Before Tesla, Microsoft, Meta, Google, or Oracle, there was the East India Company (EIC), a company formed in 1599 to establish a British presence in the lucrative Indian spice trade. The EIC rose to become a British colonial powerhouse. It traded and taxed, persuaded and extorted, enriched and looted, and was so profitable and powerful that it single-handedly dominated the majority of the Indian continent, owned an army twice the size of the British Army at the time, and monopolized a plethora of transoceanic trades. By the 19th century, the EIC had earned the title of the world’s most powerful business, with control of more than half of Britain’s trade.
However, due to years of misrule, malpractice, and the 1770 famine in Bengal, where the company had installed a military dictatorship in 1757, the company’s territory revenues plummeted, forcing it to apply for a £1.5M emergency loan from the British government in 1772 to avoid bankruptcy.* The EIC was among the earliest in a long line of companies considered “too big to fail.” Thus, it was bailed out by the British government. However, that was inevitably the beginning of the end for the company, as scrutiny following the bailout led the government to seek direct control of the EIC. Following a lengthy decline, the British government finally ended the company’s rule in India in 1858. By 1874, the company had been reduced to a skeleton of its former self and was dissolved.
By that point, the EIC had been involved in everything from cultivating opium in India and illegally exporting it to China in exchange for coveted Chinese goods, to the transatlantic slave trade (it conducted slaving expeditions, transported slaves, and used slave labor throughout the 17th and 18th centuries). Modern capitalism may have since eclipsed the EIC, but its legacy is still felt throughout the world.
The EIC is significant for three reasons.
First, the EIC was formed as a joint-stock company, an antecedent to the modern-day corporation (with the exception of unlimited liability). The company is owned by its investors, with each investor owning shares based on the number of stocks purchased.* Indeed the term investment is first used in the context of investing money as part of a multi-stage process that converts goods or money into an alternate form that can subsequently be used to purchase other goods. As part of its definition of commercial investment (“the investing of money or capital”), the Oxford English Dictionary describes the earliest use of investment as “the employment of money to purchase Indian goods.”
Second, the trade being embarked upon by the EIC was novel and risky, with the potential for exceptionally high rewards. The company intended to command market share in the Indian spice trade, which had, until that point, been monopolized by the Spanish and Portuguese.*
Third, the company’s management was economical, deploying an innovative method of slavery that kept them lean and efficient as they scaled operations. During the first two decades of its existence, the East India Company was run from the home of its governor, Sir Thomas Smythe, with just six permanent staff. In 1700, 35 permanent employees worked in a small London office. In 1785, it ruled a vast empire of millions of people with a permanent staff of 159 in London. By 1800, the company controlled an army of 200,000 officers who enabled the EIC to both rule and economically exploit India while enjoying a monopoly on all trade along the coast of Guinea, including the traffic in slaves.*
East India Company’s Formation and Financing
The founding of the EIC at a meeting in September 1599 brought together a group of investors whose participation in risky new overseas ventures drove England’s commercial and imperial growth. The establishment of the EIC depended on the investors’ decision to entrust their wealth and reputation to a company with no track record, limited state support, and no presence in the Asian markets in which it would operate. Investing substantial sums in the EIC must have been a frightening and highly risky choice, especially for inexperienced investors.*
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Despite the impact that the EIC would have on finance, investment, and empire over the next two centuries, we continue to treat the EIC as a homogeneous, monolithic enterprise rather than as an organization composed of and dependent upon what is today seen as venture capitalist and angel investor networks—a collective of investors who, either as individuals or collective groups, invest their money into high-risk, high-reward potential companies for an equity stake, which, in the case of the EIC, the company’s management team transformed into goods that were vendible or convertible into spices that could be sent back to Europe and sold there.
The EIC’s formulation occurred within an intensely interconnected environment that helped create an investing public before the financial revolution, demonstrating that early variants of venture capital-style investments were being made long before the maritime pursuit of whaling. The 1599 petition, which included “the names of such persons to undertake the voyage to the East Indies,” mentioned 101 contributions ranging from £100 to £3,000, and totaling £30,1336. There was a varied cross section of contributors, comprising both new and inexperienced investors and those with significant investment experience. The most common contribution was £200, with 58 investors (57.4%) pledging this sum. The average contribution size was slightly more than £298. Further analysis of the 101 investments reveals that several commitments were from pairs or small groups. Thirty-six of the total contributions (35.6%) were made in this way. Separating these grouped contributions reveals 136 named investors, although the total number of investors would have been slightly higher because some are not named and are merely listed as investing “in company” with another individual.*
Diverse types of relationships brought individuals together to invest, and novice investors were likely and able to follow the lead of more seasoned partners. Among the investors, 82 had never invested before, while 54 had participated in previous ventures. Through familial ties, livery company connections, and shared business experience, investors in early-modern London formed overlapping networks that supported the EIC. These networks enabled investors to discuss the trade with seasoned investors, spread their risk with reputable partners, and acquire the necessary expertise to engage in previously impossible ventures. Thus, also allowing the EIC to draw upon the expertise and financial resources of investors including some who had traded, raided, explored, settled, stolen, and fought across much of the globe. This methodology of following experienced lead investors who are able to conduct appropriate due diligence into the company requiring investment persists across venture deals today.
Mechanisms of Venture Financing: Funding Individual Voyages
Composite investment strategies that relied on accumulating small parcels of goods and currency to establish commercially viable cargo financed early capital-intensive voyages. Cargoes were separated into shares to raise additional finance. Shipowners and merchants used several strategies to limit financial risks and make investments more attractive.
Multiple shareholders owned split shares of a single cargo, defined by allotting proportions of space within the ship’s hold. Seamen were often remunerated with free cargo space instead of wages to reduce costs further and keep profits high. Individual investments in cargoes, including enslaved people, were also divided, enabling many people to contribute small amounts to a single commercial mission.
This became a popular way to fund voyages among multiple companies. Articles for the slave ship Sally, 1764, listing the names, duties, and wages of each crewman, confirm that Esek Hopkins, the brig’s master, was promised £50 per month, plus a “privilege”—a commission—of ten barrels of rum and ten enslaved Africans to sell on his own account. The crew included one “Negro boy,” Edward Abbie, understood to be Hopkins’s indentured servant.*
Reducing Risk and Increasing Rewards
The EIC differed from other enterprises of its time by advancing from merely spending money (for the purchase of Indian goods) from which a profit was expected. Their “investments” put money and goods to another use. It is the transformational power of investment that changes one commodity into another commodity, then into a profit. This productive or “value-added” use of capital was used to drive profitability and provide a substantial return to the company’s investors.
According to Thomas Mun, a director of the EIC and author of texts including A Discourse of Trade from England unto the East-Indies and England’s Treasure by Forraign Trade, it was completely legitimate to procure produce from India at a low cost, transform those produce into English-owned goods, and then sell those “transformed” commodities in Europe at a significant profit to enrich the UK.
He wrote: “It is plain, that we make a far greater stock by gain upon these Indian Commodities, than those nations do where they grow, and to whom they properly appertain, being the natural wealth of their Countries. … Wares do not need to “properly appertain” (to belong as a possession) to England for them to represent (or “procure”) potential profits for England.”
Furthermore, he claimed that “neither is there less honor and judgment by growing rich (in this manner) upon the stock of other Nations, than by an industrious encrease of our own means.”
In addition to the transformation of one commodity into another or of a raw material into an artificial product, there is also a transformation of ownership that is justified by (imaginary) English industry. According to Mun, the “natural wealth” of India now “properly belongs” to the English, both materially, as a result of their industry, and discursively, as a result of his own series of substitutions that provide a mirror image of the EIC’s complex multilateral trade. Consequently, men from modest origins returned to the UK extremely wealthy, while enlisted men were motivated to fight by the appeal of the money that could be made from pillaging conquered resources.
This business model flowed through the core of the EIC’s economic activities, and the West African slave trade was an essential element of ensuring that profits were maximized. The profits gained paid off the debts on factories in Surat, Madras, and Bengal. West African slaves were also integral to the company’s success in colonizing St. Helena—an island in the Atlantic Ocean, 1,200 miles off the coast of Angola, which served as a port for the company’s Indian Ocean trade. On his first journey, the island’s first governor, Captain John Dutton, was told to acquire “five or six Blacks, all able men and women,” from St. Iago in the Cape Verde Islands to begin colonizing the deserted island.
The volume of the EIC’s slave cargos was another distinguishing factor in its methods of trade. Between 1622 and 1772, the average EIC ship carrying slaves carried only 47 people.* A comparative British slave ship belonging to the Royal African Company typically logged 299 slaves embarking and 241 slaves disembarking. In the Atlantic, where slave ships only carried human cargo, the sale of 47 slaves was insufficient to cover the expenses of the transoceanic voyage. However, by layering its slave trade onto its established networks for transporting fabric, spices, tea, and handicrafts, the EIC was able to perpetuate what would have otherwise been an economically unviable trade in human cargo. On the majority of slave-carrying EIC ships, slaves were neither the primary cargo nor the primary goal of the voyage. Small slave shipments through mixed-cargo slave ships aided the company in lowering the enormous overhead costs connected with the slave trade. Mixed-cargo trade and its related advantages became achievable as a result of the company’s response to its own internal demand for slave labor, profiting not from the sale of slaves but rather from their productive capacity of slaves within the company. Innovatively, EIC’s main benefit from the slave trade was the productivity of its slave labor force.
Smaller slave cargoes allowed the EIC to mitigate the inherent dangers and expenses of large-scale slave trading. Despite the fact that the slave trade might be a successful enterprise—in the Atlantic, the average rate of return for investors was approximately 9%—slave voyages were nonetheless high-cost ventures.* Because they required ship modifications, larger crews, and, notably during times of war, more wages, these expeditions had a greater risk and higher fixed expenses than others. The majority of ships used by Europeans to transport slaves in the Atlantic and Indian Ocean trades were not originally designed to handle human cargo, they therefore needed to be adapted to safely transport people. A ten-foot wooden bulkhead, which bisected the ship and used to separate male and female slaves, was one of the most common characteristics of slave ships. The bulkhead might also assist the crew in establishing a strong defensive position in the case of a slave revolt. Modifications such as the bulkhead were not as important for small numbers of slaves in mixed-cargo holds, since the potential of rebellion was far smaller. Avoiding alterations lowered the overhead expenses for slave-carrying EIC ships and provided the company with an incentive to pursue mixed-cargo trading. On one occasion in 1670, the EIC ordered four ships to purchase 40 slaves from St. Iago in the Cape Verde Islands. These ships were the Unicorn, the John and Martha, the Satisfaction, and the John and Margaret.* Although all four ships were en route to the same destinations, the captains were directed to split the captives evenly among the vessels. If there were only ten slaves on board, the ships would not have required adaptations to secure the human cargo.
Because carrying fewer slaves reduced the risk of insurrection, company ships were able to sail with smaller crews while maintaining similar crew-to-slave ratios. During the Atlantic slave trade, a ship’s crew was often double that of a merchant vessel of comparable size. The expenses associated with maintaining a big crew on a slave ship could account for as much as 18% of the total journey expenses. Smaller slave loads allowed the company to maintain a steady, commercially successful slave trade. Smaller, integrated slave cargoes permitted EIC ships to spend less time in port waiting for cargo. In addition to boosting the voyage’s efficiency, minimizing time at port lessened the ship’s vulnerability to pirate attacks.
Profit Maximization Through the Transfer of Slaves
The EIC’s mixed-cargo slave trade was further distinctive in that not all of the slaves were purchased by the company; many were born into slavery at the company’s holdings and then moved to another fort. When EIC directors in London received a request for slaves from one of their agents, they would first look to the slaves they already owned and attempt to transfer them. The EIC’s slave trade strategy relied heavily on the transfer of slaves between holdings. According to the estimations of Richard Allen, as many as one-third of the slaves aboard EIC ships were transfers—a sizeable proportion given that transfer requests were consistently smaller than purchase requests. The company authorized at least 77 transfer voyages involving at least 1,040 slaves between 1639 and 1787.
Similar to the mixed-cargo slave trade, the company fused transfers onto its existing trading networks, making transfers both possible and efficient. If the directors deemed a transfer necessary, they would assign it to the next ship that would pass both ports, thereby reducing costs and voyage durations. The transfer of slaves rarely incurred any additional sunk costs, as the ships used needed to pass through both destinations to accomplish its primary objective. The only expense incurred by the company was the captain’s wages—typically four pounds per slave.
The EIC was able to reap additional benefits from the specialized skills and knowledge of English culture that its slaves acquired as a result of the reorganization of its non-free labor force that was made possible by slave transfers. At St. Helena, where the company frequently experimented with new crops and goods to maximize the island’s productivity and value, these reorganizations were particularly advantageous. During the first five years that the company possessed St. Helena, it sent multiple requests to its agents in Surat, requesting that they send indigo seeds and slaves who “knew how to sow it and then perfect it, and advised the Governor of St. Helena on the particulars.” Bencoolen, the company’s primary fort on the island of Sumatra, was a particularly dangerous location for EIC employees due to environmental and diplomatic factors, which increased the value of having experienced slaves.* The fort at Bencoolen is frequently described in company correspondence as a “sickly” and “fever-infested” location that sent Englishmen “to their eternal homes.” Despite the fact that slave transfers reduced the EIC’s overall trade volume, they demonstrate the crucial role slavery played in the company’s ability to control territory and maximize profits.
Weathering the South Sea Bubble
The South Sea Bubble describes a series of events surrounding the plan to convert a significant amount of British national debt into equity shares of the South Sea Company (SSC) in 1720. The rise and fall of the stock market during the South Sea Bubble is still one of the most heavily discussed events in history.
In 1711, the SSC was founded with a capital stock of more than £9M. It was established to purchase existing short-term government debt and help manage the national debt in a similar way to the Bank of England. The Company also intended to conduct business with the Spanish Empire.* Spanish America gained popularity as a more promising trading region than India and the Far East because the market was more accessible and traditional English exports like textile and iron items were more likely to be purchased. Following the conclusion of the Treaty of Utrecht (1712), the SSC was awarded exclusive rights to trade with Spanish America—the so-called South Seas—on behalf of the British government. The SSC also secured a 30-year contract as the sole supplier of slaves to the South Seas, known as the Asiento de Negros. Britain already had colonies in the Caribbean—and consequently, a significant share of the market for slave trading in the Western Hemisphere. The firm appeared to be well positioned in this lucrative new market.
In the autumn of 1719, however, a new war with Spain halted the SSC’s trade with the South Sea. Unlike the EIC with its robust Asian trade, the SSC had little room for maneuver. The company’s proposed solution to this dilemma was to again attempt to convert government debt into new equity shares. The scale of the proposed scheme was unprecedented, except insofar as it was inspired by the French legal system. By the end of 1719, John Law had successfully converted all French national debt into shares of the newly founded Compagnie des Indes, which monopolistically merged international trade, national banking, and tax collection. Some of Law’s system was evident in the SSC’s initial proposals, where the conversion of British national debt into South Sea shares was explored with the government, the EIC, and the Bank of England (BoE).* The EIC and the BoE, like the SSC, were both “big money” companies, meaning that both had made substantial loans to the government to justify their chartered existences. Exchanging all British national debt for South Sea shares would have posed an existential threat to these companies, so the plan evolved to excluding the debt already held by the EIC and the BoE and converting the remaining national debt into South Sea shares.
The EIC traded slaves between Madagascar and the Western Hemisphere, while the South Sea Company supplied the Royal African Company with slaves from West Africa.* The EIC directors were occupied with the outfitting of trading ships and the collection of multi-cargo loads, including bullion that would have to be transported to the Far East by these ships.
As a result of the share-price crash in the United Kingdom, a large number of investors were ruined, and the national economy shrank substantially. The scheme’s founders engaged in insider trading by purchasing debt in advance in order to profit from their prior knowledge of the timing of national debt consolidations. Huge bribes were offered to politicians in exchange for their support of the necessary Acts of Parliament for the scheme. Money from the SSC was used to trade in its own shares, and certain individuals who purchased shares were given loans backed by those shares to use for the purchase of additional shares. The public was led to believe that the company would make excessive profits from trade with South America, but the inflated share prices ended up being more than the company’s real earnings from slave trading.
According to Chaudhuri (1978), in attempts to reduce the effects of the burst bubble on foreign exchanges, the directors of the BoE and the EIC met in the middle of September 1720 to discuss the shortage of capital in London. By the end of the month, “an international crisis was developing with full force,” and in 1721, “the February description of the winter events written by the EIC’s Committee of Correspondence contains all the ingredients of a classic liquidity crisis.”* After the bubble burst, a parliamentary investigation was held to determine the causes, the SSC was eventually restructured and continued to operate for over a century.
The EIC was in a position to weather the storms experienced in 1720 as a result of prior profit maximization and a conservative dividend policy in previous years. Undistributed portions of strong profits earned between 1710 and 1716 were used to fund a reserve. The business continued to operate throughout and after the bubble. After 1722, the company was able to finance its voyages despite encountering greater than usual financial difficulties. Two years of trade losses in 1721 and 1722 led to a decline in cash reserves, but it was not until 1723 that the dividend rate was reduced to coincide with falling interest rates. The years 1717–1727 were turbulent for the EIC, but in the six years following 1727, the company’s profits increased by an average of 14.5% annually.
The EIC endured the storm created by the South Sea Bubble. Its shares continued to be actively traded securities. In 1719–1720, £3.2M of stock was owned by around 1,700 investors, by 1723 there were about 1,900 owners of the EIC’s stock.*
Too Big to Fail
A fundamental belief that economic gain occurred at the expense of others lay at the heart of the EIC and encouraged the annihilation of competitors and the plundering of resources of foreign lands to attain economic supremacy. The company launched attacks and waged war due to the lucrative nature of victory. Officers received annuities and bribes from aligned ”leaders” installed on the thrones of formerly noncompliant rulers.
As wars grew more expensive, however, bribery, prize money, and plunder were insufficient to cover military expenses and a series of unresolved wars drained the EIC’s cash reserves. Consequently, the business took the next logical step: tax exploitation. Taxation slowed the export of bullion overseas, a significant benefit in mercantilist thought, and maintained a positive balance sheet. This money was also used to fund lobbying efforts to protect the company’s monopoly.
The Bengal famine of 1770, which killed ten million people, exacerbated dire financial conditions and heightened public concerns about corruption and despotism in India under British rule. The decision to increase taxes during the famine, in addition to earlier mandates to plant specific crops and regulations against hoarding, further exacerbated the situation and proved to be a step too far on the part of the EIC’s leadership. The company’s stock price plummeted as investors withdrew funds, and by 1772 the EIC was bankrupt, facing dissolution, and pleading for aid from Parliament.
The lobbyists’ response was an imperialist version of the phrase “too big to fail.” Insolvency meant the end of the hard-won British dominance in the subcontinent. The argument endured despite France overcoming the Royal Navy’s naval dominance to reclaim Indian possessions. The Regulating Act of 1773 stipulated a £1.5M loan and capped dividends. In addition, employees were banned from accepting bribes and illegal donations, and a governor general of Bengal was appointed to enforce the regulations.
Parliament’s error was in opting for a compromise and attempting to regulate the company rather than liquidating it, or leaving it, which proved to be unenforceable. Neither the politicians in London, nor the governor in Calcutta, could compel the EIC to comply with government regulations. Fifteen more years of corruption and war ensued. Parliament lost patience after passing additional legislation in 1784 and took decisive action. It impeached Governor General Warren Hastings, who was appointed in 1773. The chief prosecutor was Edmund Burke, who noted:*
Mr. Hastings’s government was one whole system of oppression, robbery of individuals, spoliation of the public, and suppression of the entire system of the English government. … I impeach Warren Hastings for high crimes and misdemeanors … in the name of the House of Commons of Great Britain, whose national honor he has sullied. I impeach him on behalf of the people of India, whose laws, rights, and liberties he has subverted … whose property he has destroyed and whose country he has left desolate. I impeach him in accordance with the eternal laws of justice that he has disregarded.
Parliament renewed the company’s charter for another 20 years in 1793 and exonerated Hastings the following year. Predictably, the outcome was more of the same.
Continued wars in the 19th century, specifically the conquest of the Northwest Territories and Punjab, strained finances and prompted Parliament to intervene once more. In 1813, the company lost its monopoly on all products besides tea and trade with China, and it ceased operations in 1833. The Indian Rebellion of 1857 and the subsequent Government of India Act 1858 led to the British Crown assuming direct control of India in the form of the new British Raj.* Just over a century after victory at the Battle of Plassey marked the beginning of British ascendancy, the EIC collapsed.
Slave trading was a risky and perilous business. In addition to the dangers posed by the sea in the 18th century, there was always the possibility of a slave revolt. While insurance for suppressing rebellions at sea did not cover losses owing to deaths caused by suppressing the rebellion if fewer than 10% of the enslaved cargo were killed, the insurance industry was established to spread these risks.
Slavery is the most extreme manifestation of the insurance principle of placing a high value on human life. In 1790, the slave trade and the transportation of slave-grown produce from the West Indies accounted for at least one-third of the premiums collected by the London Assurance Company. In the 18th century, insurance flourished and developed its capital accumulation logic, playing a significant role in the rise of finance capitalism in London. The 1720 Act of Parliament, which permitted the formation of two joint-stock insurance companies heavily involved in insuring the slave trade, facilitated the formation of Royal Exchange Insurance, later the Guardian Royal Exchange, and now a subsidiary of AXA, and the London Insurance, which was subsequently merged with Royal and Sun Alliance. The most important business for Lloyd’s of London was the West Indian slave trade.*
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