You probably know the story of Peter Miniut buying Manhattan in 1626 for $24 worth of beads and you may be familiar with the compound interest calculation that shows $24, invested for nearly four hundred years, grows enough to buy back the entire island at current real-estate prices, but what's less well-known is why the Dutch gave Manhattan to the British.
The answer, surprisingly, is nutmeg.
In 1667, the Dutch traded Manhattan for the island of Run, described by David Quammen as "the world’s most inconspicuous yet eloquent symbol of changing commodity values and myopic diplomacy." Run, a British colonial foothold in the Spice Islands, provided a competitive alternative to the Dutch monopoly on nutmeg.
Quammen explains:
Early spice cargoes were sold in Amsterdam at as much as 32,000 percent markup, and so the Dutch burghers who had financed those expeditions moved quickly to corner the trade. To eliminate competition among themselves, they united in 1602 as the Dutch East India Company. To eliminate international competition, they began nudging aside the Portuguese, who had reached the Moluccas first; the Spanish, who had gained a regional foothold in the Philippines ; and the British, who had established an East India Company of their own. The Dutch focused on the Bandas, where the other colonial powers had no prior commanding presence, and in 1611 they built a fort on the slope above Bandaneira. Meanwhile the British had established a more modest trading post on Run, just a few miles eastward. The British, if Muller’s book can be trusted, offered better prices for nutmeg than the Dutch. And the Dutch company made itself still more unpopular with the Bandanese people by demanding a monopoly concession. This led to rebellion, murder, reprisal, and war—between the Dutch and the Bandanese, between the Dutch and the British. At one early stage, the Dutch tortured and beheaded eighteen (or eight, depending on which source you believe) British subjects for conspiring to subvert Dutch colonial authority. That caused a stink back in England, but the Bandanese fared even worse.
The Dutch company officials were truculent, firm, and purblind, as imperialists of all flags usually are. Beginning in 1621, under a fierce governor-general named Jan Pieterszoon Coen, they began killing off the Bandanese population. Another measure was equally barbaric, though less bloody: They also killed nutmeg trees. They did their best to extirpate M. fragrans from most of its range—everywhere but on those few islands where Dutch hegemony was absolute, namely Ambon and the larger Bandas.
...
For almost two centuries, people everywhere bought nutmeg from the Dutch East India Company or not at all. And when the supply threatened to sate the demand, the company willfully destroyed tons of its own nutmeg in order to reinflate prices.
That seems like a lot of effort to control something we sprinkle on eggnog, but in that era spices were world-changing. Venice flourished from its Mediterranean trade in spices. Portugal and Spain, followed by Holland and England, became maritime adventurers to break Venetian control of international trade. Columbus wasn't an explorer in the modern sense; he accidently discovered the Americas as part of a commercial gambit in the spice trade.
Spices financed the Age of Discovery but the spice trade's global importance pre-dates Columbus and Magellan by centuries. "The global aspect of the dealer’s trade is nothing new. As far back as 2600BC, there are records of the Egyptians feeding spices obtained from Asia to labourers building the great pyramid of Cheops, to give them strength. Archeological evidence suggests that cloves were quite popular in Syria not long after, despite the fact that, like nutmeg and mace, they came only from the spice islands of what is now Indonesia. ... Europe imported them before Rome was founded." [The Economist]
Today, Run is a quiet tropical isle but Indonesia is still the world's largest nutmeg producer, with Grenada, in Columbus's "West Indies," the other major producer. The desire for monopoly continues. Producers in these two countries formed an international cartel in the 1980s to limit nutmeg output and therefore boost prices. Cartels generally face an internal incentive problem: high prices are very profitable, encouraging producers to sell larger quantities. That, of course, leads to falling prices. The nutmeg cartel collapsed in the 1990s because of this dynamic.
International trade in spices continues, but competition between producing countries keeps prices affordable. It's hard to imagine an empire built on the kitchen spice rack.
Sources
"The Spice Trade, A Taste of Adventure" from The Economist, reprinted in the encyclopedia of spices.
"The Narcotic of Empire: Nutmeg Economics and the Bargain of Breda", The Boilerplate Rhino: Nature in the Eye of the Beholder (based on his earlier article in Outside Magazine)
Nutmeg and mace - world overview FAO (Food and Agriculture Organization of the United Nations)FO: MISC/94/7 Working Paper
