Monday, September 05, 2011

A Splendid Exchange by William J. Bernstein

Your televisions from Taiwan, cars from Japan, vodkas from Russia, coffee from Brazil, your iPads from China, shirts from India, oil from Saudi Arabia are all so ubiquitous that it is easy to forget how recent such miracles of world commerce are. What better symbolizes the epic of global trade than an apple (the fruit :)) from the other side of the world, consumed at the same exact moment that its ripe European cousins were being picked from their trees? Millennia ago, only the prized merchandise - silk, gold and silver, spices, jewels, porcelains, and medicines - travelled between continents. The mere fact that a commodity came from a distant land imbued it with mystery, romance, and status.

This book tells the magical story of how trade has been a dominant factor in shaping our world today. The author pans across the ancient silk road, the spice trade, the plague, the cotton, the slaves, the sugar, the coffee, the tea, the opium, the gold and silver, the wars, the pacts, the Portuguese, the Arabs, the Dutch, the English, the Chinese, the Indians, the Americans to narrate an fascinating story of how the simple age old urge to profit led to rise and fall of empires, wars, trade restrictions, and globalization as we know it today. Personally I think this book changes the way you look at the world and its history. Bernstein's rich and engaging narrative style makes the book fun all the way!


The rise and fall of empires

The world trade dawned with the trade of Silk and incense between Arabs and Romans. The romans were so obsessed with the incense that it is often said the power of the Roman Empire evaporated in a haze of incense. At the same time, the incense trade catalyzed the birth of Islam, whose military, spiritual, and commercial impacts transformed medieval Asia, Europe, and Africa. Arabs controlled the Indian Ocean and silk route trade dominating the world trade until Europeans took over in 15th century. As incense and silk became a thing of a common man (simple demand-supply principle), the world moved on to spices. The Europeans craved for spices that came from the mythical India, the Spice Islands, and the South East Asia. The spice trade encouraged innovations in sea trade, built financial institutions and led to the rise of the Portuguese and the Dutch (who were the then super power in 15th century).

As the spice trade began to fall, thanks to the increased supply due to easy navigation and transportation from India and South East Asia, the English began to consume a lot of tea from China and India. Along came the rise sugar (for the tea), coffee, opium, slaves (have been present from the start of the history of trade) and the cotton which gradually built the English empire and paved way to the industrial age. From the early 20th century, when all the things mentioned above became a thing of the commons, the oil and energy took over. We see a beautiful pattern of the world history emerging when we simply analyze the commodity that was hotly traded.

The story of Muhammad and of Islam

For me the story of the Prophet Muhammad had always been a fascinating one, for I believe, Islam, like any other religion is an institution set up for and by men like you and me.
In 570 AD, an Abyssinian governor named Abraha established a rival empire on the Peninsula. Abraha, a staunch Christian backed by an army of elephants from Bab el Mandeb, attacked Mecca. However, the unfortunate elephants were not suited to the searing sands of Arabia and succumbed to disease and to the harsh climate, just outside the gates of Mecca.

The Meccans have never seen such creatures and being unfamiliar with the basics of animal ecology credited divine intervention. The year 571 AD became known in Arabia as the "year of elephant" and is the same year as the birth of Prophet Muhammad. His arrival was imbued forever after by Muslims with the mythical elephantine event. Muhammad became, of course, a trader. Had Abraha succeeded at Mecca, Muhammad, had he born at all, might have wound up a Christian monk. Interestingly Muhammad's accounts of his life do not appear for more than a century following his death, and even these were distorted by the ideological needs of his early chroniclers. However, some basic facts emerge clear.

Muhammad probably spent his formative years observing and participating in his uncle's business, and there is no direct record of his early professional endeavors. Around the age of 25, he found himself employed by an older widow, Khadija, who ran a prosperous trading enterprise. Muhammad rapidly gained experience as her agent in Syria and impressed with the young man's competence and charmed by his personality, she proposed marriage and he accepted.

In his travels, Muhammad encountered Jews and Christians—the "people of the Book"—and felt the powers of their seductive belief systems. The fact that both Judaism and Christianity were associated with hated foreign powers limited their appeal and drove Muhammad to seek his own path. By the late sixth century, many Arabs were moved by twin needs:
1.To create a single unifying identity in opposition to the two foreign derived monotheistic religions
2.To develop a political force to counter the wealth and corruption of the Quraish, the powerful merchant tribe.
In this turbulent atmosphere, al-Llah, who emerged alone from the gods of the desert, delivered Quran through the angel Gabriel's voice to Muhammad on Mount Hira in 610. The dry tinder of religious fervor was now lit. The Prophet may have been born a trader, but he died a raider. Soon after he was expelled from Mecca in 622, he began making a living by attacking that city's infidel caravans.  


In a commercial sense, early Islam can be thought of as a rapidly inflating bubble of commerce; outside lay unbelievers, and inside a swiftly growing theological and institutional unity. Its lighting speed spread was due to the conflict between the new creed, which forbade stealing from fellow believers, but not from infidels, and the economic imperative of the Ghazu (raid). The new religion dictated that all the property of conquered nonbelievers was forfeit, with one-fifth earmarked for Allah and the umma—the people—and the rest divided between the victorious troops and their leaders. If a people converted peacefully, their property was spared. Thus, as more distant tribes converted, it became necessary to raid ever farther afield to obtain sustenance from resistant nonbelieving tribes accelerating the boundaries of Islam farther and farther from their starting point deep in the peninsula.

The forgotten city-state of Aceh

It is astonishingly easy to lose sight of places that once influenced the world like no other today. Imagine if London and New York simply vanished from our maps 400 years from now, losing their importance as the financial power houses of the world? The story of Aceh is of the same fate.

While the Portuguese were still battling to monopolize the spice trade through the sixteenth century, it is difficult to imagine that the Portugal's greatest single rival in the Indian Ocean was the city-state of Aceh in Indonesia. In the mid-1500s, it was a commercial powerhouse, the beneficiary of the seafaring tradition that had spread its Austronesian ancestors across most of the Indian and Pacific oceans. Asian vessels avoided Malacca and Goa, who were under the control of the Portuguese, as they would avoid any port ruled by a corrupt, grasping sultanate, and instead favored ports offering the merchant an honest deal. In the mid-sixteenth century, Aceh filled the bill perfectly.

Aceh was influential throughout the Indian Ocean and beyond. At the eastern end of its trading range, it competed successfully with Portugal in the Spice Islands and terrorized Malacca with repeated deadly raids mounted from swift oared craft. At the western end, Aceh's close relations with the Ottoman Empire froze the Portuguese with fear. Portuguese agents reported that "These Acehnese are those who most frequent this commerce and navigation," and that because of them, spice markets everywhere were glutted and prices were falling. 

Aceh now is merely known as the remote, underdeveloped victim of Tsunami of 2004!

The bottom line: Trade is an irreducible and intrinsic human impulse, as primal as the needs for food, shelter, sexual intimacy, and companionship. Our urge to trade has profoundly affected the trajectory of the human species. Simply by allowing nations to concentrate on producing those things that their geographic, climatic, and intellectual endowments best enable them to do, and to exchange those goods for what is best produced elsewhere, trade has directly propelled our global prosperity.

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