Princeton Analytical Sociology Series

The English East India Company, 1600–1757

Emily Erikson

• Publisher: Princeton University Press
• Year: 2014
• ISBN:
  9781400850334
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

The English East India Company was one of the most powerful and enduring organizations in history. Between Monopoly and Free Trade locates the source of that success in the innovative policy by which the Company's Court of Directors granted employees the right to pursue their own commercial interests while in the firm's employ. Exploring trade network dynamics, decision-making processes, and ports and organizational context, Emily Erikson demonstrates why the English East India Company was a dominant force in the expansion of trade between Europe and Asia, and she sheds light on the related problems of why England experienced rapid economic development and how the relationship between Europe and Asia shifted in the eighteenth and nineteenth centuries.Though the Company held a monopoly on English overseas trade to Asia, the Court of Directors extended the right to trade in Asia to their employees, creating an unusual situation in which employees worked both for themselves and for the Company as overseas merchants. Building on the organizational infrastructure of the Company and the sophisticated commercial institutions of the markets of the East, employees constructed a cohesive internal network of peer communications that directed English trading ships during their voyages. This network integrated Company operations, encouraged innovation, and increased the Company's flexibility, adaptability, and responsiveness to local circumstance. Between Monopoly and Free Trade highlights the dynamic potential of social networks in the early modern era.

Chapter 1

INTRODUCTION

The English East India Company has long sat at the center of debates on the relative virtues of monopoly forms of organization and free trade. The Company figures prominently in the work of Adam Smith, Thomas Mun, James Steuart, James Mill, David Ricardo, and John Stuart Mill, among others, and was a significant influence on the development of economic thought in Britain (Barber 1975, Khan 1975, Muchmore 1970: 498–503). Supporters of the Company argued that monopoly rights were necessary to create and maintain the expensive infrastructure that made long-distance trade with Asia both possible and profitable. Free trade advocates attacked the Company as a boundary to the expansion of commerce. Arguments over the efficacy of the Company’s monopoly continue to this day (Carlos and Nicholas 1988, Jones and Ville 1996a, 1996b, Carlos and Nicholas 1996, Irwin 1992, Anderson and Tollison 1982). These debates have largely glossed over the fact that the Company was never a true monopoly.

The English Company had monopoly rights in England, but had always competed against other European organizations in Asia—and happily traded with them.¹ The Company was known as a monopoly because it had exclusive rights to the East Indies overseas trade in England. However, all the East India Company’s respective governments granted that privilege. The European companies competed both in Asia and in the European reexport market. The companies were attempting to capture a market long dominated by numerous, successful, and well-provisioned Asian merchants, better versed in the vagaries of their local trade. In England itself, the East India Company faced competition from the Levant Company, which held a charter awarding exclusive privileges to the overland trade of Asia.

Even within its own purview, the Company ceded several of its monopoly privileges to its own employees. These employees engaged in what was called the private trade, trade upon their own account and in their own interest, while in the employ of the Company. The private trade allowances both contributed to and were a part of a larger pattern of decentralized decision making in the English Company. This book investigates how organizational decentralization and the intertwining of private and Company interests aboard the voyages of the East Indiamen ships both encouraged exploration of new market opportunities and created a powerful internal network of communication that effectively integrated Company operations across the East. Monopoly rights were not the key to Company success; it was the partial abrogation of those rights that sustained England’s commercial success in Asia.

Some idea of the importance of the private trade has been apparent since the days of the Company itself; however it has not been considered as an intrinsic component of the distinctly decentralized organizational form the Company took on early in its existence, except by those that saw that decentralization as a negative (Moreland 1923: 314, Arasaratnam 1986: 37, 329, Lawson 1993: 73). Instead, the private trade of the employees has been mainly conceptualized as a distinct alternative to the monopolistic strategy of the firm—although in practice the two worked in concert.

Contemporaries of the Company took the success of the English private trade as evidence of the superiority of free markets. Influential actors, such as David Scott (friend of Henry Dundas and chair of the East India Company from 1778 to 1800) cited their experience with private trade in the East as the source of their support for the ideal of free trade (Philips 1951: xiv). When requesting the renewal of monopoly privileges, Company officials argued that the failure of the private trade to take up more than a quarter of the tonnage offered by the Company demonstrated the efficacy of the existing system of monopoly (Hansard 1812: 47). The relationship linking the private and Company trade was ignored in increasingly polarized arguments about the merits of free markets.

In the end, the 1813 and 1833 acts rescinding the Company’s monopoly privileges, first to India and next to Asia, were seen as ideological breaks from the mercantilist system of monopoly privilege that put the nation on a path toward economic rationalism and free trade practices. The English Company came to represent the evil and conservatism of the monopoly form. The decentralized, networked organizational form it had actually possessed during its years of expansion was largely ignored. The argument I make here, which builds upon the work of historians of the private trade, is that the East India Company is miscast as a simple monopoly—and the private trade is misunderstood as a version of free trade. The Company provided essential infrastructure and coordinative capacity that unaffiliated traders would have lacked. Private traders working out of that infrastructure sought out opportunities that would have been overlooked by the corporation itself. The private trade that existed within the monopoly form of the Company effectively decentralized the corporation and spurred the creation of networks of informal information exchange within the otherwise hierarchical organization. In spirit and conception, the East India Company was meant to be a monopoly firm that accumulated profits by controlling market opportunities and restricting competition. In practice, it benefited from the then unique organizational structure produced by the combination of its hierarchical corporate form and what was often perceived as a challenge to the monopoly privileges of the firm: the private trade.

I argue that this decentralized organizational structure—constructed through the combination of private and Company trade—was the central pillar of the English East India Company’s continued expansion and adaptability over nearly two centuries as a predominantly commercial operation. By fostering the use of social networks as well as a cohesive internal structure of connections between ships and ports, the decentralized structure of the firm simultaneously expanded and integrated Company operations in the East. Social networks within the Company transferred valuable information between employees, leading to the incorporation of more and new ports into the larger network of Company trade. Additional ports brought new opportunities, new markets, and new types of commodities into the Company trade. Decentralization in the form of private trade allowances encouraged employees to stay longer in the East, exploring new ports and linking existing English settlements into a tighter network of communications—feeding back into and encouraging the process of lateral information transfer that was also a product of putting significant autonomy into the hands of local agents of the Company.

The importance of this degree of decentralization, and its systematic effects on the conduct of the English Company trade, implies that the remarkable expansion and growth of the English East India Company was not a product of imperialism or the centralization of administrative forms. Instead decentralization and profit sharing within a larger organizational framework, that is, the company form, introduced an innovative capacity that was essential to the long-term success of the firm. That innovative capacity was sustained by the willingness of Asian merchants to trade with both the Company and its servants. In the end, the long-term commercial success of the Company depended upon the existence of open societies in the East just as much as its employee’s private trade.

THE RISE TO COMMERCIAL PROMINENCE

The English East India Company was formed December 31, 1600. Queen Elizabeth I granted the small group of merchants a monopoly of trade to lands east of the Cape of Good Hope and west of Cape Horn. Initially, the Company was funded on a voyage-by-voyage basis. A total of £68,373 (£6,843,520 or $10,951,685 in 2011) worth of shares sold to roughly two hundred investors provided the initial capital for the Company’s first voyage (Clough 1968: 162). These funds provided for four large ships and one small supply ship, manned by nearly five hundred men. At its peak in 1796, the Company sent out eighty-four ships in one year, by which time it also employed over 350 home office administrators (Carlos and Nicholas 1988: 403).

The Company grew to be a huge political and economic power in both England and Asia. K. N. Chaudhuri described its trajectory in the eighteenth century in glowing terms: “The East India Company went from strength to strength. Its trading capital amounting to £3.5 million was held in the form of government securities and its bonds bearing fixed-rate interest linked to the yield on the gilts were regarded as ideal short-term investment by the financiers of the City and Amsterdam. The Company continued to make huge profits on its Asia trade” (Chaudhuri 1986: 117). Throughout most of the eighteenth century the Company returned 8 percent in dividends to investors (a healthy return), falling only occasionally to 6 percent (Bowen 1989: 191).

According to K. N. Chaudhuri, the preeminent Company historian, the Company’s most rapid development occurred from 1660 to 1700. In this period import and export quantities grew significantly in both absolute and relative terms (Chaudhuri 1978: 82). The number of ports included in the trade network of the English East Indiamen ships also increased most appreciably in this period. Despite this expansion, in the late seventeenth century the English Company’s trade was still overshadowed by that of its largest competitor, the Dutch East India Company (Vereenigde Oost-Indische Compagnie). The Dutch Company was another powerful European overseas trade monopoly. For the first half of the seventeenth century, the Dutch Company was much larger than the English Company. The initial capitalization of the Dutch Company was 6.5 million guilders, ten times the amount of the English Company’s capitalization (De Vries 1976, 130). Still the Dutch Company was dissolved more than a half century before its English counterpart and had grown stagnant long before that time.

There is moderate disagreement over the exact moment at which the English Company overtook the Dutch. In terms of the sheer number of outward-bound ships, the English Company did not come to rival the Dutch until the 1780s. In the 1600s, the Dutch Company frequently sent out more than double the number of English Company ships; however, Dutch investment in terms of ships peaked by the 1730s (Vermeulen 1996: 144). Despite this, it was still a large presence for some time to come. By 1770, the English Company was just on the verge of catching up, with 233 recorded official voyages as compared to 290 Dutch Company voyages. It was not until the 1780s that the English Company finally sprang ahead with 318 versus 297 Dutch Company ships (Bruijn and Gaastra 1993: 179).²

These numbers, however, do not capture the English country trade. The country trade was trade confined to Asia. For the Dutch, this was official Company trade (until the 1740s). For the English, beginning in the mid- to late seventeenth century, the country trade belonged to the employees. In the 1720s and 1730s, English country trade grew tremendously. In his study of Bombay and Surat, Holden Furber finds that it doubled in the period from 1724 to 1742 (Furber 1965: 44). By the 1730s it was clear from port records that the English were supplanting the Dutch (Furber 1965: 45).

Based on his evaluation of import/export growth rates in the English Company, Chaudhuri believes it came to rival the Dutch enterprise during the English Company’s most rapid phase of growth, from 1660 to 1700 (Chaudhuri 1978: 82). Bal Krishna also believes that the rising fortunes of the English Company were surpassing the Dutch prior to the eighteenth century, noting that the English were investing £26,000,000 in trade, whereas the Dutch invested significantly less, £19,000,000 (Krishna 1924: 177). By 1720–31 the average annual value of the English Company’s imports from Asia was exceeding the value of Dutch imports (Steensgaard 1990: 110).

In a meticulous study of the stock prices of the two firms, Larry Neal found the English Company stock valuation making large gains on the Dutch in the 1730s and 1740s. When reacting to general market conditions, both Companies’ shares moved in the same direction. The gains made by the English Company stock in the 1730s and 1740s were marked by significant losses in the Dutch price, indicating that capital was moving from one firm to the other as investors realized greater growth potential in the English firm (Neal 1990: 218–20). Kristof Glamann’s work corroborates this view, as he found that contemporaries of the firms were aware of the decline in the relative position of the Dutch Company by the 1730s and 1740s (Glamann 1981: 2). In fact, at this time the Dutch Company began to implement significant reform efforts, one of which was imitating the English Company by opening the country trade to its employees.

The 1720s marked the beginning of a long tumble for the stock of the Dutch Company—during which time English Company prices fared much better (Neal 1990: 198). Gaastra explained this sustained decline in terms of a series of events occurring over the eighteenth century (Gaastra 2003: 59). A definitive end to the Dutch Company came in 1799 when it was formally dissolved. The gradual pattern of decline over the 1700s indicates that, rather than suffering one definitive external shock, the Dutch firm suffered from a gradual erosion of its commercial position, leading Neal and Glamann to believe that the firm’s difficulties lay in the inability to successfully adjust to increased competition and changing market conditions (Neal 1990: 220, Glamann 1981: 2). Thus any theories regarding the expansion and eventual triumph of the East India Company in the commercial world of the East should focus at least on the period from 1660 to 1740, which begins with the rapid expansion of the English Company and ends with their supplanting the Dutch as the major European commercial power in the East.

The period of 1660 to 1740 is also a time when English East India Company employees enjoyed especially high levels of legitimate autonomy in the form of the official acceptance of the private trade. I focus my research in this book on this period, although I extend the time frame to include 1760, which marks a natural break in the organization of the East India Company in the aftermath of the Battle of Plassey and the beginning of the Company’s transition to colonial rule. The analysis also includes other periods in the Company’s history—in order to construct comparisons with the crucial private trading period. Since the focus here is on the means by which the English Company achieved commercial prosperity, I do not address the period after it lost its last claim on monopoly privileges and was directed to end its commercial business in 1833.

ALTERNATIVE EXPLANATIONS FOR THE SUCCESS OF THE COMPANY

DOMESTIC CONDITIONS

There are several existing explanations for the East India Company’s rise to prominence. It is perhaps most commonly believed that the rising fortunes of England led to the success of the English East India Company. This argument suggests that organizational structure and events in the East are unimportant elements of the story—simply outcomes rather than causal factors—however it falls short of providing an adequate explanation.

There has been a great deal of controversy over exactly when real growth accelerated national economic development in Britain, but little argument that anything other than the structural preconditions were in place before the beginning of the eighteenth century. Phyllis Deane and W. A. Cole identify a turning point in British economic growth in 1745, but find that real acceleration occurred after 1780 (Deane and Cole 1967: 80). Crafts later amended this to argue that growth did not really begin a marked upward movement until after 1820 (Crafts 1985: 2), also arguing that even the gradual structural shifts leading up the change were not in evidence until the beginning of the eighteenth century (Crafts 1985: 7). R. V. Jackson has since suggested amendments to Crafts’s work that push growth estimates from 1700 to 1760 downward and upward in the period from 1760 to 1800, bringing them back closer in line with Deane and Cole’s original research (Jackson 1990: 225). More recently there has been an emphasis on the existence of long-term slow growth in England as well as other areas in Europe and Asia, followed by only a very slight increase in the pace of England’s development in the latter half of the eighteenth century (O’Brien 2000: 127, Goldstone 2000, 2002). This research indicates that real change occurred after 1830 (Mokyr 1999: 1). The same researchers have pointed out that although industrialization occurred in Britain prior to 1830, it was confined to a few localities that accounted for a small proportion of the total economy—reinforcing the point that the national economy did not experience a strong acceleration until after 1830 (Mokyr 2003) Although disagreements about the causes of development will undoubtedly continue into the future, they are very unlikely to challenge the view that the rapid development of the East India Company preceded the rapid development of the British economy by several decades. Indeed the fact that commerce grew significantly well before the Industrial Revolution has led many to argue that it was a cause of economic development.

In contrast, the English Civil War occurred before the expansion of the East India Company. Therefore the installation of bourgeois interests at the head of the government could have affected the future of the firm. The war’s outcome did not initially seem to favor the English Company, as it had been a Crown supporter (Brenner 2003: 324). However, the Company was able to renew its charter under Oliver Cromwell and had, in fact, experienced periodic difficulties with the monarchy. For example Charles I had directly threatened the East India Company’s monopoly by supporting a rival company, the Courteen Association (Furber 1976: 69).

A comparative perspective, however, makes the state-led argument less compelling. A merchant elite had dominated the Dutch government since the mid-sixteenth century (Adams 1994b: 327), so this does little to explain why the English Company would have fared better than the Dutch in the eighteenth. In addition, neither the political nor economic conditions in England can explain why the East India Company succeeded, where other British joint-stock organizations failed. The Royal African Company, formed in 1660 when it was known as the Company of Royal Adventurers Trading to Africa, had lost its monopoly by 1690 and all but failed by 1730 (Carlos and Kruse 1996: 291). Similarly, the South Seas Company has become infamous over ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Preface
• 1. Introduction
• 2. Merchant Capitalism and the Great Transition
• 3. The European Trade with the East Indies
• 4. Social Networks and the East Indiaman
• 5. Decentralization, Corruption, and Market Structure
• 6. The Eastern Ports
• 7. Eastern Institutions and the English Trade
• 8. Conclusion
• Appendix
• Notes
• Bibliography
• Index