From the end of the Middle Ages until the French Invasions in the early 19th century Portugal lived a prosperous economy with the trade of it's colonies. And it was not only the national trade that gave the Portuguese economy a boost but also the trade that other countries, like England, Germany and the Netherlands, had with this country. Everyone who had a slight interest in commerce had, even if so slightly, contact with Portuguese harbours. It was the era of commercial splendour.
Drawing of the city of Lisbon before the earthquake of 1775.
We mustn't forget that Portugal had commerce with everything and everyone between India and Brazil, including the United States, North of Africa and Russia, and that this was the basis of the growth of business, and therefore businessmen, in this country. Lisbon had a high presence of foreign traders (much less in Porto), even since the Middle Ages, but the existence of constraints of trade with the colonies in the 18th centuries which gave Portugal absolute control in the signing of commercial treaties, increased even more the presence of other nationalities in Portugal.
The English, specially after their rise in maritime trade and after some trade treaties with Portugal like the treaty of Methuen, had, only in Lisbon, about 90 commercial establishments. The British community was seen not only in Lisbon but also in Porto and in both cities they had some judicial privileges, which made them the most influential trade community in Portugal. Clubs like the “Longroom” or businesses named John Bulkeley&Son, Offley, or even already 2nd generation enterprises like Duarte Power&Companhia were a regular site in Porto and Lisbon before the invasions. Some even exist today. Also the Germans, specially from Hamburg, Italians, Dutch, Swedes, Danes, French and even South Africans left their mark: Brothers Robello, Schindler, Lindenberg, Lecussan Verdier, Van Zeller, Kantzow, Ayres, Meimon Jullei, etc., are a few names.
In fact the nationalisation of many foreigners and their children was a common practice in Portugal, not only to help with taxes but also because Portugal had one of the easiest nationalisation laws. The Portuguese Crown made it easy for other nationalities to become Portuguese and also to return to their original nationality if desired.
Not only wholesale traders enjoyed the prosperous economy but also everyone linked to transportation, insurances, banking, agricultural and industrial entrepreneurs and retail merchants. And all of this rose with the French Revolution and the Napoleonic Continental blockade, which made it harder to trade by land and therefore, trade with the Baltic or the North Sea became stronger.
But all of this that could show that Portugal had a strong economy, in fact is quite the opposite since the rest of the country didn't enjoyed anything of this. Portugal suffered from a strong economical asymmetry. Although the Portuguese harbours were busy and the main commercial cities had a high input, other regions of Portugal, further away of the sea front, didn't experienced the same flow of richness. To understand this better, Portugal could be divided into 3 geographical and economical categories:
The coastline linked to maritime commerce (Porto and Lisbon, Setúbal, Figueira da Foz, Faro);
The industrial cities from the interior (like Guimarães or Coimbra);
The agriculture and pastoral based interior, off the routes of international commerce and internal trade.
The city of Porto at the turn of the 17th century.
To accentuate this, many of the goods traded, like salt, had the monopoly of foreigners and Portugal had to buy from these the same products it produced. And not to speak of the several taxes and legal constraints applied to internal trade, different to each city. It seems that it was easy to be a foreign company in Portugal and to trade abroad but internally the Portuguese hadn't it as easy. And so, therefore, the further inland we go the poorer and scarcer the population is (bad for a starving and invading French army).
The Portuguese economy can be described as a duality between the small Portuguese trader and the big foreign trader. But this doesn't mean that this country hadn't its share of prosperous national businessmen. What distinguishes these from the foreign entrepreneurs is that they didn't rely on import-export but more so on baking and insurance and the Lisbon stock exchange market. With a strong international market and with a stable national trade (and by this we say colonial trade), the Portuguese investor had nothing to loose. In fact large sums of money made through banking and investment were the basis of a lot of personal wealth. Only the American Revolution and the French Revolution were the know fluctuations. And, of course, if the return of the money invested is high then opening new offices in other European harbour cities is inevitable.
If we take in account that 1801 was the year with the highest trade registered, then we can also imagine all the credit given to the shipping business, all the insurances given to the trading business and all the capital inflow that this small percentage of the Portuguese population had. Although Portugal hadn't official banks, this didn't stopped the banking business of flourishing.
And with money coming in, a secondary activity started for these businessmen: agriculture. It may have started as only buying some property on the outskirts of the main trade centres for recreational purposes only, but soon it became, for many nationals, and also English, a way to expand their commercial interests, having many participated in the growth of quality grapes to produce port wine.
If firstly the Portuguese economy was influenced by an absolutist and protected set of rules, induced by the industrialization policy by Marquês de Pombal (that, not to interpret this wrongly, gave Portugal, yet so far away from the industrial revolution, a boost in technology), the growing liberalism in trade gave a chance to many businessmen to become entrepreneurs always on the look for business opportunities. Many, specially in Lisbon, started several factories and manufactures, like printing fabrics, silk, wool and cotton weaving, hat making, china and tableware making and sole making for shoes.
The Peninsula Wars changed that whole scenario and the flight of the Portuguese Crown to Brazil mad it worse. Even if Portugal recuperated from the astonishing fall of it's economy with the French invasions, the same economy never became as it once was. And the swap of Portugal as the trade post of Europe to Brazil didn't helped because now the Portuguese King could sign commercial treaties from here instead of Lisbon That is what happened with the treaty of 1810 with the United Kingdom, which made the “new capital” the receiver of all that trade and left Portuguese harbours almost empty. Portugal only recuperated from this after the the Peninsula Wars and had some growth between 1812 and 1817 but nothing like the former years. So, as seen, several factors made this downfall happen and still today it is seen as a national trauma surfacing all the hatred towards not only the French but also English and the former Portuguese Crown.
Decreat by D. João VI of Portugal to open all Brasilian harbours to trade after the royal family established the new Empire's capital in Rio de Janeiro.
As soon as the Portuguese market realized that it was inevitable that the French would invade, and as soon as the Crown forced the Portuguese Population to stand still and not to defend itself, the national economy started to decrease and prices got higher. And, of course, a country with a serious lack of technological development and relying only on maritime trade, nobody could expect it to return to it's former glory.
Not only was there a change of power to Brazil (which for future generations meant Brazil had it's own Noble lineage and, therefore, trading power) and all the subsequent shift in trade, also the French invasions provoked a tremendous loss of population in result of war and famine, a loss in trade, the ceasing of agriculture and the destruction of most of the Portuguese infrastructures.
The 1st Invasion was the only one where the whole territory was occupied by French (and Spaniards) and this translated into a serious of looting and crimes in all social layers. Soon the French realized how important Lisbon was and soon they underlined their role as new power. Therefore, they demanded a payment to the army, what they called a “loan”. Junot demanded on December 3rd of 1807 the presence of all the richest traders at their local governments to be told to pay this “loan” of 2 million cruzados «in order to satisfy the urgent need of the French army» and that they had 18 days to do so. As impossible this measure was to comply, it became even more difficult after the maritime blockade which stopped all trade. And although it was first called a loan, as soon as it entered the French state's savings it was considered an “extraordinary war contribution”.
Later that month Napoleon Bonaparte demanded further one hundred million francs to serve as ransom to all the occupied properties. The same decree allowed that all the belongings and properties of the royal family and nobles that left for Brazil and wouldn't return until February the 15th of 1808, belonged now to the French Army.
In March, the Portuguese Commerce Junta was forced to collect 6 million cruzados to all mercantile corporations, and this means not only traders but also shop owners and others. The French fiscal decision was clear: the”loan” turned into a “contribution” made it possible to ask for another “loan”.
It is only evident that soon the merchant and entrepreneur part of society offered resistance. So, the “fiscal evasion” was common practice and no threats or demands from the French army made it possible to get the whole amount and they soon changed tactics: instead of getting the money this way they decided to keep all the profit from taxes and trade directly. But what they hadn't foreseen is that with all English merchandise being forbidden to enter the country, made the profits, which upon the French relied, disappear. Then they changed it to allowing the sale of English products but by then it was to late since this measure only brought more crime and corruption. Portuguese merchants then went on refusing to supply the army with various goods instead of money. It is known that Junot and others hadn't bed linens and furniture to sleep upon.
But of all the above what hurt more the economy, specially in cities like Lisbon and Porto, was the decrease of maritime trade, of course. Not only did the French army controlled the rivers but also the English army. What this would do to trafficking and illegal trade , and therefore to the decrease of profits, goes without saying. And even with the departure of the French in 1808 and the demand of the restitution of the initial 2 million cruzados, all what Portugal got was the return of some private belongings.
The 2nd and 3rd invasions weren't as harsh, since they didn't occupied the whole country but by then the Portuguese economy was irrecoverable, specially after the chaotic times that Porto lived at the 2nd invasion and what the blockade at the Linhas de Torres Vedras caused at the 3rd. Lisbon was swamped with homeless people that had to be taken care of on the streets because there was no room for the high amount of people travelling into the capital. All agriculture stopped on the borders and the land became almost infertile after it's burning by the armies. So, the import of essential goods rose and the Portuguese economy became more and more dependant of foreign help.
The state that the Portuguese economy was left in after the retreat of the French army was the perfect condition for English traders to establish commerce with this country. Many authors say that the Methuen Treaty was responsible for the national economy not being able to become independent and for the British government to take advantage of low taxes and getting the monopoly of many trades. So, in 1811, Lisbon was transformed into a big English “warehouse”. The subsequent bankruptcies were inevitable and many merchants were absolved for their inability to pay their taxes; others were taken their properties. And now without a protectionist market and all the cause brought by war, the Portuguese mercantile splendour was long gone.
Arrival of the Portuguese Royal Family in Rio de Janeiro in March 7th 1808, by Geoff Hunt.