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Trading Companies

TRADING COMPANIES

TRADING COMPANIES. The early seventeenth century saw the foundation of Dutch and English trading companies with exclusive rights over vast areas in various parts of the globe. These organizations were essentially merchant guilds that represented an "institutional innovation" that enabled them to conduct large-scale trade with distant shores. They came to exercise functions that were usually the prerogative of national states. The main companies were the East India Company, or EIC (16001858), the Hudson's Bay Company (founded in 1670 and still active) and the Royal African Company (16721750), all English, as well as the Dutch East India Company, or VOC (Vereenigde Oost-Indische Compagnie, 16021799) and the Dutch West India Company, or WIC (16211791). Imitation companies were established in numerous states, including Denmark, France, Genoa, Portugal, and Sweden.

The commercial success of Dutch fleets in Asia led to the foundation of the two foremost East India companies. The return of four Dutch ships from the Indian Ocean in 1599 laden with spices prompted the English Parliament to award a monopoly of trade with the East Indies to the EIC (31 December 1600). Whereas the English Russia and Turkey Companies had previously failed to get access to spices through the Asian land routes, the English would henceforth use only the route around the Cape of Good Hope. Across the English Channel, the so-called pre-companies, regionally based Dutch organizations that had actively traded with the East Indies since 1595, were liquidated to make way for the VOC. On 20 March 1602, the Dutch States-General granted the VOC a national monopoly that was similar in nature to that of the EIC.

THE EAST INDIA COMPANIES

The Dutch and English East India Companies followed in the footsteps of the Portuguese merchants in Asia and learned from their experiences. Adopting the model that the Portuguese had successfully pioneered, the VOC created a string of "factories," fortified trading posts defended by garrisons, from Java to Japan and from Persia to Siam. These posts were linked by a regular exchange of information and commodities. The EIC established its own factories across a more limited area.

The EIC and VOC were not the first companies to enjoy national monopolies, but as chartered companies they did display some novel features. Investment in long-distance trade was no longer limited to overseas traders, as had been the case with regulated companies such as the Turkey Company, but the charters allowed domestic merchants to take part as well. What is more, the chartered companies evolved into joint-stock companies. This meant that shares were freely alienable and merchants no longer raised capital for one voyage, but created a permanent capital committed to the enterprise. Long-term considerations thus determined marketing policies. Nor was the working capital of the companies limited to their capital stock, since both resorted to the capital market to finance their operations.

A sound commercial policy underlay the VOC's remarkable performance. By minimizing its dependence on markets that it did not control, and becoming the largest buyer and seller, the company drastically reduced its risk. Success did not come overnight, but took decades to achieve. The company benefited from the general commercial crisis rocking Southeast Asia in the mid-seventeenth century, just as the Dutch partly owed their commercial hegemony in Europe to the prevailing regional political and economic crises. Yet the VOC was not universally successful. Its huge overhead costs proved detrimental when competing with Indian traders who operated at low cost and could accept a lower profit margin.

Military expenditures were one factor that raised overhead costs. From the outset, the VOC used force to further its objectives vis-à-vis Moluccan natives, Indian merchants, and Portuguese and English rivals to secure footholds, preempt foreign European settlement, and obtain spice monopolies. Superior military strength enabled the Dutch to conquer the spice islands, seize Portuguese forts, and oust the EIC from the Indonesian archipelago around 1623, the year in which the Dutch governor had ten English nationals tortured and executed. This "Amboina massacre" was a popular English propaganda tool against the Dutch in the years to come. Other noneconomic means helped the VOC to achieve near-total control of the production and marketing of nutmeg, mace, and cloves by the late 1660s. Clove production was, for instance, restricted to the island of Amboina, and trees and surplus stocks were destroyed. The spice monopsony, which enabled the VOC to fix prices, left the company with huge profits. By contrast, pepper remained elusive, since it was cultivated over a vast area. Besides, local princes did not always honor their agreements.

For lack of sufficient financial means, the EIC operated in the shadow of its Dutch counterpart for most of the seventeenth century. Its directors, however, made the best of the EIC's removal from the Spice Islands by concentrating operations on India, where the VOC's presence was small. While the VOC achieved some of its original aims, the EIC proved masterful in reinventing itself. In the eighteenth century, it discovered the marketability in Europe of Indian cloth and Chinese tea. In military matters, the EIC underwent a similar metamorphosis. Founded not as a war instrument like its Dutch rival, its fleets were relatively poorly equipped and offensive actions against Asians or Europeans virtually impossible. However, the company's new charter of 1661 stipulated that it could make war or peace with non-Christian princes or people, and very gradually, a more assertive line was adopted, in particular on the Indian subcontinent. By the 1760s, the EIC may be said to have assumed the role of a nation-state in India. It is debatable whether this expansion was based on a master plan, or whether the company was sucked into local power politics. The theory of reluctant imperialism has also been applied to the VOC, which was unable to achieve its objectives on Java without involving itself in a complex indigenous power struggle.

Wherever the chartered companies conducted a profitable trade, fellow nationals tried to benefit as interlopers. Exchanging goods from one part of Asia in another, EIC factors and private individuals carved out a niche for themselves. Although the EIC initially forbade such trade, considering those involved as rivals of its own intra-Asian trade, the costs that it entailed made the company withdraw from the trade, and its attitude toward the inter-lopers changed accordingly. "Free" merchants could begin to settle in port cities under English rule, after the EIC issued a series of indulgences, starting in 1667. Subsequent English commercial success in Asia cannot be understood without taking into account private "country trade." The VOC showed no such lenience, despite a statement by the secretary of its largest regional body, the Amsterdam Chamber, in the 1650s that intra-Asian trade were better left to private traders, whose overhead costs were modest compared with the company's, with its heavily armed ships. Not until 1742 did the VOC allow breaches in its monopoly. On the other hand, company employees enriched themselves by conducting private trade side by side with official company trade. Fraud and corruption were rampant in the Dutch factories.

In intra-Asian trade, the Portuguese had shown the way. Their country trade was more important than their trade to Europe. Like the Portuguese and the English private merchants, the VOC became active in this trade. Between 1640 and 1688 the Dutch company procured substantial amounts of Japanese silver and Taiwanese gold for the purchase of Indian textiles, which were then exchanged for Indonesian pepper and other spices, although some were sent to Europe. Most pepper and other spices were also sold in Europe, but a certain percentage was invested in Persia, India, Taiwan, and Japan. The profits made in the intra-Asian trade paid for Asian products, the sales of which in Europe yielded more than the dividend that the VOC paid to its shareholders in this period. The company's role in intra-Asian trade was eroded in the last quarter of the seventeenth century, when Indian merchants emerged as serious rivals in the trade to Java, Sumatra, and the Malay Peninsula. In addition, Japanese authorities curbed Dutch trade, effectively ending the VOC's role as chief supplier of precious metals in various Asian markets. Still, while the English became the main nation involved, the VOC easily remained the leading European company participating in intra-Asian trade.

What was the relationship between private trading companies and the home governments? Local magistrates were closely connected to VOC affairs in the United Provinces. They elected the directors of the regional chambers from among the principal investors. The States-General, for its part, had not only delegated sovereign powers to the VOC at the company's inception, but financially supported it afterward in time of need. This aid proved crucial in the VOC's early years, enabling the struggling company to make long-term investments in infrastructure and in military, maritime, and commercial affairs, which eventually paid off. The British government, on the other hand, arbitrarily exploited the financial resources of the EIC on several occasions. At the same time, it grew increasingly alarmed about the way the EIC conducted itself in India. Concluding alliances and treaties with native princes, and leading territorial expansion, the company resembled more a sovereign state than a trading company. Warfare was also thought to cut into profits from Asian trade, which was supposedly the company's chief business. The Dutch also debated the advantages of territorial expansion, but here it was the VOC's central board, not the States-General, that challenged the wisdom of company employees on the ground in Java.

Both companies contributed to national prosperity by employing thousands, stimulating the domestic shipbuilding and textile industries, and offering investment outlets. British financial leaders became involved in the EIC, while company men advised the British government on financial affairs. No such systematic crossovers occurred in the Dutch Republic, not even when the VOC faced serious financial problems in the second half of the eighteenth century. The fourth Anglo-Dutch War (17801784), in particular, had disastrous financial consequences. The curtain finally came down for the VOC following the French invasion of the Dutch Republic (1795). On 1 March 1796 a Committee of East Indian Trade and Possessions replaced the company directors. The EIC did not emerge as the great beneficiary of its rival's demise. Not only had the French and Danish East India Companies emerged as competitors, the home front grew increasingly critical of the company's moral and economic record. In 1813 the British government stripped the EIC of all its monopolies, except for the tea trade with Canton, and in 1833 all company trade ceased. After the Great Rebellion in India (18571858), the British state assumed the company's affairs.

THE ATLANTIC WORLD

Very different conditions obtained in the Atlantic world, where plantation companies such as the Virginia Company, licensed to establish colonies, were more prominent than pure trading companies, although in actual practice it is difficult to distinguish between the two. In 1621 the Dutch West India Company received privileges similar to those the VOC had in Asia. Founded expressly as a war machine that targeted Spanish and Portuguese ships and settlements, the WIC attracted little investment, as Dutch citizens feared the risks to which the company ships were exposed. They were proven wrong in the company's early days, in particular after the celebrated capture of the Spanish silver fleet of 1628, when the company paid a 50 percent dividend to its shareholders.

Soon, however, financial problems troubled the WIC and proved almost insurmountable. The company faced entirely different circumstances in the Atlantic from those experienced by the VOC. The creation of an intricate network of factories did not make sense in the Atlantic world. There was no Atlantic counterpart to the centuries-old intra-Asian trade in which to participate. Nor was the WIC able to obtain monopsony of the New World commodity it prized most: sugar. Not even the occupation (16301654) of northeastern Brazil, the world's largest producer, helped the company achieve that goal. The Dutch discovered that marketing Brazilian sugar was more difficult than was the case with East Indian spices, precisely because of the competition from other areas of sugar cultivation, including Java, Bengal, and the island of São Tomé off the African west coast.

Unlike its Asian counterpart, the WIC was unable to combine a vigorous commercial enterprise with warfare. The costly war with Habsburg Spain over Brazil, which began in 1630, forced the company to abandon some of its monopolies. By 1638, only the export of slaves from Africa and ammunition from the Netherlands, and the import of Brazilian dyewood, remained in company hands. Private merchants soon dominated the Brazil trade, although the dividing line between company interests and private concerns was, once again, not as clear as might be expected; WIC directors were among the principals of the free traders.

One argument used by advocates of the liberalization of trade was the need to people Dutch Brazil. The immigration of "free" settlersartisans, merchants, and other colonists not in company serviceso the argument ran, did more to guarantee the survival of a colony than the presence of soldiers. Besides, without trade the military was bound to become a liability, since soldiers' salaries and rations would eat away the company budget. A "free" population would create economic activity and pay import and export duties, as well as bear the burden of the soldiery. Free trade was also necessary to lure free settlers from the Dutch Republic.

At a slightly earlier stage, a similar discussion had erupted over New Netherland, the company's colony in North America. After the WIC assumed control of the colony in 1623, Manhattan and Fort Orange (now Albany) were established as trading posts to tap the vast hinterland for peltries. These posts resembled the VOC factories in Asia. A factory would seem to rule out large-scale migration, if only to curtail defense expenditures, as one company faction argued. Advocates of migration among the WIC directors emphasized the positive long-term effects of investments in agriculture and settlement. Their arguments carried the day, and by 1640 the company's fur monopoly was abolished.

The WIC remained in chronic financial trouble, as the war with the Iberian countries dragged on. In 1644 even a merger with the VOC was discussed, but the VOC refused, although it was forced by the States-General to pay its counterpart 5 million florins. In 1674, the WIC went bankrupt and was replaced by a new one with capable directors, recruited from the ranks of the shareholders. Outstanding shares and bonds were converted into new shares at a small percentage of their nominal value. In the eighteenth century, the WIC was transformed into an organization that managed the Dutch colonies, after it lost its last monopolies, including the slave trade.

Whereas the WIC originally monopolized commerce in several products in the Atlantic world, monopolies in England were granted to various corporations. The English slave trade was exclusively conducted by the Royal African Company from 1672 until Parliament in 1698 yielded to the demands of other merchants and opened the slave trade to everyone. The Hudson's Bay Company started out as a fur-trading enterprise before under-going a peculiar metamorphosis. It took up exploration on the west coast of North America and in the Arctic, branched out into land development and real estate, and remains to this day one of Canada's largest retailers.

IMITATION COMPANIES

If the Dutch and the English invented the typical chartered company, other Europeans were not far behind. Drawing inspiration from the pioneers, they imitated their examples down to the last detail. For example, the management of the Danish East India Company, founded in 1616, was entrusted to nine directors who received the Dutch title bewindhebbers. What may help to account for the adoption of Dutch terms was the role played by immigrants from Amsterdam and Rotterdam in establishing the Scandinavian companies. Nor was imitation confined to northern Europe; the Dutch West India Company served as the model for a Spanish privileged trading company, which was discussed at various times during the seventeenth century.

The imitation companies had one element in common. Their founders were obsessed with the particular structure of the English and Dutch models. They found to their cost that elaborate government initiatives only paid off when buttressed by mercantile activities. The latter, however, were often conspicuously absent. And even where there was sufficient support from merchants, undercapitalization prevented the companies from yielding the expected profits. In either case, private traders were allowed to break up the company monopolies within a few years.

What also stood in the way of success was the large degree of royal control over the imitation companies. The French East and West India Companies, in particular, were designed to increase state power abroad instead of running a business enterprise. The Portuguese East India Company (16281633) faced another problem. While the Dutch and English companies had set up the administrative apparatus in Asia from scratch, Portuguese company officials had to defer to existing authorities. They were forced to operate in a trading empire that had functioned for more than a century under its own political and military administration, which was not going to yield.

See also British Colonies ; Dutch Colonies ; Dutch Republic ; French Colonies ; Fur Trade: North America ; Portuguese Colonies ; Shipping ; Spanish Colonies .

BIBLIOGRAPHY

Ames, Glenn J. Colbert, Mercantilism, and the French Quest for Asian Trade. DeKalb, Ill., 1996.

Blussé, Leonard, and Femme Gaastra, eds. Companies and Trade: Essays on Overseas Trading Companies during the Ancien Régime. Leiden and Hingham, Mass., 1981.

Brenner, Robert. Merchants and Revolution: Commercial Change, Political Conflict, and London's Overseas Traders, 15501653. Princeton, 1993.

Chaudhuri, K. N. The Trading World of Asia and the English East India Company, 16601760. Cambridge, U.K., and New York, 1978.

Disney, A. R. Twilight of the Pepper Empire: Portuguese Trade in Southwest India in the Early Seventeenth Century. Cambridge, Mass., and London, 1978.

Furber, Holden. Rival Empires of Trade in the Orient, 1600 1800. Minneapolis, 1976.

Gaastra, Femme S. De geschiedenis van de VOC. Zutphen, 1991.

Haudrère, Philippe. La Compagnie française des Indes au XVIIIe siècle, 17191795. Paris, 1989.

Heijer, Henk den. De geschiedenis van de WIC. Zutphen, 1994.

Lawson, Philip. The East India Company: A History. London and New York, 1993.

Prakash, Om. The Dutch East India Company and the Economy of Bengal, 16301720. Princeton, 1985.

Prakash, Om, ed. European Commercial Expansion in Early Modern Asia. Aldershot, U.K., 1997.

Steensgaard, Niels. The Asian Trade Revolution of the Seventeenth Century: The East India Companies and the Decline of the Caravan Trade. Chicago, 1974.

Thomson, Janice E. Mercenaries, Pirates, and Sovereigns: State-Building and Extraterritorial Violence in Early Modern Europe. Princeton, 1994.

Tracy, James D., ed. The Political Economy of Merchant Empires: State Power and World Trade, 13501750. Cambridge, U.K., and New York, 1991.

. The Rise of Merchant Empires: Long-Distance Trade in the Early Modern World, 13501750. Cambridge, U.K., and New York, 1990.

Wim Klooster

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Trading Companies

TRADING COMPANIES

TRADING COMPANIES played an important part in colonial American settlement. Six incorporated British companies established settlements: the Virginia Company at Jamestown (1606), the London and Bristol Company at Sagadahoc (1610), the Council for New England at Newfoundland (1620), the Bermuda Company at Bermuda (1622), the Massachusetts Bay Company at Salem (1629), and the Old Providence Company at Old Providence (1630). The Dutch used a similar organization to plant their settlement in New Netherland at New Amsterdam.

There were two types of trading companies: jointstock and associates. Joint-stock companies were legally incorporated by the crown by royal charter. They were run by a treasurer and an executive council from headquarters named in the charter. They resembled a modern corporation in selling shares to stockholders, whose liability was limited to their specific investments and who met quarterly in "general courts." A company's charter gave it title to a specific territory and a legal monopoly to trade in that region, and it granted the company governmental powers over any settlements in its territory. The company also had control over the natives and authority to defend its settlements and trade from foreign aggression.

The colonists themselves lived under a complex of rules and regulations that originated with both company officers and the settlers participating in colonial governments. All the ships, storehouses, and livestock bought from company funds were company property. Individual colonists might also own private property, and these holdings were subject to taxation to raise money for the colony. The land was a common stock belonging to the stockholders until disposed of by grant to settlers or investors. Practically, there was no way a stockholder in England could share in this common stock except by emigrating to the colony. Trading privileges belonged to the stockholders of the home company.

Limited partnerships called associates—less formal arrangements than joint-stock companies—were another common type of trading company. Such companies were not fully incorporated, and their territorial grants came from some legally incorporated company. The London Company used this device in the settlement of Virginia, where associates settled Berkeley Hundred and many other regions. In return for a title to a specified tract of land, associates agreed to transport a certain number of settlers to a given area and establish them within a limited time. The London Company issued forty-four such grants, including one to the group of settlers that came to be known as the Pilgrims, which they never used because they landed in Plymouth instead. Another company of associates, the Dorchester Company (1624), received a grant in what later became Massachusetts and established a settlement at Salem. This company, with its grant, was finally merged into the Massachusetts Bay Company, which was incorporated under royal charter. Because the charter stipulated no place for the company's offices and meetings, the officers moved the company and charter to America, where the company became the basis of a commonwealth, and the "general court" assumed governmental power. The company's trading division maintained headquarters in London until 1638. The Massachusetts Bay Company furnished a model for later settlements in Rhode Island and Connecticut, the governments of which were similar to that of the joint-stock companies.

BIBLIOGRAPHY

Andrews, K. R., N. P Canny, and P. E. H. Hair, eds. The Westward Enterprise: English Activities in Ireland, the Atlantic, and America, 1480–1650. Detroit, Mich.: Wayne State University Press, 1979.

Carr, Lois Green, Philip D. Morgan, and Jean B. Russo, eds. Colonial Chesapeake Society. Chapel Hill: University of North Carolina Press, 1988.

Clark, Charles E. The Eastern Frontier: The Settlement of Northern New England, 1610–1763. New York: Knopf, 1970.

Cook, Jacob Ernest, et al., eds. Encyclopedia of the North American Colonies. New York: Scribners, 1993.

O. M.Dickerson/s. b.

See alsoColonial Charters ; Colonial Settlements ; Council for New England ; General Court, Colonial ; Hundred ; Local Government ; Massachusetts Bay Colony ; Pilgrims ; Plymouth Colony ; Virginia Company of London .

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companies, trading

companies, trading. Trading companies monopolized overseas trade, made great fortunes, and played a part in the history of imperialism. The state supported their power and the companies made the state rich. The most important early English example was the Merchants of the staple which ran the wool trade from the 12th to 14th cents. It was followed, at the end of the 15th cent., by the Merchant Venturers of London, monopolists of the expanding cloth industry's overseas trade. An Act of Parliament (1497) and a charter from Henry VII (1505) recognized the company's monopoly authority.

In the last quarter of the 16th cent. English overseas trade boomed and piracy was rampant. Company ships armed to fight pirates also defeated trading rivals and monopolized foreign trade. The French, Spanish, Russian, Barbary, Levant, and Eastland (Baltic) companies all date from this time. However the development of an effective navy at the end of the 17th cent. put an end to the need for monopoly trading in Europe; only those companies that went across the world still needed to protect themselves.

In the later 18th cent. trading companies became involved in imperialism: in Bengal, the East India Company (royal charter, 1600) administered taxes and justice and the Africa Company aided the growth of imperialism in Nigeria, east Africa, and Rhodesia.

Margaret Wilkinson

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