Section IV: IVThe First Transition, 1492 to 1648

In 1492, Columbus sailed inadvertently to the Americas on Genoese money with Castilian sanction, and in 1507 Afonso de Albuquerque took Hormuz for Manuel I of Portugal with six ships and about 500 men. He lost the place within a year and took it for good in 1515. Albuquerque worked from a map that named three straits: Aden, Hormuz, and Malacca as the places where the trade of an ocean could be held by those that could not physically hold an entire ocean with fleets of ships.

The brutal colonization of the Americas and the Hormuz seizure of 1507 announced a coming western centrality and a new “developmental container.” It was the smallest of the containers to come and yet already gigantic: money centers that owned no territory fused to empires that owned the sea lanes and the first colonies. These empires were conquering and colonizing increasingly large areas of the world that could not withstand growing military-technological gaps that enabled the conquest.

In the Americas the gap was steel, the horse and gunpowder against obsidian and cotton armor. It was exacerbated by the epidemics that rampaged through most of the conquered before the battles, and by allied indigenous armies that fought beside the conquerors, the Tlaxcalans at Tenochtitlan and one side of the Inca civil war at Cajamarca. In 1545 the Europeans found Potosí, whose silver paid the Habsburg wars and went on, through Seville and after 1571 through Manila, to a China whose money had become silver.⁸ Meanwhile, the extracted silver of the Americas and the spice of the “Indies” all were clearing through Italian financial ledgers.

The European carrack ship carried cannons that a dhow could not. Gunpowder was a Chinese invention itself, and the Turkish Ottomans, the Indian-Muslim Mughals and the Chinese Ming Dynasty had parity or better with European land warfare practices through the 16th century. Tonio Andrade’s Gunpowder Age (2016) dates the failure of that parity to the 18th century, the dawn of another long era of European imperial-colonial expansion. So the edge that opened in 1507 was an edge mainly at sea and at the trading straits, where six ships with guns a dhow could not carry could hold a route. On land, it did not open until European company armies took Bengal and the steam gunboat reached the Pearl River.⁹

Kenneth Pomeranz’s Great Divergence also dates European dominance of economic output vs the rest of the world to the 1800s. This did not begin or become enabled in 1800, it began exactly where the first hegemonic cycle did with Columbus and Albuquerque and the opening of “Western hegemony” over non-European formations, with Genoese capital financing the Iberian crowns’ oceanic reach and extraction.

Capitalism had an embryonic shape before it itself had a name. The French historian Braudel placed an embryonic form of it precisely in the Italian city-states of the 14th and 15th centuries, in the top tiers of their economy where his “anti-market” lived: the layer above the fair and the shop where the large merchant and the banker did not want to compete with small merchants on price and engineered it so they did not have to. The fusion of this “anti-market” with the crown was precisely where a military-economic divergence was beginning, even if the actual eclipsing of military strength and raw output against non-European near-peers did not register for three more centuries.

The relationship between the Genoese and the Spanish empire eventually was predicated on two financial instruments. This is the whole financialization mechanism we care about appearing at scale for the first time. An asiento was a short-term contract: a Genoese lending house advanced the Iberian crowns a sum of money and undertook to deliver it, converted into local coin, at a named place on a named date. This was usually Flanders, where the Spanish army waited to be paid. These loans were meant to be repaid by certain dates in the not too distant future.

The juro was a long-term paper: an annuity charged on a specific royal revenue, the sales tax of Castile or the customs of Seville, sold to investors and pledged to the bankers as additional collateral for the asientos themselves. When the crown could not or would not pay its short-term asiento debt it did not repudiate it; it converted it, by decree, into juros, so that each short-term bankruptcy turned the bankers’ advances into perpetual claims on Castile’s taxes. Such settlement, the medio general, was the first sovereign restructuring on an imperial scale to be settled by temporal conversion rather than by direct payment.

The silver of the Americas paid 1/5th of the crown’s revenue in the second half of the 16th century. Regardless, Spain stopped payments to its bankers in 1557, 1560, 1575, and 1596 under Philip II,¹⁰ and again in 1607, 1627, and 1647. The fairs the Genoese ran at Piacenza, where the asientos were settled and the bills of exchange cleared, became a clearing house for Spanish public debt. This is financial expansion from inside: speculation on future revenues is converted into transferable claims, the claims trade at a fair that was originally built for goods, and sovereign default is paid for by lengthening claims further into the future rather than by producing more.

Braudel’s third volume of Civilization and Capitalism (1979) called the years 1557 to 1627 the “age of the Genoese” in the development of embryonic capitalism, a rule so discreet that historians for a long time failed to notice it. Whether Genoese lenders were ruined by the defaults or profited through them divides the sources: Braudel’s serial ruin thesis against the finding of Mauricio Drelichman and Hans-Joachim Voth, in Lending to the Borrower from Hell (2014), which argues the settlement of 1577 wrote off 30-58% of asiento debt and yet the bankers still earned positive returns on the juros, because a lender who can halt transfers to armies in Flanders can force a king to pay in other forms.

The army in Flanders also represented a newly developed mode of war. The historian Michael Roberts named it “the military revolution” in a lecture of 1955 and Geoffrey Parker gave this revolution its book in 1988: the trace italienne fortress that made every siege long, and every army large, alongside the Spanish tercio infantry that created a trained mass force that could easily beat medieval peasant levies. This required the creation of a fiscal-military state that could pay for both over long stretches of war, which is why the Genoese financiers mattered more than individual generals.

A “Spanish Road” ran 700 miles from Milan to Flanders, and Parker’s Army of Flanders and the Spanish Road (1972) is the seminal account of why an imperial Spanish army supplied along such a road could win individual battles but could not hold a coastline. Our first transition begins: on April 1, 1572 the so-called “Sea Beggars” rebelled and took Brielle, Netherlands from the Spanish.

The Dutch revolts had a bridgehead that they never lost: northern Dutch provinces declared their independence in 1581, and Spain’s attempt at landing annihilating blows on these rebels failed. The rebel area kept regenerating its economy and physical defenses faster than the “Spanish Road” could deliver fresh attacks: Leiden held in 1574 behind opened dikes, the Spanish Armada of 1588 could not collect a Spanish army from a shore Dutch fly-boats blockaded, and Maurice of Nassau’s army drill in the 1590s turned the Dutch infantry into the exact trained mass of the Spanish tercio. Military parity, even if mostly asymmetric parity, was achieved between a small coastal state and one of the largest and most powerful European land empires.

This first European hegemon’s decline and transition to a successor during the later crucible of the 30 Years War was essentially already decided, well prior to that war, in these 1580s rebellions by a demonstration of military-economic regeneration and asymmetric warfare. The Spanish Empire later became the Habsburg dynasty, and that empire’s terminal cascade was fought as religion and settled as politics and territory. Madrid and Vienna together were acting as a single dynastic house’s reach for ultimate victory on the continent: the Spanish and Austrian Habsburgs’ desire to crush the “heresy” spawned by the Protestant Reformation (that conveniently was a religious, political and economic rebellion all-in-one), to bind all of Catholicism and Christendom to itself under the banner of a royal “dynasty of a religion” and a “Universal Monarchy,” which would inevitably snowball to a full control of the European continent were they victorious.

The initial war against the rebels of the Netherlands festered, fused with the confessional wars the Reformation itself had opened, and eventually became the war for the whole of “European Christendom” with Sweden and France eventually entering the contest as rival dynasties themselves, wanting to stop the reach for European dominion by the Habsburgs, rather than merely as rebelling confessions.

Inside Castile, a decline was read while it happened, in a way that should be familiar: Martín González de Cellorigo wrote in 1600 that Spain had become a republic (an epithet, at the time) of enchanted men living outside the natural order. Sancho de Moncada’s Restauración política (1619) diagnosed the silver that merely bought imports instead of building local industry. These accounts were read by the elites of the time, and were not acted on. J. H. Elliott’s biography of The Count-duke of Olivares (1986) is the seminal account of a reformer’s desperate and doomed attempt to save a failing empire, which built a growing apparatus to survive this expanding crisis, and was eventually consumed by the apparatus itself. By 1648, the treasury and the reach of the “Universal Monarchy” that had enforced the age of the Genoese and Habsburgs was finished.

The war’s settlement of 1648 was the slapping down of the reach. It extended the Augsburg principle of 1555 of making a “small ruler’s” confession the same as their territory’s, and recognized the Dutch Republic, in the same treaties. The “sovereignty” concept that textbooks add to this 1648 Westphalian treaty was fed into it nearly two centuries later. What it did was check the hegemon and write confessional coexistence beside a commercial peace, and the beneficiary of this arrangement was Amsterdam.

The Dutch Republic that inherited a European hegemony was the first “winning” fusion of merchant and state, observably more successful than the absolute monarchies of the era. Jan de Vries and Ad van der Woude, in The First Modern Economy (1997), describe an oligarchy in which the public debt was held by the families that held office: the Amsterdam exchange bank of 1609, the Bourse where the shares of the East India Company of 1602 and the West India Company of 1621 traded, and the Baltic grain trade the Republic monopolized made a relatively small territory itself the actual organizer of the whole European economy, and the diplomatic center of Europe.

The “development container” of capitalism grew from a small money center attached to a larger feudal empire, to a continental production-and-trade system run by a state partially built by its owners to protect and balance such a system. The new state system itself that Westphalia confirmed greased those wheels. The first “modern” merchant-state economy produced the first modern speculative mania: in 1636 and 1637, in the tavern colleges beside that Bourse, contracts on tulip bulbs briefly traded for the price of a canal house.

Across the English Channel, something simultaneously ominous and awe-inspiring was occurring: another fledgling republic, the English Commonwealth of 1649 to 1660, executed its king, wrote a Navigation Act of 1651, and built the fiscal-military apparatus and parliamentary finance system that, similar to the Dutch, represented a growing merchant-state opposed to absolute monarchy. They fielded the New Model Army, a professional force with promotion by merit fused with a political programme. The monarchical Restoration of 1660 did something interesting and notable that will repeat again and again: they crushed the republicans and kept the rest. The Restoration Parliaments renewed the Navigation Act, and the standing army stayed while the politics went. In 1688 this was formally fused: a crown that reigned while the propertied ruled, the event Steve Pincus argues was the first modern revolution in his work 1688: The First Modern Revolution (2009).

To sum this “First Transition”: Western centrality expanded from peninsulas to chokepoints. Hormuz, Goa, and Malacca were held by a ship and later fort gun a dhow could not carry, and Europeans used such guns to enforce an expansionist military-economic system that produced growing productive leads and growing speculation and financialization. The embryonic mercantilist-capitalist system grew in its first world-scale form, merchant and financial anti-markets before industrial, the growing mercantilism: the Genoese fairs, the asiento, the colonial system that Marx in the last part of Volume I called the lever of “primitive accumulation of capital” whose sequence he wrote out as precisely Spain, Portugal, Holland, France, and England.

US hegemony did not yet exist but was being planted as yet another colony inside the same decades, Jamestown in 1607 and New Amsterdam in 1624, on the far shore of empires whose conquered treasures, in Marx’s works, floated back to the mother country and were there themselves turned into capital. The incumbent Spanish hegemon grew and grew and reached for universalism and cementing of hegemony, and the successor increasingly actually held the productive system. Spain had silver, armies, fleets and chokepoints and yet lost to an Amsterdam that had the yards, the herring, the exchange, and the banks. Command lost to organization, which is the claim this work makes of the incumbent.

But the Genoese who financed the losing side could halt the transfers to Flanders and make a king pay in other forms, and on Drelichman and Voth’s count they came through the defaults with their returns, while the system they served went on under a new center. A fall of that kind ends a hegemony and leaves the mode standing, and the present has to be shown to differ in more than its center.