In the Shadow of the Companies: Empires of Trade in the Orient and Informal Entrepreneurship [1]
Chris Nierstrasz (University of Warwick)
When we scratch the façade of monopoly of the Dutch (VOC) and English (EIC) East India Companies, we find a fascinating world of private initiative and entrepreneurship. This private initiative, which most known manifestation was private trade, was a doubly-headed serpent for the companies, feeding it but also zapping its energy due to its venomous nature. For historians, the understanding of how companies used private entrepreneurship is the only way to lead them to a complete understanding of their functioning. This viewpoint has to replace the old view of Holden Furber that the English Company was more open to private initiative than the Dutch East India Company and thus had a competitive edge.[2] In order to do so, this article will first argue that private trade was differently organized and, more importantly, focused, when we compare the two companies, but also followed the same logic. This leads to a couple of questions that need to be answered. Both the VOC and the EIC dramatically expanded their trade to Europe in the eighteenth century, but both found ways to avoid sending over more silver. How was this possible and what is the connection to private entrepreneurship? What was the role of private trade in the Dutch and English East India Companies? How did the companies and private trade, both in Asia and to Europe, interact over time? How was private trade negotiated? What were the limits of private trade and the interaction with empire? Why did the EIC evolve into a higher level of interaction with Asia and the VOC not? Are there any other ways of seeing private entrepreneurship that can help us explain the development of both companies in the eighteenth century?
1 The expansion of trade to Europe
If we look at the main goal of the Dutch and English East India Companies, trade from Asia to Europe, both companies greatly increased their trade to Europe in the eighteenth century. Over the whole period the trade of the VOC was increasing, both in the value of goods brought to Europe as in their value of sales. The total purchase price of the Asian goods rose from 250 million in the seventeenth century to 600 million in the eighteenth century.[3] The growth of the English East India Company was even more extreme, partly as a result of poor results up to 1700, its trade grew tenfold in the eighteenth century.[4] From the Bowen dataset, we can see that the value of imports from Asia of the EIC almost tripled between 1760 and 1790.[5] Miraculous growth of trade in both cases was not achieved by a growth of the consumption of spices, but was occasioned by the rise in consumption of new goods such as textiles, silks, coffee and tea. The English eventually took the lead in these news trades, while the VOC followed them close behind.[6] Apart from the English and Dutch companies, smaller companies, such as the French, Swedish, Danish and Ostend Companies, show that expansion of trade cannot simply be caught by only looking at the Dutch and English companies. These smaller companies, in turn, were also responsible for a further expansion of trade to Europe. Their trade was strongly specialized in certain products or in certain regions where these new goods were found.[7] How was it possible that both the VOC and the EIC, in a theater of increasing competition, dramatically expanded their trade in the eighteenth century without sending out more silver from Europe?
1.1 The problem of Silver
In order to achieve the necessary growth, both the Dutch and the English East India companies tried to finance trade to Europe from Asia in order to increase their purchasing power in Asia. Silver was normally brought from Europe to Asia to pay for the goods the companies returned, but alternatives existed, for instance the acceptance of bills of exchange. The money accepted on bills of exchange consisted of private fortunes of Europeans in Asia, often in the service of companies, who wanted to return their money to Europe. The interaction between these two is interesting, as silver was a precious thing to export. In theory, companies must have had a preference for bills of exchange as it excluded the risk of losing the silver on the way out and stopped silver flowing from their country. This seems truer for the EIC than for the VOC, as the VOC, before it had to resort to bills of exchange, in the seventeenth century found a different alternative to the export of silver.
In the seventeenth century, the Dutch East India Company was the most successful Company in playing the card of limiting its export of silver to Asia. The profits from the trade the VOC conducted within Asia were responsible for this remarkable phenomenon. The VOC skillfully organized its intra-Asian trade as a monopoly tailored to cover the financial demands of its European trade.[8] It provided direct profit as the Asian market provided for ample opportunities of profit for trade, certainly in combination with its enforced control over the smaller spices islands. [9] The profit from this trade was directly used to finance the trade with Europe. At the same time, the intra-Asian trade provided the means for the VOC to obtain goods for Europe at a better price as it had more to offer to Asian merchants in return. [10] Silver was not wanted all over Asia as it did not serve useful purposes other commodities, such as textiles, did. Direct or indirect profits from intra-Asian trade are completely or partially responsible for the low amounts of silver the VOC exported from 1630 until 1680. The monopoly on intra-Asian trade aimed at all subjects of the VOC focused all possible profit from Asia on the European trade. The success of the system is clearly distinguishable as for a period of 50 years, the VOC increased its trade simply by ploughing profits from the intra-Asian trade into the European trade. As such, the VOC simply received back more from Asia in goods in purchase value than the value of silver it had sent to pay for these cargos.
Femme Gaastra has shown that the VOC system of using profits from the intra-Asian trade to finance trade to Europe, structurally changed after 1680.[11] The VOC was no longer capable of increasing profits from the intra-Asian trade to keep up with its expanding trade to Europe and with increasing costs in Asia. After 1680, there was a sharp increase in exports of silver which only ended after 1730, when exports of silver stabilized. Between 1680 and 1730, the export of more silver brought new problems for the VOC.[12] Exporting more silver simply meant borrowing more silver on short-term loans, but the limits of such a policy soon became clear. As the ships returned the following year with what they had purchased in Asia, the VOC paid off its loans with interest. There was, however, one problem, namely that the VOC was unable to pay off all short-term loan, signifying that the profits on trade were not enough to off-set the total costs of the trade. This meant that short-term loans slowly transformed into long-term debts, which to some extent was not a problem as the VOC had plenty of assets on its balance. Debts in the Republic of Seven Provinces rose until in 1736 the Gentlemen XVII, the Directors of the VOC, decided to step in and limit the loans. It was feared that the debt and the interest would otherwise spin out of control and that the VOC would be toppled by its payment of the rents on its debts or by a cash-flow problem.[13]
When it proved difficult to export more silver from Europe, the VOC turned to a different way of financing trade, namely through accepting more money on bills of exchange in Asia. In 1741, the Gentlemen Seventeen decided to double the amount accepted for Europe to 2 million guilders, slowly climbing to 3 million in 1771. This meant that a total of 237 million guilders was accepted in the eighteenth century. This is a very sharp contrast with the seventeenth century when only 30 million had been accepted.[14] In the literature this is often linked to the increasing acceptance of English money to increase Dutch trade. The timing of the increase (1741) and the moment English really made inroads into the Dutch bills of exchange does not fit. Increases in English demands and granting of English bills of exchange mainly occurred after 1771 and even more after 1780.[15] Yet the increase in acceptance of bills exchange already started in the 1740s.
In the English case, silver was the main means of financing trade up to Empire (1757). Before 1680, the English tried to copy the Dutch system of monopoly of intra-Asian trade, but this attempt failed miserably. Without territorial control of the spices islands or other territories in Asia, such a system did not make much sense. It was deemed better to allow servants the right to conduct private trade and gain income from taxation. Still, as we will see later on, the EIC kept on conducting trade in Asia if it did suit its trade. The failure of the monopoly system meant the EIC had to rely strongly on exports of silver for its trade. Chaudhuri has shown that the exports increased until 1757 and that this was completely in line with the growth of trade.[16] Bowen has shown that after 1760 the situation radically changed as the EIC drastically reduced its exports of silver in favour of accepting bills of exchange both in India and in China. In the period between 1760 and 1799 the amount of bills of exchange the EIC accepted doubled.[17] The acceptance of more bills of exchange by the EIC was sometimes troublesome. The strong growth of bills of exchange with the conquest of Bengal occasioned troubles in England when the Company defaulted on their payment in 1772.[18] At the same time, the emergences of the phenomena of nabobs, richly returning servants who had made their fortunes in Asia, is said to have been accompanied with an increasing acceptance of bills of exchange.[19] The EIC even used the acceptance of bills of exchange from Bengal in China as a means to stimulate its trade from China to Europe. In turn, the acceptance of bills of exchange in China, boosted English private trade between Indian and China, as these merchants brought goods of trade to China. In order to keep up, other companies also started accepting British money in Bengal and China, which meant a boost for their trade.[20]
1.2 Answers in Asia
Both companies used profits form the intra-Asian trade to limit the amounts of silver send to Asia. In the traditional way of seeing the manner in which this intra-Asian trade was organized, historians generally make a strong division between the VOC and the EIC. The early success of the VOC in accruing income from its monopoly on intra-Asian trade, meant the VOC was seen as a monopolist of intra-Asian trade for the whole of its existence. In opposition, the failure of the EIC in monopolizing intra-Asian trade in the 17th century and the subsequent freedom of trade in the intra-Asian trade have made them the champions of liberalization of trade. Needless to say, in the analysis of success this liberalization of the EIC has been seen as key in its success against the VOC and other competitors and even as the prime reason for the successful conquest of Bengal.[21] Still, there are many alternative ways of seeing these developments and in the rest of this paper I want to show that private trade has to be seen in a different light. Are the above caricatures correct? What was the role of private trade in the Dutch and English East India Companies?
2 Private trade
The Companies had a clear interest in their servants increasing their fortunes and in them sending fortunes home. Private trade has always been seen as the most important way for servants to make a fortune, or to put in the words of Nicholas Dirks: ‘If the Company allowed no private trade, their servants must starve.’[22] Still, to understand the interaction between private trade and companies, we need to see the overall picture of private trade. How did the companies and private trade, both in Asia and to Europe, interact over time? In the end we will find that both companies constantly used private trade to suit their needs. How was private trade negotiated? Was there a constant negotiation process going on, which can be studied in its own right? And who was calling the shots, the companies or the private traders?
2.1 Private initiative and trade to Europe
The caricature of East India Companies as monopolistic is hard to maintain even for the trade to Europe, as both simply had strategies pursuing both monopoly and private trade. The trade was increasingly financed from Asia, which is exemplified by the earlier mentioned amounts accepted by both companies on bills of exchange for Europe, which rose to unprecedented heights. Still we want to take the argument a step further, by looking at two different ways of private participation in trade. There were two other ways of participating in the trade to Europe other than through bills of exchange on Europe. Private trade goods have been sent along with the Company ships as part of the privilege of the VOC servants on ships. Secondly, for some goods in some periods it was possible to send home privately owned goods on the returning vessels against payment of recognition for their monopoly to the companies. These trades should be seen as part of the overall trading strategy of companies.
Private trade on ships to Europe was a normal phenomenon as Company officials were allowed space on ships to pursue such a trade. The fact that sea fearing personal had such privileges has been acknowledged, from sailors to captains, both for the EIC and the VOC. These most substantial privileges were given to the officers, whose chests were considered the way they could make their fortune, a logical consequence of their low wages.[23] When the VOC worried about the profitability of this reward, it could be augmented or decreased.[24] Less know is that other VOC servants in Asia received similar rights, although it is hard to generalize as the Company constantly regulated and changed the rules. High officials on their return trip to Europe, often received chests on homebound ships too, and profited from privileges similar to the officers on ships.[25] Over the eighteenth century the VOC grew increasingly worried that the combination of all the privileges of crates was harming its profits. The trade must have been substantial, as it led to an organized trade in chests enhancing every possible part of privilege part to the outmost: