Pieces of Eight

On April 10th 1545 the Spanish founded the settlement of Villa Imperial de Carlos V. It lies at the foot of Cerro Potosi which is nicknamed “Rich Mountain”. The Spanish found Silver Ore and it is said the entire mountain is made of silver. Within 30 years the City of Potosi was the largest city in the new world. At the peak of its production in the latter half of the 16th Century Potosi was producing 60% of all the silver mined in the world.

The Spanish constructed a mint and produced the eight real silver coin also known as the Spanish Dollar, a Peso, or most famously “Pieces of Eight”.

Silver flowed out of Potosi in three main directions. Some went down the River Plate to Buenos Aires and across the Atlantic to Spain. Most was packed on trains of mules and llamas and taken to the Pacific Coast. From there some was sailed to Panama City where it was loaded back onto mules for the crossing of the Isthmus of Panama to the town of Portobello. There it was loaded onto the Atlantic Treasure Ships, so beloved of British, French and Dutch privateers and pirates. So much silver flowed into Spain that the world value of silver was depreciated.

Even more of the Silver moved in the opposite direction. In Acapulco, Mexico the silver was loaded onto the Manilla treasure fleet bound for the Spanish Phillipines. Asia was the target for much of the silver because most Asians had no interest in European goods. They were selling tea, silk, ceramics and most importantly spices. They wanted silver to pay for these goods.

The Spaniards had silver to spare, but for other nations silver was a problem. The Dutch, the Portuguese, French and English developed elaborate trade systems to acquire silver in asia sufficient to fill their holds with precious spices. For example the Dutch invented the Amsterdam stock exchange to raise funds and founded the East India Company. The company built factories to process goods from the far east. They smuggled tea into England, breaking the British East India Company monopoly, kicking off the Anglo-Dutch Wars. They also broke the English monopoly in the Americas. The Boston Tea Party was significantly part of this struggle.

A Dutch ship, carrying what silver it could raise in Europe, and whatever goods might sell along the way, would sail to Asia via the Cape of Good Hope, offloading manufactured goods in exchange for fresh food and Cape made wine. They might pick up cotton and timber in India. They could sell this in the Spice Islands and pick up some spices, but not enough to fill a ship. They needed to make their silver go further. So they brought spices to China which they exchanged for tea, silks and ceramics. They took these to Japan where they could sell them in Nagasaki in exchange for silver. They could bring Japanese goods back to the spice islands and increase their stock of silver until they could fill a ship with tea, spice, silk and porcelain.

Dutch traders had to figure out what they could manufacture or trade to the Spaniards who had so much of the necessary silver. The flow of silver out of Europe was so one directional that some economies refused to permit its export. The Dutch took over the Island of Taiwan from the Spanish and turned it into the export economy of Dutch Formosa. They imported Chinese workers to farm cash crops and treated them as little more than slaves. The goal was to get more silver from China. They repeated the exercise with some of the small islands that grew nutmeg and cloves. In Sri-Lanka they brokered a deal with the native king to expel the British, in exchage for access to cinnamon.

The English developed other solutions to the silver problem. They stole tea plants from the Chinese and set up their own tea plantations in Assam and Darjeeling in India. Around Calcutta (modern Kolkata) they established Opium Poppy farming. The processed opium was smuggled into China in exchage for silver. The silver was the brought to the Pearl River where the Europeans were restricted to a single trade entry point in Canton. The Chinese attempted to put an end to the Opium smuggling and this resulted in the Opium Wars.

By the 19th Century Europe simply did not have sufficient silver to maintain the one sided trade relationship imposed by Qing China. Ultimately the Chinese refusal to engage in open trade with European powers resulted in the demise of China as a world power. So, strangely, the foundation of a small settlement at the foot of a Bolivian Mountain led in a roundabout way to the demise of Imperial China.

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Grey Markets

Grey markets represent problems for companies and also for governments and no grey market had a greater impact than the grey market for Tea in 18th Century in the American Colonies.

Grey goods are those which are sold outside authorised channels.  Companies often defend profit margins by restricting sales channels and controlling the market players.  Governments often tax the authorised sales channels, so bypassing them can result in smuggling.

Worse still for companies, if they lose control of the distribution channels they face risks from counterfeiters.  When a bottle of Johnny Walker Red Label Whisky became a form of currency in  Africa multiple grey market channels opened.  Then the company noticed that much of the product on the market was not scotch whisky at all.  The bad quality counterfeit whisky was destroying the brand.

On May 10th 1773 the Tea Act passed through the British Parliament and  received royal assent.  The act was designed to save the British East India Company which was on the brink of financial collapse.  It had warehouses in London filled to the brim with tea they could not sell.

The British East India Company processed the highest quality tea on the world market.  But under the charter by which it was founded it had to transship all products through London so that the British Crown could cream taxes from all the trade.  Tea destined for the US Colonies moved from India to London and thence to Boston, New York and Charleston.

American merchants began to source their tea from Dutch traders.  Lower in quality than the English tea, but by avoiding the “Townshend Duties” it was sold at vastly lower prices.  By the mid 18th century over 85% of all tea consumed in the American Colonies was grey market tea smuggled in from Holland.

The intention of the Tea Act was to redress the balance in favour of English tea flowing through the approved channels.  Without the Townshend Duties the high quality English Tea could undercut the poor quality Dutch tea and would destroy the business of the American tea traders.  The proper market channel would be restored and the end customer would have their tea at a fair price.

The American traders didn’t see this as a good thing, but nobody was going to defend their smuggling rights.  So they represented the Tea Act as a move by the London Parliament to impose tax laws on the colonies without input from the colonists.  Their slogan “No taxation without representation”.

The campaign came to a head when the ships carrying the cheaper English tea arrived into ports in the American colonies.  A series of protests collectively known as “The Destruction of the Tea” took place.  In some ports the tea was unloaded from the ships and left on the docksides to rot.  The Boston protest was the most dramatic.  Radical colonists dressed up as Native American Braves and stormed the Tea Ships at anchor in Boston Harbour.  They threw the tea casks into the sea in what became known as the “Boston Tea Party”.

What followed next was ironic.  Tea became associated with Royalists and the oppression of the British Crown.  Independent minded Americans rejected tea and began to drink coffee.

Tea; by Carol Ann Duffy

I like pouring your tea, lifting
the heavy pot, and tipping it up,
so the fragrant liquid streams in your china cup.

Or when you’re away, or at work,
I like to think of your cupped hands as you sip,
as you sip, of the faint half-smile of your lips.

I like the questions – sugar? – milk? –
and the answers I don’t know by heart, yet,
for I see your soul in your eyes, and I forget.

Jasmine, Gunpowder, Assam, Earl Grey, Ceylon,
I love tea’s names. Which tea would you like? I say
but it’s any tea for you, please, any time of day,

as the women harvest the slopes
for the sweetest leaves, on Mount Wu-Yi,
and I am your lover, smitten, straining your tea.