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Degredados, Their
Human Agency, and Micro
Institutions in Colonial
Brazil: An Institutionalist
Reinterpretation
a b
Fernando Zanella & Christopher Westley
a
Department of Economics and Finance at the
United Arab Emirates University (United Arab
Emirates)
b
Lutgart College of Business at Florida Gulf Coast
University, Ft. Myers, FL
Published online: 21 Apr 2015.

To cite this article: Fernando Zanella & Christopher Westley (2015)

Degredados, Their Human Agency, and Micro Institutions in Colonial Brazil: An
Institutionalist Reinterpretation, Journal of Economic Issues, 49:1, 143-156, DOI:
10.1080/00213624.2015.1013884

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 JOURNAL OF ECONOMIC ISSUES
Vol. XLIX No. 1 March 2015
DOI 10.1080/00213624.2015.1013884

Degredados, Their Human Agency, and Micro Institutions

in Colonial Brazil: An Institutionalist Reinterpretation

Fernando Zanella and Christopher Westley

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Abstract: Institutions are widely recognized as determinants of economic

development. However, institutional economists often overlook pertinent historical
incidents in their search for broad patterns. At times, this search oversimplifies
truly complex phenomena. In light of this, we apply a micro-institutional analysis to
explain the success of colonial Brazil’s early settlements as a mix of accident and
design. By doing so, we stress the limitations that can result when applying an
aggregate institutional interpretation of economic history and development. We
also apply the principal-agent model and its main feature — risk-sharing — to an
extreme case that involves settlers and natives risking their lives, while Portuguese
principals sought to reduce transaction costs in an important and resource-rich
colony.

Keywords: colonial Brazil, economic history, institutions, micro-institutional

economics, principal-agent, social economics

JEL Classification Codes: B15, N46, N56, O43, P48

Upon receiving a land grant called a “captaincy” in 1532 from the Portuguese Crown,
Martin Alfonso de Souza arrived to lead Brazil’s first settlement, São Vicente. Three
days after his arrival, de Souza and his party were surprised when a naked man
approached from the natives’ side and introduced himself. He was a Portuguese man,
João Ramalho, who had been living in this section of the Brazilian Atlantic Coast for
twenty years after his ship had sunk in 1512. He had been accepted by the native

Fernando Zanella is an associate professor in the Department of Economics and Finance at the United Arab Emirates
University (United Arab Emirates). Christopher Westley is a professor of economics in the Lutgart College of Business
at Florida Gulf Coast University (Ft. Myers, FL). The authors gratefully acknowledge many helpful comments and
suggestions from Robert Ekelund, Andy Barnett, Dave Laband, Teresa Hutchins, Janice Traflet, Yong Hoon Rhee,
Kent Deng, participants in the 2010 Economic and Business Historical Society Conference (Braga), the 2013 Asia-
Pacific Economic and Business History Conference (Seoul), and the 2013 Economic History session at the Eastern
Economics Association Meeting (New York). An earlier version of this paper circulated under the title “Why Micro
Institutions Matter: The Role of Castaways and Exiles in Colonial Brazil.” The authors also thank the editor and two
anonymous referees for their comments, and especially appreciate one referee’s suggestion for the present title. The usual
disclaimer applies.

143

©2015, Journal of Economic Issues / Association for Evolutionary Economics

 144 Fernando Zanella and Christopher Westley

Tibiriçás tribe and had married the chief’s daughter. He told the Portuguese that he
could keep the peace under certain conditions, including the establishment of
informal rules on property rights. As a result, São Vicente became the most successful
settlement. It was in the area of today’s São Paulo, which is the richest state in Brazil.
The Capitania de São Vicente became a successful settlement because of a historical
accident that can easily be overlooked by traditional methodological approaches
adopted by many institutional economists. In this case, it involves an outcast living
among the natives who acted as a broker to avoid war, establish a basic set of informal
rules, and foster trade.
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Further north, by Portuguese design, another settlement was also successful in

establishing peaceful and active trade relationships with some tribes. This captaincy
was owned by Duarte Coelho, who had arrived in 1535. He fought several battles
against the natives and his captaincy was a little more than a fort. Again, a Portuguese
living among the natives, Vasco Fernandes Lucena, acted as a broker between the
parties, although this time his life among the natives was not accidental. Lucena was
one of dozens of degredados dropped off on Brazilian shores several years earlier by
Portuguese ships. Degredados were individuals convicted in Portugal — usually for
political and religious reasons — who had their convictions waived in exchange for
exile to the New World, where they learned the language and customs of the natives.
However, they often ended up cannibalized. The Portuguese typically expected them
to act as agents for their eventual return. Vasco Fernandes Lucena was one of the
successful survivors.
Institutions, in a broad sense, are widely recognized as determinants of
economic development. However, individual behavior in history is sometimes
overlooked by institutional economists in their search for broad patterns, reflecting a
tendency to oversimplify truly complex phenomena. While historians do pay more
attention to individuals and historical idiosyncrasies, they often do not master
economic tools. Our objective in this paper is to explain the success of Brazilians’
earlier settlements as a mix of accident and design — a combination that greatly
impacted trade, the conquest of the Brazil, the definition of property rights, and
economic growth. By doing so, we stress the limitations of applying an aggregate
institutional interpretation of economic history and development, or the “big picture”
approach that neglects historical contributions (Woolcock, Szreter and Rao 2011).
Often, initially insignificant micro-events, which may have been the result of a
purposeful human action, shape broad institutional patterns. We examine some of
the micro-events that influenced Brazilian institutional development. To that end, the
paper is structured as follows: Section one reviews the literature and sheds light on
some methodological issues. Section two describes the earliest settlements in Brazil
and the role of agents who negotiated peaceful relations with the natives. The
conclusion stresses the importance of micro-institutions that, in Brazil’s case, took the
form of agents who negotiated the rules effecting future macro-institutions in an early
effort to reduce risks and transaction costs over the course of establishing and
expanding settlements in colonial Brazil.
 Degredados, Their Human Agency, and Micro Institutions in Colonial Brazil 145

Institutions and Development

Without addressing specific disagreements and similarities between the “old” and
“new” institutionalism (for a characterization, see Rutherford 1995, 2001; Hodgson
1998) it is safe to state that institutions are largely recognized by scholars as
determinants of economic development. Vast differences in a nation’s economic
development over time have been explained by the predominance of institutional
factors and factor endowments, or some combination of them. Douglass North
(1981), Robert Ekelund and Robert Tollison (1981), and Friedrich Hayek (1982)
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emphasize that bad institutions use the power of the government apparatus to extract
rent, i.e., rent-seeking, thus hindering economic growth. Stanley Engerman and
Kenneth Sokoloff (2000) point out that the role of institutions may be overplayed,
and that factor endowments are important to explain performance asymmetries.
Harold Demsetz (2000) suggests that factor endowments play a determining role
during the initial stages of development, while institutions are predominant in a
second phase.
Religion has long been identified as an important institutional factor. Much
research, for instance, suggests that Protestant predominance in certain societies leads
to growth due to its friendly understanding of capitalism. The U.S. case is a common
example. Vianna Moog (1964), writing in the spirit of Max Weber (1930), asserts that
Protestants in the US were hard workers seeking wealth accumulation, while Catholic
settlers in Brazil were opportunistic raiders. The legal system is an additional
institutional feature that has been addressed by authors like Rafael La Porta et al.
(1999) and Lee Alston, Edwyna Harris, and Bernardo Mueller (2012). These scholars
divide commercial law into five groups: common law, French civil law (written under
Napoleon in 1807), German civil law, Scandinavian law, and socialist law. They have
found that countries influenced by French or socialist laws exhibit inferior economic
performance. Interestingly, they add a new attribute to their findings: religion
predominance. La Porta et al. find that countries with a high proportion of Catholics
or Muslims also exhibit inferior government performance.
Daron Acemoglu, Simon Johnson, and James Robinson (2001) positively
associate high mortality rates faced by European colonialists with poor long-run
institutions. That is, in areas where settlers faced high mortality rates, they were more
likely to set extractive institutions — that is, a politically organized group uses the
governmental apparatus to extract rents (rent-seeking) from the rest of society — as
opposed to wealth-enhancing ones. Somewhat related to such approaches are the
geographical explanations in which, for instance, tropical diseases or trade distances
are predominantly accounted for using proxies, such as distance from the equatorial
line. Examples of this line of work include William Easterly and Ross Levine (2003)
as well as Jeffrey Sachs (2003). Dani Rodrik, Arvind Subramanian, and Francesco
Trebbi (2004) state that geography variables are convenient for use as instruments, but
they do not possess a strong explanatory power for poor economic performance.
Macro, worldwide institutional explanations, although broadly accurate, still fail
to explain individual countries’ performances. For instance, despite Protestantism
 146 Fernando Zanella and Christopher Westley

being considered more business-friendly, market institutions flourished in Catholic

Italian city-states by the fourteenth and fifteenth centuries. In fact, several naval
expeditions were financed by merchants of Florence, including some to the Brazilian
coast. Moreover, even among Catholic nations, differences were substantial. Jesuits in
Brazil, unlike other Catholic countries, played a key role during the earlier settlements
by trying to Christianize and protect natives, and by creating vast wealth in the Jesuit
order. Furthermore, despite the Portuguese positivist legal system, the same system
was systematically open to precedent — mainly the Crown’s urge to amend the law to
use degredados overseas (Coates, 2001). Dani Rodrik (2008) stresses that informal
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arrangements, or second best institutions, are overlooked when compared with formal
legal systems, such as those that developed, for example, in Ghana and Vietnam.
Additionally, as explained by Engerman and Sokoloff (2000) and John Coatsworth
(1998), the Caribbean developed a rich diversity of islands in terms of legal and
religious background regardless of European colonization, resulting in a mixture of
institutional features.
Coatsworth (2005, 2008) argues that inequality in terms of land ownership
concentration was not much different during the colonial period between Spanish
and British colonies. This is an intriguing point considering that rent-seeking is
associated with an unequal society and a strong extractive government. Finally, Dauril
Alden and Joseph Miller (1987) found correlation between the spread of diseases and
the slave trade. Epidemics in Brazil, such as smallpox and measles, coincided with the
occurrence of drought and famine in slave supplying countries, such as West Africa,
Angola, and Mozambique. While disease outbreaks mainly caused death among
natives and black slaves, they also affected settlers. Brazil’s colonial authorities tried to
unsuccessfully contain these epidemics by quarantining arriving slaves. Here we
suggests that settlers’ mortality rates were partially the effect of extractive institutions
already in place, not the other way around, as indicated by Acemoglu, Johnson and
Robinson (2001). Slavery and poor economic performance is a hypothesis supported
by Engerman and Sokolloff’s (2000) “Type 1” economy of plantations of sugar and
cotton, where slaves were in high demand.
In his article, “The Theory of Complex Phenomena,” Hayek (1964) points out
that a natural tendency of scientists’ inquisitive minds is to search for patterns. The
likelihood of successfully identifying a particular regularity depends on the complexity
of phenomena. The degree of complexity is identified by the number of distinctive
variables through which a phenomenon can be reduced. However, it may be the case
that to pursue the identification of a few main factors that jointly explain distinctive
national growth patterns is, though fascinating, an impossible task.
Likewise, economic historians see history “as a flowing river of fluid and swirling
potential, with many eddies and back currents in it. Only partially knowable at best, it
is something moving at deceptively different speeds in various courses of its travel,
with many undercurrents which can be hard to see and to estimate their
power” (Woolcock, Szreter and Rao 2011, 86). Conceivably, this is the fundamental
reason why economists, adopting the “big picture” approach to economic
development, have been unable to single out variables or the development of micro-
 Degredados, Their Human Agency, and Micro Institutions in Colonial Brazil 147

institutions that explain development across countries and time. Time, context, and
processes are nation-specific and their pathways change overtime, hence changing
other nations’ economic pathways, too. Interactions of players, institutions, and time-
specific circumstances require deep historical knowledge by researchers searching for
cause-effect relationships. The combination of time-series data, and the statistical
power of a few variables selected to capture complex phenomena, over time and
across nations, are not substitutes for historical knowledge and are likely to suppress
what econometricians are trying to address, as pointed out by Michael Woolcock,
Simon Szreter, and Vijayendra Rao (2011).
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In economics, scientists recognize a few universal assumptions. However, it is

arguable whether it is possible to identify a common development pattern out of
complex phenomena that stands even when applied to the entire world.1 It is our
belief that micro-institutions have been more successful when applied to specific cases
in particular time periods, perhaps because they involve less ambitious objectives. A fit
in which an institutional feature could be singled out to explain economic
performance is suggested by Abhijit Banerjee and Lakshmi Iyer (2005), who find that
two different property rights systems — one landlord-based and the other non-landlord
-based — resulted in different outcomes in India. Within Hayek’s context, it is possible
to say that these authors manage to address a not-so-complex phenomenon where the
possibility of successfully singling out variables is more likely. This less ambitious
approach contrasts with broader approaches that attempt to single out variables in a
worldwide study across time. In the words of Banerjee and Iyer, “[a]n obvious
advantage of focusing on one particular country is that it makes it easy to locate the
source of the difference, relative to the case where there is a complex of institutions
that are all different” (2005, 1191).
We focus on the principal-agent role (perhaps classified as a “micro
institutional” or, alternatively, historical economics in Kindleberger 1990) that
explains economic interactions between the Portuguese and the natives. These were
activities that were fundamental to understanding the brazilwood and sugar cycles as
features largely overlooked by aggregation of cross-country and time-series data.
Formally described by Stephen Ross (1973) as the principal problem, agency theory
has its roots in risk-sharing (Arrow 1971). Since the early 1970s, the principal-agent
model has been widely used in the fields of finance, management, politics, sociology,
and economics. The model states that principals set formal and informal contracts
with agents to represent their interests, mainly to reduce transaction costs. But the
agent may not act as expected by the principal by seizing opportunities created as a
result of asymmetric information.
Despite being widely used, there is some evidence that the model’s assumptions
should be relaxed. For instance, Anne Rasmussen (2005) finds that core assumptions
of the principal-agent model can be less relevant when they are not endogenized into

1
For a debate on Hayek, historicism and the American institutionalism differences and similarities
on methodological individualism and empiricism, see Bruce Caldwell (2004) and Geoffrey Hodgson
(2004a, 2004b).
 148 Fernando Zanella and Christopher Westley

the model as characteristic of the environment. However, with regard to economic

history, the principal-agent theory and its underlying set of incentives proves powerful
in explaining the demise of English and North American mercantilism, while also
describing mercantilist relations in imperial Brazil during the same period (as per the
research of Ekelund and Tollison 1997, and Zanella, Ekelund and Laband 2003). We
believe that the characteristics of these often ignored initial relationships affect (i) the
characteristics of the political and property rights institutions that eventually emerge
in colonial economies (such as Brazil’s) and (ii) the extent to which these institutions
promote wealth creation and social cooperation as opposed to wealth dissipation and
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socially harmful and violent outcomes. In this respect, here we contribute to Alston,
Harris, and Mueller’s (2012) discussion of de facto and de jure property rights
arrangements that characterized the development of frontier economies in Australia,
the United States, and Brazil.
Due to the existence of disparate sources of information and the general
idiosyncrasies regarding sixteenth-century settlements, we loosely apply the
principal-agent model. Nevertheless, our approach is still based on the model’s
original roots — that is, risk-sharing in an extreme situation in which the settlers and
natives were risking their own lives, while the Portuguese were seeking to reduce risks
and transaction costs to maintain its empire. In the following section, we addresses
the very first settlements in colonial Brazil and the settlers’ dealings with the natives
through a Portuguese business practice of establishing communications by using
degredados as agents. The performances of these agents often determined the success or
failure of a settlement. The creation of markets in brazilwood and sugar and the
conquest of the Brazilian west were the direct results of the agents’ roles.

The Initial Contacts, Settlements, and the Role of the Brokers

During the fifteenth century, the Portuguese had developed an exceptional expertise
in navigation. Portugal was home to the Order of Christ, a Catholic order comprised
of the most famous of the warrior-monks, the Knights Templar. This secret order
began during the Crusades in 1119 and its rules were known only by the Order’s
Grand Master and the Pope. During the Crusades, the Order possessed vast
properties and conducted economic activities leading to its control over the finances
of several countries. Its growth in power and influence eventually made it a target. On
Friday, October 13, 1307 — a day that became known as Black Friday — King Philip
IV of France, in reaction to growing French debt to the Order, moved to suppress it
by arresting and killing of those knights who resisted his decrees. Pope Clement V,
surprised by Phillip’s actions, later conceded to dissolving the Order (Frale 2004;
Menache 1993).
Many members were burned to death during the French Inquisition. As the
Inquisition spread throughout Europe, the remaining members of the Order found a
monarch who offered them protection: King Dinis I of Portugal. In 1317, the Order
changed its name to the Order of Christ, and, in 1319, Pope John XXII
acknowledged its existence. Portugal benefited from the Order’s strict organization
 Degredados, Their Human Agency, and Micro Institutions in Colonial Brazil 149

and business experience, both of which added greatly to Portugal’s store of human
capital. Portuguese protection of the Order also brought access to trade routes in the
east, and the fourteenth-century Sagres Nautical School was rooted in the Order. In
fact, the Order was so important to Portugal and its trade and navigation business
that the ship that discovered Brazil had one of its knights as its captain, Pedro Alvares
Cabral. As a result, the first flag in Brazil was not Portuguese, but the Order of
Christ’s flag — a white flag with a red cross in the middle.
By the fifteenth century, Portugal was a leader of maritime exploration — notably
to India, Africa, and various Atlantic islands (including Azores, Canarias, Madeira,
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and Cape Verde), and even the Americas. Navigational proficiency allowed Portugal
to map the New World before other nations did. As a result, a map of Brazil existed
as early as 1493, while maps of present-day Canada and the United States existed
twenty years before Columbus’s 1492 expedition. In fact, aware of the Portuguese
claims on the new lands, Columbus stopped in Portugal to meet King João II on his
way back to Spain, with a goal of minimizing tensions between the two nations. In
1494, the Pope declared a treaty over the division of the new lands between Portugal
and Spain. The Tordesilhas Treaty, which followed the Papal bull of Inter Caetera,
gave Portugal rights to claim new lands.
Before landing in Brazil, Portugal had learned the importance of translators and
cultural brokers due to its experiences in India and Africa. Portuguese sailors mapped
West Africa, establishing several business ports along its coast. Prince Henry the
Navigator (a governor of the Order of Christ) is credited for most of the early
European maritime expansion. It was a common Portuguese practice to capture
natives in Africa, take them to Portugal to learn the language and customs, and then
return them with the intention to forge an understanding between the parties.
Information gathering was a must for the vastly outnumbered Portuguese colonizers.
The fundamental agents for the Portuguese in the new world were the
degredados. Degredados were Portuguese men convicted for religious, political, sexual, or
financial crimes as defined by the Crown. Importantly for the principal-agent model,
degredados were not slaves and, even when condemned, some of them were paid for
their labor.2 In fact, they held such importance for the Portuguese Empire that King
João III issue a decree in 1534 forbidding the beating of degredados (Coates 2001).
Usually, a ship carried ten to twelve degredados for drop-offs into various colonies
(Abreu 1997).
The diary of Cabral’s first trip to Brazil records an officers’ meeting in which the
capture of natives was discussed, but not approved (De Caminha [1500] 1963). Cabral
met friendly natives, but communication was impossible. Instead of capturing them
(and thus following the practice established on the African Coast), Cabral decided to
use the “agents” on board. The two degredados had been condemned to death in
Portugal, but had their punishment revoked in exchange for service as agents of the

2
Unlike the British Crown, Portuguese monarchs seemed to have understood the role of incentives
in principal-agent relationships by paying its agents to keep opportunistic behavior in check (Zanella,
Ekelund and Laband 2003).
 150 Fernando Zanella and Christopher Westley

Portuguese. The Portuguese fleet set sail soon thereafter, leaving their agents with the
natives as planned.3 A few years later, one of the degredados aided the Portuguese in
negotiating with the natives.
Such agents (in our paper, mainly degredados) served similar roles in several
earlier settlements around the world. While Pocahontas acquired a mythical status for
helping the first settlements in Jamestown, Virginia, lesser known agents operated as
transfrontiersmen (Isaacman and Isaacman 1975), interpreters (Hagedorn 1988),
cultural brokers (Richter 1988), and go-betweens (Metcalf 2005). Although Allen
(2012) argues that many principal-agent relationships in the mercantile era were often
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based on aristocratic notions of trust and honor, the Portuguese use of degredados
created an additional layer of incentives for the agents to maintain their loyalty to
faraway principals. Here we identify them as agents due to their role in carrying out
instructions of the principal (Portuguese) to facilitate trade and settlements by
gathering information and minimizing transaction costs. However, as we shall see
later, many — if not most — degredados became brokers by trying to forge a common
ground between the Portuguese and the natives to produce agreements of mutual
benefits. Actually, some of them, castaways and degredados alike, became so integrated
into the natives’ lifestyle that they refused to return to Portugal despite promises of
reward and even financial compensation.
The set of incentives turned in favor of the natives because of several factors: (i)
healthier lifestyles compared with what was available to them in Europe;4 (ii) business
opportunities, including the slave trade (capturing and selling rival natives to the
Portuguese); and (iii) liberal sexual mores reflected in tribal practices to encourage
family members to marry the Portuguese. (A Portuguese often married a chief’s
daughter as well as several secondary spouses.) These incentives effectively created
tribal bonds with the newcomers and assurance as to where the Portuguese fidelity
would lie. Therefore, such intermediaries would be considered brokers or agents,
depending on how they acted. Darcy Ribeiro (1995) calls the bonds by marriage of a
foreigner to a native woman the social institution of cunhadismo — a derivation of the
Portuguese word cunhado, or bother-in-law — and argues that cunhadismo permitted the
effective colonization of Brazil.
Amerigo Vespucci, an Italian working for the Portuguese Crown, led the second
expedition to Brazil in 1501. His first encounter with the natives happened without
any intermediary, since his crew did not land where the degredados were previously
dropped off by Cabral. After making contact with and presenting gifts to the tribe
ashore, two men went missing having left with the natives. After a week, a third man
went ashore to contact the natives and ended up being cannibalized in full view of the
crew on the ship. Vespucci sailed south and finally met one of the degredados, who

3
De Caminha’s trip diary ([1500] 1963) often mention the degredados’ involvement with the natives,
and how the expedition expected them to stay with them to learn the language and customs.
4
João de Ramalho, for instance, reportedly died in 1580 in his nineties, quite an achievement for a
sixteenth century European.
 Degredados, Their Human Agency, and Micro Institutions in Colonial Brazil 151

eventually facilitated communications and trade with the natives. After that,
Portuguese visits to Brazil became infrequent.
Vespucci left a degredado in the south of Brazil who became known to future
expeditions as the Bacharel of Cananeia (Bueno 1999). He was probably Cosme Pessoa,
a New Christian exile who eventually married at least six native women, headed a
small native army, and became an important slave trader and ship-supplier south of
São Vicente. He also assisted expeditions in search of the Incan “white king,” and his
“silver mountain.”5 The Portuguese were suspicious of his links with the Spanish and
tried to control him. But the Bacharel rejected the Portuguese authority and, in 1536,
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attacked a settlement, killing his former friend Henrique Montes, an earlier outcast in
Santa Catarina who became allied with the Portuguese. He then fled, never to be
found.
Brazil was the land of brazilwood, a tree that provided a reddish dye in high
demand by the emerging European textile industry. Although Brazil belonged to
Portugal (according to the Tordesilhas Treaty of 1494), France had been exploring the
Brazilian coast at the same time. When the Portuguese captured the French ship
Peregrina in 1532, they found that it contained fifteen thousand logs of brazilwood,
three thousand jaguar furs, six hundred parrots, and various spices (Bueno 1999) — a
bounty that motivated the Portuguese Crown to embark on the effective occupation
of Brazil. Brazil was divided into fifteen captaincies — horizontal pieces of land
available to anyone who had money and an interest in exploration. The recipients had
to pay “the King’s Fifth” on all metals discovered. The captaincy owner had the right
to give land grants to settlers (sesmarias) if they fulfilled the conditions of being
Christian and agreed to pay a tithe to the Order of Christ. In exchange, the recipients
had to pay the tenth and twentieth on certain items (Marchant 1942). Brazilwood,
drugs, and spices were kept as Crown monopolies, which redirected settlers’ efforts
toward sugarcane mills.
The most successful captaincy was that of São Vicente, headed by Martin Afonso
de Souza. João Ramalho, the shipwreck survivor, had been living with natives for
decades before de Souza’s expedition arrived. He had married the Tibiriçás chief’s
daughter, in addition to several others, and was believed to be able to quickly mobilize
an army of at least two thousand warriors. He told de Souza that he could keep the
peace between the Portuguese and the natives, but under certain conditions to which
the Portuguese had to agree. As a result, the captaincy was divided into two sections.
The coastal areas were assigned to the Portuguese, but the natives maintained fishing
rights. Meanwhile, the Portuguese could not trespass into the hills without Ramalho’s
consent. These market features, including an important and informal agreement
about property rights, led to an increase in exchange between the two parties. Soon,
the captaincy constructed sugarcane plantations and mills called engenhos. Over time,
the captaincy developed further into the hinterland (with Ramalho’s approval).

5
The “white king” was finally discovered by the Spaniard Francisco Pizzaro in 1532. The discovery
supplied Spain with gold and silver for several years afterwards.
 152 Fernando Zanella and Christopher Westley

Ramalho had dozens of children with native women. Additionally, many of the
Portuguese were single men who also sired children with natives. Their offspring,
knowledgeable of both customs and geography, would spearhead future incursions to
capture natives of other tribes for work as slaves in the sugar mills. Those incursions
created new paths, and consequently supplied outposts along their way that became
towns where cattle-raising and crop cultivation were common. Those entrances,
known as bandeiras, were responsible for the conquest of the Brazilian west, well
beyond the boundaries established by the Tordesilhas Treaty. By 1600, Brazil’s
territories were roughly geographically equivalent to the initial thirteen American
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colonies, with settlement beginning on the eastern shores of their respective

continents. Nevertheless, due to the bandeiras, most of Brazil’s territory was claimed by
1640, and later internationally recognized by the utis possessis (useful possession) rule.
By contrast, the U.S. settlers only crossed the Mississippi River after the Louisiana
Purchase of 1803–1804 (Zanella and Westley 2009).
Ramalho, in contrast to the Bacharel of Cananeia, kept assisting the Portuguese
despite adopting the natives’ lifestyle. For instance, Ramalho and his sons led several
war parties against tribes hostile to the Portuguese — tribes with whom French
explorers, the truchements, had established relationships. A detailed account of the
enemy tribes and the French was provided by Hans Staden, a German mercenary
captured by these tribes who published a detailed account of his experiences (which
included cannibalism). Hans Staden’s narrative ([1557] 1930) also provides
indications that his survival was just a result of the imponderables.
Duarte Coelho owned the second and last successful captaincy in the current
Brazilian state of Pernambuco. Coelho faced several fights against the local natives,
which limited his ability to settle his captaincy. Eventually, he was able to contact
another Portuguese degredado living among the natives of the tribe Tabajaras. Vasco
Fernandes Lucena brokered an agreement between the parties involved, and soon the
Tabajaras became allies of the Portuguese against other tribes. The resulting security
enabled the captaincy to organize economic activities, to build sugar mills, to grant
land to settlers, and to establish transactions with the natives. As was customary,
Coelho’s son married a native and conducted expeditions against the enemies of
Tabajaras in order to obtain slaves for his captaincy. The captaincy became very
important for the sugar trade, which caused the colony’s economy to boom. Duarte
Coelho’s captaincy eventually grew to fifty mills and several sugar plantations, making
him one of the wealthiest men in Brazil.
Francisco Pereira Coutinho owned the last captaincy to feature a Portuguese
agent living among the natives. The Capitania da Baia de Todos os Santos was
established on Countinho’s arrival in 1536 in the current state of Bahia. His agent
was another shipwreck survivor, Diogo Álvares Correa, known as “Caramuru” by the
Tupinambás natives with whom he lived. Caramuru lacked the influence of Ramalho
and Lucena, and as a result Coutinho rejected his terms for peace and engaged in
raids throughout the Tupinambás territory. Ultimately, the captaincy’s defense was
breached and Coutinho was killed by the natives. Later in 1549, Caramuru became
an important ally of the first general governor of Brazil, Tome de Souza.
 Degredados, Their Human Agency, and Micro Institutions in Colonial Brazil 153

Four other captaincies were never settled, while in the remaining captaincies
where there were no agreements about property rights, battles occurred and the
outnumbered Portuguese were defeated. The lack of agreement could be attributable
to communication problems due to, for example, a Frenchman living among the
natives, or to inability to agree on property rights, such as in the case when one of the
parties considers the land a “common-pool” to be distributed on a “first-come-first-
serve” or “the-stronger-rules” basis.6 As a result, those captaincies were either not
effectively occupied or eventually destroyed. An example of a negative role played by a
degredado occurred in the captaincy of Espirito Santo, owned by Vasco Fernando
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Coutinho. During a leave of absence, Coutinho left the degredado D. Jorge de

Meneses, an ex-nobleman, in charge of the captaincy. Meneses had become a degredado
due to his brutality when ruling the Island of Tenarte in Asia. He decided to capture
natives to work as slaves on his sesmaria (land grant). His acts provoked a reaction: the
captaincy was destroyed and the settlers were killed by the natives.

Conclusions

By Portuguese design, degredados were extensively used as agents to reduce

uncertainties, cut deals with the natives, secure settlements, combat the French, and
expand economic activities (including commodity production for export). Those
effective settlements were prime locations for the brazilwood trade and, more
importantly, for sugar. The furthermost settlement was São Vincente where the
castaway, João Ramalho, served as an agent for the Portuguese. The São Vincente
captaincy, besides enjoying the benefits of the brazilwood and sugar export, was the
starting point of the bandeiras, which was a movement responsible for the conquest of
the Brazilian west, and for the subsequent gold trade. Bandeirantes, the Brazilian
pathfinders and expedition leaders, were often the offspring of Portuguese and
natives, including several sons of João Ramalho. Today, São Vincente corresponds
roughly to the same area of São Paulo, the richest state in Brazil. (São Paulo alone
contributes about one third of Brazil’s GDP, IBGE 2013).
Historical accidents, like castaways, cannot be used for policy prescriptions, but
they can serve to understand the past. By accident (castaways) or by design (degredados),
the Portuguese agents were undisputedly crucial for Portugal in its development of the
Brazilian colony. Much research still needs to be done. In particular, did Portuguese
policies regarding their agents greatly affect institutions in Brazil or did Brazilian
institutions develop due to the plans of shirking degredados? While it is possible to
draw broad generalizations, the answer in the case of Brazil can be found in the
ensuing economic development that took place in that country. The economically
developed regions were those of strong principal-agent relationships (i.e., between
Portuguese principals and castaway agents) and of the understanding that mutual

6
For cost-benefit analyses of war or peace/trade, see Terry Anderson and Fred McChesney (1994), as
well as Peter Leeson (2007).
 154 Fernando Zanella and Christopher Westley

benefits came from the recognition of others’ property rights. By contrast, the regions
with economic stagnation had weaker principal-agent relationships, and hence weaker
property rights institutions and poorer economic development.
The role of individual behavior and historical accident in colonial Brazil
impacted trade, the conquest of the west, the definition of property rights, and
economic growth, and studies of it should stress the limitations of applying an
aggregate institutional interpretation of economic history and development. As
Rodrik (2004, 6) argues, “[t]he process through which countries acquire ‘good’
institutions is typically quite idiosyncratic and context-specific. Luck plays an
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important role, as does human agency.” The challenge for the empirical literature on
institutions and economic development is to explore patterns of complex phenomena
to identify specific processes without falling into the trap of reductionism or historical
and geographical determinism.

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