The East India Company: Agent of Empire in the Early Modern Capitalist Era

Social Education 77(2), pp 78–81, 98 ©2013 National Council for the Social Studies The Economics of World History The East India Company: Agent of Empire in the Early Modern Capitalist Era Bruce Brunton The world economy and political map changed dramatically between the seventeenth 2. Second, while the government ini- and nineteenth centuries. Unprecedented trade linked the continents together and tially neither held ownership shares set off a European scramble to discover new resources and markets. European ships nor directed the EIC’s activities, it and merchants reached across the world, and their governments followed after them, still exercised substantial indirect inaugurating the modern eras of imperialism and colonialism. influence over its success. Beyond using military and foreign policies Merchant trading companies, exem- soon thereafter known as the East India to positively alter the global trading plified by the English East India Company (EIC), which gave the mer- environment, the government indi- Company, were the agents of empire chants a monopoly on all trade east of rectly influenced the EIC through at the dawn of early modern capital- the Cape of Good Hope for 15 years. its regularly exercised prerogative ism. The East India Company was a Several aspects of this arrangement to evaluate and renew the charter. monopoly trading company that linked are worth noting: Understanding the tension in this the Eastern and Western worlds.1 While privilege granting-receiving relation- it was one of a number of similar compa- 1. First, the EIC was a joint-stock ship explains much of the history of nies, both of British origin (such as the company, owned and operated by the EIC. Virginia company in North America) private investors. Unlike earlier and of foreign origin (the Dutch East forms of business organization, the 3. Third, the EIC initially operated in India Company being a notable com- joint-stock company shielded its par- direct competition with its Dutch petitor), the East India Company far ticipants from losing everything in a counterpart, the Dutch East India outpaced its rivals by acquiring extraor- business failure—that is, it offered Company. Contrasts between the two dinary wealth and power. In particular, limited liability. For the EIC this enterprises are instructive.5 Under a in its pursuit of resources and goods in was a special privilege granted by series of favorable charters, the EIC the Indian subcontinent, it preceded the Crown. Limited liability is a key was commercially successful over its the British government as the ruler of feature of corporate organization first 100 years. During this period, if large parts of India. Its story is an excel- today, no longer a special privilege we focus just on the East Indies spice lent point of departure for studying the but an accepted feature of the cor- trade, the EIC ranked second in sales relations between trade and the flag in porate form since the late 1800s.3 volume and profits behind its Dutch a crucial era of world history. Limited liability permits the raising rival. However, the EIC did establish of much larger sums of capital because and greatly expand a presence in India The East India Company: Historical investors know they can be involved while simultaneously increasing its Highlights without risking everything. Over its global trade volume. During the sixteenth century, English long history the EIC both lent to and merchants became increasingly inter- borrowed from the English (and later The Early Expansion of the EIC ested in the possibility of capturing British) government; however, the The EIC was created and expanded in some of the lucrative ocean-going spice government did not own shares nor a mercantilist era in which the conven- trade in the Indian Ocean,2 which Dutch was it formally involved in company tional wisdom was that foreign trade and Portuguese companies were find- governance until the last years. The monopolies were an effective vehicle ing very profitable. In 1600, Queen original EIC was not what would be for building the wealth and power of the Elizabeth I granted a royal charter to the referred to today as a state-owned state. The essential reality of this mer- “Governor and Company of Merchants enterprise.4 cantilist period was a sense of mutually of London trading with the East Indies,” beneficial interaction between merchants Social Education 78 and the state, with little attention to con- acquire territory, command armies and prototype for the modern multinational sumer well being as a goal. Indeed, the establish forts as it prosecuted war at corporation.6 import into England and re-export to its discretion. During the eighteenth The worldwide reach of the East India Europe of spices and other goods (such century, it used this power to conquer Company gave it some remarkable con- as cotton and silk) from the East was and govern large expanses of the Indian nections to American history, including a lucrative business in the seventeenth subcontinent. the fact that it was the owner of the tea century. Spices like pepper, cloves, nut- dumped into Boston Harbor during meg, mace, cinnamon, and ginger, were Broadening Commercial and the Boston Tea Party of 1773. In the used to improve the taste of food and for Political Success years leading up to 1773, the harmony making medicines and had a large market A variety of economic factors contrib- of British rule over colonial America in Europe. Average annual EIC imports uted to improving the trading revenues had been disrupted by the passage of the from Asia increased 300 percent between for the EIC in the eighteenth century. Sugar Act (1764), Stamp Act (1765), and 1660 and 1690. English merchants faced In exchange for tea from China, which the Townshend Acts (1767). While the the ongoing challenge of what to trade for approached 5 million lbs. per year by colonial opposition caused the British the spices and other goods they obtained. 1750, the EIC offered metal goods and to relent, partially, in terms of the num- Woollens, England’s key export at the metals (e.g. copper), saltpeter, firearms, ber of taxes retained and how they were outset of the EIC’s history, had limited naval stores, calicos and other Indian enforced, the tax on tea remained. Then, appeal for local traders in the East, which cloths and of course opium. What the in 1773, the British government, at the meant that for the conduct of trades, the EIC, and more generally the British, behest of the EIC, passed the Tea Act. Company relied heavily on silver, which achieved during the 18th century was This allowed the EIC to ship tea directly represented about two-thirds of exports an improved coordination of a dynamic to the colonies and sell the tea exclusively in 1670. Since prevailing mercantilist global trading structure. They turned through its designated agents, a change thought held that a country benefited their North American and other colonies expected to undermine the fortunes of from trade if its stock of gold and silver into a market for finished manufactures American shippers and merchants.7 The bullion increased, there was much debate and a source of key staple commodities. previous pattern was for much of the within England in the seventeenth cen- This allowed for a lucrative re-export of tea consumed in America to be brought tury as to effects of a persistently large commodities like tobacco, cotton, silk, from England in American ships after silver outflow. As the company increased indigo, and naval stores, which improved American merchants had purchased the its presence in India and other parts of trade prospects with Northern Europe tea in England; the acquired tea was then Asia, it was able to use other products, and the Middle East. Meanwhile the distributed through a variety of (colo- such as cotton, silk, saltpeter (used to EIC was enhancing its control over India nial) middlemen until the final point manufacture gunpowder), and opium as and expanding into new areas in East of sale was achieved between a colo- a means of obtaining the spices and other Asia. All trade grew, but proportions nial merchant and colonial consumer. goods exported to England. shifted as trade with Europe became Moreover, it was logical to assume that The EIC’s economic ascendancy led less important relative to trade with the the EIC would be able to extend this new to an interesting pattern of business-gov- American colonies and Asia, and as re- privilege to other products. The uproar ernment relations. The wealth acquired exports gained relative to exports, and among American colonists was moti- by the private investor-officers allowed textiles gained relative to spices. vated in part by a fear of lost business them to gain political influence either The Company’s success was due in part activity under their control.8 The uproar directly (by building up business and to an extremely effective management illustrated how governments could incur real estate holdings at home and using system. The management hierarchy cre- large, and often unanticipated, political their wealth to become members of par- ated by the EIC was a committee system costs by taking a single action supporting liament) or indirectly through extensive with performance incentives for man- a favored business interest. lobbying efforts. Gifts to members of the agers. This company design included The most dramatic changes in the royal court, politicians, and government a strategy of allowing the EIC’s agents company’s fortunes during the eigh- officials were common, and on a number (trading officers) to engage in their own teenth century occurred in India. In the of occasions the EIC lent money directly private trades.

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