The Institutions of Trade and the Reduction of Market Risk: The Convoy System
The Institutions of Trade and the Reduction of Market Risk: The Convoy System
This chapter presents a revisionist explanation for the Spanish flota (carrera de indias) universally depicted by historians as a monopolistic trade system that generated excessive profits to the privileged traders of the merchant guilds (consulados). Challenging the notion that Spanish traders exercised commercial monopolies, this chapter shows that within the carrera de indias, traders faced considerable competition from one another, mitigating their ability to garner monopoly profits. Introducing the concept of market risk, the risks associated with commodity price volatility, the chapter argues that the appeal of the convoy system was its capacity to regularize commodity flows, to balance supply with demand. It was an institution that reduced the risks and uncertainties caused by poor information and the inability of merchants to react rapidly to changes in supply in transatlantic markets.
Keywords: convoy system, monopoly, market risk, price volatility, chartered trading company, carrera de indias, economic institution, uncertainty, consulado, trade fair
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