand their Influence?

A Hundi in the Vernacular. Copyright: British Museum Trustees

The best known indigenous South Asian credit institution is 'hundi'. For hundreds of years, this system was used by merchants to remit money from one place to another, and to make payments like a bill of exchange. While I am loathe to put a square peg around hundi, some kind of approximation of hundi is necessary. My rough approximation of hundi is two-fold: a South Asian bill of exchange, and remittance system. So, hundi was both an instrument and a system. The mercantile networks which supported the use of hundis were often so well-established and pervasive that hundis were used in other parts of Asia, and even in distance locations like Africa where South Asian commerce had taken root. Over the course of the 16th, 17th, 18th and 19th centuries, even the Portuguese, Dutch, French and British East India companies used hundis to expand their own commercial and military presence in South Asia. Forming alliances with affluent South Asian merchants, and being able to tap into their networks was a significant factor in the British East India Company's ultimate hegemony over the other European companies.

Merchants and Bills of Exchange

Calcutta Merchants circa 1850.

The agents of credit instruments were inextricable from the instruments themselves. Merchants and bankers used credit instruments according to the rules, laws or customs governing their networks. Within a given network several kinds of credit instruments supporting different types of transactions inevitably evolved. Bills of exchange in particular, performed functions dictated by mercantile customs, norms and laws. Over time, specific bills of exchange acquired known classifications and functions which transcended individual networks. These instruments allowed merchants from one
community or region to conduct business with other merchants in far-flung locations.