Thursday, March 9, 2017

The Mysterie and Companie of the Merchants Adventurers for the discoverie of Regions, Do-minions, Islands and places unknown

From Empire: The Rise and Demise of the British World Order and the Lessons for Global Power by Niall Ferguson, starting page 15.

A very good and succinct discussion of a little discussed milestone - the capacity of the British and Dutch to fund risk ventures for private interests and wars for national interests via established and well functioning debt markets. This innovation in the late 1500s ranks right up there with double-entry book keeping in terms of instrumental achievements that are little discussed because they are dry and technical. And yet - no debt market, no discovery, no trade, no modern world in the fashion we understand it.
But this was the Dutch East India Company — the Vereenigde Oostindische Compagnie — not the English one. The dilapidated villas and warehouses of Chinsura were built not for Englishmen, but for merchants from Amsterdam, who were making money in Asia long before the English turned up. The Dutch East India Company was founded in 1602. It was part of a full-scale financial revolution that made Amsterdam the most sophisticated and dynamic of European cities. Ever since they had thrown off Spanish rule in 1579, the Dutch had been at the cutting edge of European capitalism. They had created a system of public debt that allowed their government to borrow from its citizens at low interest rates. They had founded something like a modern central bank. Their money was sound. Their tax system — based on the excise tax — was simple and efficient. The Dutch East India Company represented a milestone in corporate organization too. By the time it was wound up in 1796 it had paid on average an annual return of 18 per cent on the original capital subscribed, an impressive performance over such a long period.

It is true that a group of London-based merchants had already subscribed £30,000 to 'set forthe a vyage ... to the Est Indies and other ilandes and countries thereabout' provided they could secure a royal monopoly; that in September 1600 Elizabeth I duly gave 'The Company of Merchants of London trading into the East Indies' a fifteen-year monopoly over East Indian trade; and that the following year their first fleet of four ships sailed for Sumatra. But Dutch merchants had been trading with India via the Cape of Good Hope since 1595. By 1596 they had firmly established themselves at Bantam, on the island of Java, from where the first consignments of Chinese tea destined for the European market were shipped in 1606. Moreover, their company was a permanent joint stock company, unlike the English company, which did not become permanent until 1650. Despite being founded two years after the English one, the Dutch company was swiftly able to dominate the lucrative spice trade with the Moluccan islands of Indonesia, once a Portuguese monopoly. The Dutch scale of business was simply bigger: they were able to send out nearly five times as many ships to Asia as the Portuguese and twice as many as the English. This was partly because, unlike the English Company, the Dutch company rewarded its managers on the basis of gross revenue rather than net profits, encouraging them to maximize the volume of their business. In the course of the seventeenth century the Dutch expanded rapidly, establishing bases at Masulipatnam on the east coast of India, at Surat in the north-west and at Jaffna in Ceylon. But by the 1680s it was textiles from Bengal that accounted for the bulk of its shipments home. Chinsura seemed well on its way to becoming the future capital of a Dutch India.

In other respects, however, the two East India companies had much in common. They should not be equated naively with modern multinational corporations, since they were much more like state-licensed monopolies, but on the other hand they were a great deal more sophisticated than the associations of buccaneers in the Caribbean. The Dutch and English merchants who founded them were able to pool their resources for what were large and very risky ventures under the protection of government monopolies. At the same time, the companies allowed governments to privatize overseas expansion, passing on the substantial risks involved. If they made money, the companies could also be tapped for revenue or, more commonly, loans, in return for the renewal of their charters. Private investors, meanwhile, could rest assured that their company had a guaranteed market share of 100 per cent.

The companies were not the first such organizations; nor were they by any means the last. One had been founded in 1555 (as 'The Mysterie and Companie of the Merchants Adventurers for the discoverie of Regions, Do-minions, Islands and places unknown'); it ended up as the Muscovy Company trading with Russia. In 1592 a Levant Company was formed when the Venice and Turkey Companies merged. Licences were granted in 1588 and 1592 to companies wishing to monopolize respectively the Senegambian and Sierra Leonese trade in West Africa. These were succeeded in 1618 by the Guinea Company (`Company of Adventurers of London Trading to the Ports of Africa'), which in 1631 was rechartered with a thirty-one-year monopoly on all trade with West Africa. By the 1660s a new and powerful company, the Company of Royal Adventurers into Africa, had come into being with a monopoly intended to last no less than a thousand years. This was an especially lucrative enterprise, since it was here — at last — that the English found gold; though slaves would ultimately prove the region's biggest export. At the other climatic extreme was the Hudson Bay Company (the 'Honourable Company of Adventurers of England Trading Into Hudson's Bay') founded in 1670 to monopolize the trade in Canadian furs. In 1695 the Scots sought to emulate the English by establishing their own Company of Scotland Trading to Africa and the Indies. The South Sea Company, intended to monopolize trade with Spanish America, came later, in 1710.

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