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the two markets. Merchants of both nations were dismayed at being excluded by the Portuguese and Spaniards, who had dominated the oceanic trade since its establishment at the beginning of the 16th century. The direct Iberian trade with Asia, which amounted to buying Asian goods at source, put English and Dutch traders who bought spices at the western terminals of the Silk Road and other old caravan routes and from Spaniards and Portuguese in Europe, at a considerable disadvantage. The Iberian dominance also extended to controlling the network that distributed Asian goods, particularly spices, in Europe. In the closing decades of the 16th century, there were signs of a weakening of the Iberian holding of the sea routes to Asia. These were manifested in the defeat of the Spanish Armada at the hands of the English, the advance of the Dutch Revolt and the crisis of the Portuguese State-owned Asiatic trade enterprise – the Estado da India.

Based on the historical context and theoretical considerations, I will now try to characterize the financial needs of the companies and the modes by which could they be supplied. In order to enter the oceanic Cape Route trade with Asia, the Dutch and the English had to overcome not only navigational and military obstacles but also financial and organizational ones. This trade required a leap in capital investment compared with shorter-distance trade. The merchants had to finance larger ships, a larger quantity of export goods (mainly silver), and, particularly, they had to be able to provide this finance for a longer period of time – typically 2-4 years per round-trip voyage that included several Asian stops. The Eurasian trade also involved greater uncertainties and higher risks than short-distance trade. These were incurred by oceanic currents and monsoons, by pirates, by inhospitable Asian rulers, and by unknown market conditions.

Direct State ownership based on the Iberian model was not an option. It seems that the English State was not even willing to provide significant trade infrastructure and protection. The Dutch were willing to provide some indirect support. While the Iberians funded their Asian trade primarily by plundering their American colonies and sending the silver from there to Asia, the Dutch and English States had to raise money by way of unpopular taxes or loans. They preferred that this be done by private or semi-private trade entities and not directly by the State.

The promoters of both companies needed external finance because of the high entry barrier into this long-distance trade, because of their liquid wealth constraints and because they wanted to limit their risk and spread some of the risks to others. Thus, both Dutch and English merchant-entrepreneurs aimed at raising capital from a wider circle of passive investors. It is impossible to fully reconstruct the social networks of family, kin, neighbors and business partners of the insiders. But it is quite safe to assume that money of such magnitude could not be raised only based on personal relationships. The task, then, was to raise long-term external and impersonal investment. It also seems likely that this had to be mainly equity and not debt investment. While credit could be built into some of the supply and service transactions, the main funding for ships and goods had to come from the new companies themselves. They could not borrow from a few individuals or from intermediary banks.9 Debt finance had to come mainly from the offering of bonds to the public. This would involve market access problems similar to those of raising share capital from the public. Investors in bonds would not enjoy the upside payoffs that would attract share investors. It is not clear whether they would assume the downside

9 The Bank of Amsterdam (Amsterdamsche Wisselbank) was founded in 1609. The Bank of England was founded in 1694.

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