The English Chartered Trading Companies, 1688-1763

Guns, Money and Lawyers

Michael Wagner

• Publisher: Routledge
• Year: 2018
• ISBN:
  9780429877117
• Edition: 1
• Topic: History
• Subtopic: World History
• Index: History

This book provides a collective view of the five major English chartered trading companies which were active during the period 1688-1763: The East India Company, the Royal African Company, the Hudson's Bay Company, The Levant Company, and the Russia Company. Using both archival and secondary sources, this monograph fills in some of the knowledge gaps concerning the less well-studied companies, and examines the interconnections between international rivalry, the financial operations of the companies, and politics which have not featured prominently in the historiography.

1 Guns

Rivalry and the Pressure to Innovate

The chartered companies are usually described as monopolies because their charters gave them exclusive trading rights, amongst English merchants, in a certain geographical area. This does not mean that the companies were hermetically sealed from all forms of competition, nor does it mean that they were able to command monopoly rents. In fact, the companies faced various forms of competition both in England and overseas. This chapter will look at how competition affected the companies and created the impetus for them to innovate. The analysis starts with a discussion of the period prior to the Glorious Revolution and examines English rivals to the companies as well as the Dutch threat. The revolution was a pivotal event in the transformation of the competitive environment faced by the companies. It led to a diminution of the Dutch commercial threat and the rise of the French as both a military and commercial rival. The course of the French rivalry to the English companies is discussed in stages as it intensified immediately following the Glorious Revolution, went through a ‘cold war’ period of peace combined with an ongoing commercial rivalry, heated up again with the resumption of hostilities in the 1740s and finally declined during and after the Seven Years War. The differences in organization amongst the English companies and between the English companies and their French rivals are then examined as those differences had a significant bearing on the manner in which the English companies responded to competition. Finally, the pressures on the companies to respond to competition are summarized.

Rivalry Amongst English Merchants

Before discussing the influence of foreign rivalry on the English companies, it is important to recognize that there were competitive forces affecting the companies in England before the Glorious Revolution. One of these competitive forces was a significant rivalry involving two chartered companies which originated in the seventeenth century and lasted until well into the eighteenth century—the rivalry between the Levant and East India companies.

Relations between the Levant Company and the EIC had not always been acrimonious. Levant Company merchants were instrumental in the founding of the East India Company in 1600 and were still a dominant force in the EIC in the 1630s. There was little friction between the Levant Company and the EIC at the time because the EIC was recognized as a more efficient means of accessing the eastern spice trade than the overland caravan route through the Middle East to the ports of the eastern Mediterranean.¹ The establishment of the EIC allowed the Levant Company to specialize in other commodities such as currants and what would become its staple commodity, raw silk. Robert Brenner has indicated that twenty of the twenty-seven main officers of the EIC in 1634 were Levant traders.² Brenner describes how this Levant-East India group extended its influence over the Russia Company, initially through joint East India—Russia Company voyages to seek a northwest passage, such as Henry Hudson’s voyage of 1608, and then through the temporary acquisition of the Russia Company by the EIC after it fell into serious financial trouble. In 1640, the Levant Company, the EIC and the Russia Company shared a single governor—Henry Garway.³

Problems between the EIC and the Levant Company emerged when the EIC diversified its range of imports to include items that competed either directly or indirectly with those of the Levant Company. The main import of the EIC—calicoes—acted as a substitute for English manufactured garments made from woollen cloth and silk. Furthermore, the EIC had also begun to import raw silk, thus directly challenging the main import of the Levant Company. The Levant Company complained about silk imports from the EIC as early as 1670 and was particularly alarmed by the big imports of Indian raw silk in 1680.⁴ In 1681, the Levant Company sought to gain a ban on the import of raw silk by the East India Company.⁵ That same year, the Levant Company unsuccessfully sought to acquire trading rights in the Red Sea by supporting the interloping ship Arcana Merchant, which traded for coffee at Mocha.⁶

The late 1670s and early 1680s were a difficult time in the Levant trade. Alfred Wood explained the depression in the Levant trade at the end of the 1670s as probably being due to French and Dutch competition and new protective tariffs in France.⁷ In his unpublished DPhil thesis, Peter Loughead also suggested that the attacks on the EIC by the Levant Company in the 1680s were primarily motivated by a desire to find an outlet for funds made idle by a dislocation in the Levant trade.⁸

In contrast to the Levant Company, Om Prakash observed that the 1680s marked the start of a qualitative improvement in the trade of the EIC as well as the Dutch East India Company.⁹ Perhaps because of the EIC’s improved trading position, Josiah Child’s appointment as governor of the EIC in 1681 came during a period of mounting criticism of the company, and the Levant Company was very much in the forefront of that criticism. Most contemporary criticism of the EIC revolved around two issues. The first was the quantity of bullion and coin that it exported. The second criticism of the EIC concerned the exclusivity of the company, especially the limited number of shares that were available for purchase by the investing public. To understand why these criticisms arose, it is worth examining both the basic nature of the company’s business and the extent to which it was exclusive.

Silver was by far the EIC’s main export to India.¹⁰ India, like China and the Ottoman Empire, was a major consumer of silver.¹¹ As the Mughals had little interest in western commodities such as broadcloth, it was the prospect of gaining access to treasure that was the main motivation for the Mughals to grant trading privileges to the EIC in the seventeenth century, and the lower price of silver in the west relative to the east made the silver-based trade of the EIC with India viable. For most of the seventeenth century, gold was also an important component of the EIC’s treasure exports. For the overall EIC trade with India, gold became considerably less important than silver in the 1680s and relatively unimportant from the 1690s onwards. The general increase in importance of silver in the 1680s was driven both by the growth of trade and the fiscal demands of the Mughal Empire. Over the course of the seventeenth century, the Mughal state revenue demand more than doubled.¹² Land taxes, which represented about 90% of Mughal taxes, were typically paid in silver rupees. The main routes by which American silver reached the Mughal Empire were Persia and the Red Sea but direct trade with Europeans, such as the EIC and the VOC (the Dutch East India Company), was growing in importance as a source of silver supply. By the 1680s, almost 20% of the silver bullion imports into the Mughal Empire came via the EIC.¹³

By far the major supplier of silver to the company in the 1680s was Thomas Cooke. Cooke formed a powerful combination with Josiah Child. They were the two largest shareholders in the company, and they dominated the EIC in the 1680s and early 1690s. In 1691, Child and Cooke owned over 12% of EIC shares between them. ¹⁴ Larger investors were becoming more prominent in the company in the late seventeenth century. Between 1675 and 1691, the percentage of EIC stock held by individuals with more than £2,000 of par value shares almost doubled.¹⁵ This situation would only start to change somewhat after 1693, when the government required that new stock be issued. Cooke began the first of several terms as EIC governor in 1692. Like Child, Cooke was a controversial figure and he was accused of bribery in connection with the renewal of the company’s charter in 1693.¹⁶ The power of the London goldsmiths who supplied silver to the company, such as Cooke, only waned after 1696 when the EIC changed its policy and bought silver from suppliers in Amsterdam and Cadiz.¹⁷

Because the EIC pursued a policy of restricting its share capital, it relied upon its bonds and other borrowing for its working capital. EIC bonds were highly attractive investments. They were safe and there was a ready market for the securities. While the bonds were nominally issued for terms of six months, they were both renewable (by investors) and redeemable (by the company). These features contributed to their price stability in the market.¹⁸

The reliance upon bonds and other short-term borrowing for its working capital meant that a very large proportion of the company’s cash flow consisted of either borrowing or repaying debt. For example, for the year 1682, the company’s total cash outflow was some £2.2 million.¹⁹ Of this total cash outflow, half (£1.1 million), went towards repayment of principal on borrowings. Interest payments amounted to £33,700. The exact amount of outstanding debt in 1681 is not known, but in that year, the EIC claimed that its debt at interest was £550,000 and the EIC’s records for 1685 indicate debts of £569,244.²⁰ Interest payments of £33,700 would represent interest of about 6% on £550,000. The Levant Company also claimed that, at times, the EIC was able to borrow at 3–4%.²¹ This was true but, in practice, the company frequently adjusted the interest rates on its bonds.²² The fact that the repayment of principal totalled £1.1 million suggests that, notwithstanding the renewability feature of the bonds, they were normally held for about six months. In order to meet its ongoing working capital needs, the company borrowed £1.4 million in total in 1682. Therefore, it is not altogether surprising that a central plank of Josiah Child’s view of political economy was that the government should act to keep interest rates low.²³ Child argued that low interest rates were a key to the development of the Dutch economy, but low interest rates were also particularly beneficial to the EIC and its major shareholders. Given the EIC’s capital structure, the ability to borrow at low interest rates was essential in keeping interest payments on the company’s considerable debt at a reasonable level...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• Preface
• Maps
• Acknowledgments
• Introduction
• 1 Guns: Rivalry and the Pressure to Innovate
• 2 Money: The Companies as Financial Innovators
• 3 Lawyers: The Political Verdict
• Conclusion
• Index