April 20, 1602, was a momentous day in Iceland. It was on this day that the Kingdom of Denmark first imposed a trade monopoly on Iceland. This didn’t just mean that Iceland could only trade with Denmark; it also meant that only a few major players in Denmark were permitted to reap the wealth from Iceland.
The trade monopoly is a great example of how planned economies are not always socialist in nature. For 184 years, Danish merchants controlled 20 to 25 designated “trading posts” in Iceland, dividing them amongst themselves and charging a fixed rent. The King of Denmark himself set a fixed rate of prices, too. What did this mean for Icelanders? Not a lot of good, as you might imagine.
Almost all of the wealth generated in Iceland was funnelled to Copenhagen, Malmö (now in Sweden) and Helsingør for the first few years; after 1620, it all went to Copenhagen. For a long time, Denmark sent a single shipment of goods to Iceland each year, a great deal of these goods of substandard quality, with food often spoiled or already rotting. In short, Denmark got fat and sassy while Iceland struggled to hang on as a vassal state.
Skúli Magnússon, the national sheriff and at one time the most powerful man in the country, helped put an end to this nonsense. For most of the trade monopoly’s existence, Danish merchants sat at home counting their money. Skúli passed a decree that merchants needed to permanently live in Iceland in order to engage in their craft. At the same time, he allowed them to invest in other forms of employment besides the merchant trade, as royal decree had previously forbidden. This led to a revenue stream coming back into Iceland, which helped it develop rapidly.
Both the end of the American Revolutionary War and the disastrous eruption of Skaftáreldar in the same year, 1783, precipitated an economic freefall in Iceland, and the situation quickly deteriorated. This made the trade monopoly very unfeasible for Denmark and, on New Year’s Eve of 1787, the monopoly was brought to an end.
Read more on Iceland’s history here.