In the Shadow of the Companies: Empires of Trade in the Orient and Informal Entrepreneurship[1]

Chris Nierstrasz (University of Warwick)

Introduction

The relationship between the East India companies and its servants was both the strength and the weakness of the companies. Sailing off to a far-off world of death and the unknown, these servants hoped to once return with a fortune. In doing so, they followed the example of the servants who had made it back with fortune. On their arrival in Asia many must have soon realized that making it back alive was already hard enough and that doing so with a fortune was even harder. The Company servants barely received a decent wage for the duties they performed but, in recompense, they were provided with opportunities to make their own fortunes. They were servants, but their fortunes were something that was mainly left to their own devices, and their creative in dealing with such a situation made them reinforce the competitive strength of their respective companies. There were several ways of pursuing fortune of which the most mentioned is private trade.[2] Still, Company servant married commercial with political skills.[3] And these political skills also gave them opportunities to pursue a fortune. Although this is generally true for all companies, the dynamic between company and servant was different within the VOC and the EIC. These differences will make us see how companies used the ingenuity and entrepreneurship of their servants as a way to deal with the exigencies of the eighteenth century.

The expansion of trade

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.[4] 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. [5] The 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 and new upcoming smaller companies took the lead in these news trades, while the VOC followed them close behind.[6] The smaller companies, such as the French, Swedish, Danish and Oostende Companies, expanded their trade through strong specialization in certain of these products or in certain of the regions were these new goods were found.[7]


Silver and bills of exchange

In order to achieve the necessary growth, both the Dutch and the English East India companies searched for income from Asia in order to fuel trade. Both companies had three ways of increasing their income in Asia from trade: profits from intra-Asian trade, the export of silver and the acceptance of bills of exchange on Europe. The export of silver is the odd one out, as in opposition to the other two, the East India Companies tried to limit the export of silver as much as possible.

In the seventeenth century, the Dutch East India Company was the most successful Company in playing the card of profits from the trade within Asia. 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 Asia was not an integrated market with ample opportunities of profit for trade, certainly in combination with its 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 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 1747, 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. More interestingly, with the changes made in its system of capitalisation, the VOC also reorganised its trade to maximise its capitalisation in Asia. This change of course (1741), altered the VOC stand on private trade and its behaviour towards its servants fundamentally. These changes are the subject of the next part of this paper.

In the English case, less is known about bills of exchange, but it seems clear that there was a strong growth in the remittances of fortunes. First of all, it is known that the strong growth of bills of exchange with the conquest of Bengal occasioned troubles in England when the Company defaulted on their payment in 1771.[16] 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.[17] The EIC even used the acceptance of bills of exchange in China as a means to stimulate its trade from China to Europe. As such, it seems in both cases the companies increased the acceptance of bills of exchange to stimulate their trade.

Dutch private trade

The difference in the organization of trade still stands as a major explanation of the divergence in success of the VOC and its British counterpart. The main explanation of this is the difference between the striving for trade monopolies versus the recognition of private trade in addition to the Company trade.[18] The British free trade model was obviously more in step with the existing circumstances in Asia and consequently more profitable. This profitability and the concomitant attraction it exerted on indigenous traders is said to have given the British a head start in expansion, allowing them to surpass both the politically motivated French and the monopoly-oriented Dutch. Nevertheless, because of the unfaltering profitability of the VOC system, no historian has ever asked serious questions about why the VOC retained its tottering policy of monopoly well into these more demanding times.[19] It is argued here that the VOC made a shift from absolute monopoly to private trade, both in Asia and in the end to Europe. The VOC felt the necessity to increase its trade to keep up profitability, while at the same time it was not in a position to increase its exports of silver from Europe. At the same time, the plans of redress in Holland have received considerable attention as a way to explain the problems the VOC was facing before and after 1780, but it seems that no answer was found in the Republic.[20] As no answer was found in Europe, the VOC turned to Asia for a solution. It implemented a change of policy in Asia away from monopoly, which can be traced in the VOC archives both in Jakarta and in The Hague.

In 1740, Governor-General Van Imhoff was sent back to Asia to reorganise the trade of the VOC.[21] He brought with him radical ideas on how to transform trade in Asia to suit the needs of Europe. He felt the VOC was too widely invested in its intra-Asian trade, watering down profitability. A better system would be to limit the investment to the most valuable goods, leaving the rest of the trade to VOC subjects.[22] In turn, this free trade could be taxed and would increase the bills of exchange on Europe, which would be handed out more liberally and without questing the provenance of fortunes anymore. From that moment onwards private trade was no longer a taboo in VOC policy. Plans were made how to best institute it with positive effects for the VOC[23] and new institutions were created to support private traders.[24] The system was regulated from Batavia and changes were made over time to hand over the less profitable trades to private trade or bring profitable new trades back under monopoly. Therefore, it is essential to note that the idea of freedom of trade was not without precedent and ran throughout the whole period of the existence of the Company like a scarlet thread.[25] The VOC shrewdly assessed which of its trade were most profitable and kept those under monopoly. The little statistical information we have, seems to point to a decrease in the money the VOC invested in Intra-Asian trade.[26]

After Van Imhoff, Mossel decided that Van Imhoff had been too liberal and started to issue stricter regulations on the long-distance trading routes to inhibit private trade. He did so without completely banning private trade. His main goal was to make private trade suit the needs of the VOC again. Mossel thought the VOC had been too liberal in allowing private trade in absolute freedom. Not only did the VOC have problems in enforcing its monopoly claims, but with total freedom of trade, servants become too focussed on their own interest instead of the Company’s interests. This had led to a situation, where young servants were able to earn more money than their seniors. This was considered undesirable as it clouded social relations and the VOC hierarchy. In order to restore order, Mossel did two things. He linked private trade privileges to the VOC hierarchy and he stamped down on the exhibition of wealth by instituting a rudimentary form of sumptuary law.[27] By linking remuneration and exhibition of wealth to hierarchy, it was believed the servants would attach new importance to serving the VOC.

Van der Parra, on taking over from Mossel, simply continued to make this system work. First he was as prudent as Mossel in allowing or disallowing private trade. In 1771, however, he made an almost 180 degrees turn on his policy as he suddenly opened up trade between the Indian subcontinent and Batavia completely.[28] Factors outside of the VOC power are the only possible explanation for this reversal. The conquest of Bengal by the EIC, made any control of trade between Batavia and Bengal an illusion. As the English seized control of Bengal the rules of the game changed. If the VOC was to exclude English private traders from access to Batavia, it risked to be cut off from access to Bengal itself in retaliation. English private traders increasingly showed up at the road-stead of Batavia and demanded goods. As the VOC no longer had control over trade with the new English interference, Van der Parra no longer saw any reason to exclude VOC subjects from this trade.

When we look at the private correspondence of Lubbert Jan van Eck, governor of the Coromandel Coast for the VOC (1759-1762) and vibrant private trader, the particularities of the VOC trading system become visible.[29] The private trade of the VOC servants was strongly linked to its empire, for instance the main article of trade was sugar and arrack from Batavia. At the same time, the cloth send back to Batavia in return, was sold to the captains of the return ships to the Republic or sold on to Manilla. The system was certainly not one of freedom of trade. As trade was the way left for servants to make a fortune, it was strongly entrenched in the official hierarchy, a phenomenon strongly supported from Batavia. At that same time, this system functioned regionally. Every region had its specific goods and goods to offer and outsider from the region were not well received, especially not when they tried to circumvent existing trading structures. In practice, this meant that he highest authority of the VOC had right to most private trade and other servants could only play the second fiddle; this was reinforced by the disposition of the highest authorities over Company resources.