The British East India Company was one of the world’s first “corporations”. Chartered by the English Crown, it had its own Army, installed its own Governments, minted its own coins, and ruled entire countries. And it played a direct role in sparking the American Revolution.
One-rupee coin issued by the British East India Company photo from WikiCommons
In the last years of the 16th century, the British Empire was just beginning to grow, as British trade began to dominate the world. One of the major difficulties facing overseas traders, however, was the inherent risk of long ocean voyages. Many trading ships that traveled from Europe to China, South America or the Indies did not return—the victims of storms, accidents, or pirates. Another and much more dangerous threat was the wide variation in price caused by uneven supply. When no ships had recently arrived and supplies were low, prices (and profits) were high, but if two or three fleets happened to land at the same time and the local markets were glutted, prices (and profits) fell steeply. The best way to protect against this, from the merchant’s point of view, was to act together to insure that fleets arrived at regular intervals and the local supply remained steady (keeping prices and profits steady as well).
Realizing that their risks would be considerably lessened if they had exclusive rights to all the trade from any specific geographic location, these merchants began lobbying the Queen for a charter to grant their corporation complete monopoly of trade over particular areas.
In concert with her Trade and Navigation Acts, which strengthened the Royal Navy, Queen Elizabeth therefore granted a Royal Charter on December 31, 1600, to the British East India Company, granting it a 15-year monopoly on the lucrative commercial trade in spices, silk, and luxury goods flowing from the East Indies. Officially known as the “Company of Merchants of London Trading Into the East Indies”, it soon became known as simply “The Company”. Not only was it the first significant corporation in history; it quickly became the largest, richest and most powerful group of men on the planet, reaching heights of wealth, power and influence that even the 21st century multi-nationals have not yet matched.
Dutch traders had already established themselves in the East Indies by this time, and the British initially found themselves at a disadvantage. But a Company trading post that dealt mostly with pepper was set up in Java and became a commercial success.
At first, the East India Company raised only sufficient capital to finance one voyage at a time, and, when this proved unsuitable, then raised enough capital for several voyages over a few years. But by 1613, the Company began issuing permanent shares of stock, with periodic payments to be made from profits to the shareholders, the “dividend”.
As the Company expanded into Asia and especially India, its profits grew. In 1615, with diplomatic help from the British Crown, the East India Company was granted some territorial and commercial rights by the Mughal Emperor of India. By 1611, its shareholders were receiving more than 150% returns on their investments. The Company’s first offering of stock for public sale, in 1616, brought in 418,000 pounds, and another stock offering in 1617 raised 1.6 million.
When the English monarchy was temporarily overthrown in the English Civil War, the government under Oliver Cromwell nevertheless renewed the Company’s Charter in 1657. In 1670, after the monarchy was restored, King Charles II granted the Company the right to mint its own money, to raise its own private army and navy, and to directly govern the territories it had control over. Within its domain, the Company suppressed the development of local competitors and banned any independent local industry. By 1720, some 15% of all Britain’s imports were coming from the Company’s India monopoly.
By this time, the British East India Company had become more powerful than the British Government. In 1709, Parliament finally did move to control the royal company by replacing its entire management; the company simply refused to comply, and placed all the “new” management under its control. By 1850, the British East India Company had sole governing authority over one-fifth of the world’s population, expanding its reach into all of India, as well as parts of China, and enforced its rule with a private army of over a quarter of a million men—twice as large as the British Army. Parliament, which had once attempted to control the Company, was now controlled by it—fully one-third of the Members of Parliament owned East India Company stock. The King, meanwhile, became more and more dependent upon “loans” from the Company, in exchange for increased power and privileges.
The Company soon began to overreach itself. Its heavy-handed methods in India led to such widespread revolts that, in 1858, the British Government revoked the Company’s authority in India and assumed direct colonial rule. Even then, the East India Company still acted as if it owned the place. In one instance, when a competitor was found to be illegally invading the Company’s monopoly, a Company official asked the local government representative to take action, and was told that the offender would be punished according to British law, whereupon the Company official shot back: “My orders were to be his rules, and not the laws of England, which were a heap of nonsense, compiled by a few ignorant country gentlemen, who hardly knew how to make laws for the good of their own private families, much less for the regulating of companies, and foreign commerce.”
The Company also monopolized the trade in opium to China, and twice in the 19th Century, when the Chinese government took steps to end the opium trade, the East India Company used military force to restore its monopoly. The Opium Wars, combined with the rebellion in India, convinced the British Government that the East India Company was becoming more trouble than it was worth, and, when the Company’s economic power began to decline, Parliament dissolved it in January 1874.
The British East India Company had its most far-reaching effect on world history, however, in North America. With the defeat of the French in 1763 in the Seven Years War (also fought in North America, where it was known as the French and Indian War), the East India Company was granted a monopoly on the tea trade to the British colonies in America. To help the British Government pay the expenses of the war, it was decided to place a tax on tea sold in the colonies. The colonists responded with a boycott, and in December 1773, in the “Boston Tea Party”, protesters boarded British East India Company ships and dumped 342 chests of tea into Boston Harbor, an act which led directly to the American Revolution two years later.