The Interviewees
Interview with Michael Wagner - February 2023
1- Did England emulate the Dutch approach to financing overseas trade?
To a large extent, the answer is yes. The two countries shared some basic characteristics – a small population, a relatively limited range of goods to export and a reliance on maritime trade. The Dutch, however, were the more successful of the two counties in developing its overseas trade in the seventeenth century. The Dutch East India Company (the VOC), although it was founded two years later than the English East India Company, grew faster than the English company in the seventeenth century and trading in its shares enabled the foundation of the Amsterdam stock exchange in 1602 (the London Stock Exchange was only founded in 1801). The Amsterdam Wisselbank, founded in 1609, provided a means of exchanging money at established rates and, consequently, Dutch interest rates were consistently the lowest in Europe. The Dutch also dominated the practice of broking bills of exchange. In the Russian trade, for example, Amsterdam was where Anglo-Russian trade balances were settled. It wasn’t until the pound became directly convertible into the ruble in 1763 that Anglo-Russian trade was settled in London. The key development for the development of the English financial system was the founding of the Bank of England in 1694.
London’s eventual displacement of Amsterdam as a financial centre in the second half of the eighteenth century was a result of a combination of the expansion of British trade and the decline in Dutch trade. The Dutch suffered a major blow in the late seventeenth century with the loss of their colony of New Netherland and the enactment of the English Navigation Laws which cut them out of the carrying trade to the English colonies in the Americas. Furthermore, amicable relations between the Dutch and English after England acquired a Dutch king in 1688 offered up a range of new investment opportunities for the Dutch in English trading ventures. For example, the Dutch were by far the most significant foreign investors in the English East India Company. The historian Charles Wilson described the process of the decline of Dutch interest in the development of their own trade as a ‘transition to finance’.
2- Why did the companies receive such a good deal from the Crown/government?
The companies provided a range of benefits to the state. The East India Company directly loaned money to the government and made other payments in the context of their charter renewals. Until 1773, the EIC also entirely paid for the very substantial cost of their armies in India which fought and ultimately defeated France in the Carnatic Wars. In the case of the Levant Company, it was the company which entirely paid for the substantial cost of British ambassadorial and consular staff in the Ottoman empire until 1767.
The companies had thousands of economic dependants in Britain and, most importantly, were viewed as a source of experienced sailors who could be called upon to serve in the Royal Navy during wartime. The Russia Company became the main source of naval stores imported into Britain and their main customer was the Royal Navy. The companies also helped to significantly increase the wealth of the country, especially in London. The goods imported by the companies made an important contribution to the eighteenth-century consumer revolution in Britain and I estimate that the five companies in my study accounted for about a third of British customs receipts.
It is also important to note that, after 1688, the affairs of the companies were subject to greater public scrutiny as it was in Parliament where challenges to their charters were decided. Of the five companies in my study, which terminates in 1763, it was only the Royal African Company, which relied on a parliamentary subsidy to maintain its forts, which was decisively defeated in Parliament.
3- Why were some companies regulated companies and why were some joint stock companies?
The joint stock companies had relatively high fixed costs. The East India, Royal African and Hudson’s Bay companies all maintained forts in their chartered operating territories. Soldiers formed the bulk of the East India and Royal African employees overseas and the East India Company had the additional cost of paying for a large army of sepoys (native troops). The Hudson’s Bay company employees from the Orkney Islands were, in effect, indentured servants. The ability to raise money from the public by issuing stocks or bonds helped these companies to finance these fixed costs. The EIC relied heavily on debt financing while the RAC was continually seeking new funds. In the case of the HBC, it became so consistently profitable that it was able to finance its operations from retained earnings for most of the eighteenth century.
The fact that shares in the joint stock companies were publicly traded created investment opportunities for their directors as well as members of the public. Some joint stock companies became vehicles for speculators and their actual operations bore little resemblance to their original purpose. This was important after the South Sea Bubble burst in 1720 and it became more difficult to establish new joint stock companies. Even when it was apparent that the RAC’s slave trading business had become unprofitable, it was able to launch a major new stock issue in the 1720s to finance an attempt to develop non-slave related business in Africa.
The Levant and Russia companies had relatively modest fixed costs. They were not permitted to build forts in the Russian and Ottoman empires, rather they relied heavily on diplomacy to further their business interests. The number of factors associated with the regulated companies overseas was not large and could be varied in accordance with business volumes. In the case of the Levant Company, whose business was severely threatened by French competition, Ralph Davis (Aleppo and Devonshire Square, p. 89) estimated that the total number of factors in Aleppo, Smyrna and Constantinople declined from 94 in 1725 to 21 in 1747. The decline in the volume of business meant that the per capita contributions needed to cover diplomatic costs increased and some financial assistance from the state was required.
4- What was the role of British diplomats in the Levant and were they less effective than the French?
There were some differences in the roles of British and French diplomatic staff in the Ottoman Empire. The French ambassador was a royal appointment and had little direct involvement in trade matters. Most of the funding for the French ambassador came directly from the King. Furthermore, the French Levant trade operated under the auspices of the Chamber of Commerce of Marseille rather than a company. This meant that there was even less control over French merchants than over British merchants in the Levant. Consequently, the French operated in more centres in the Ottoman Empire than the British and struggled to implement attempts to coordinate pricing amongst its merchants. The British ambassador, whose expense was paid for by the Levant Company, was often nominated by the crown but had more of a dual role than the French ambassador and became very involved in commercial matters. For example, the writings of the former British ambassador, James Porter, indicate that he had a quite detailed understanding of the Levant business. The work of the Levant Company consuls who operated in centres such as Aleppo and Smyrna were almost entirely related to commercial matters.
Having noted these differences in diplomatic mandates, they probably were not the key to understanding why the French were given a preferred status in the capitulations of 1740. The French trade was larger and more valuable to the Ottoman state. Also, the French were more valuable allies for the Ottomans at the time. When the English Levant Company was chartered in 1581, it was only a decade after the Ottomans were defeated in the major naval battle of Lepanto by a coalition fleet in which Spain played an important role. Rivalry between Protestant England and Catholic Spain had been building and would lead to the failed attack on England by the Spanish Armada in 1588. During the War of the Austrian Succession (1740-48), Britain was allied with Austria and for a few years with Russia, the two major Ottoman enemies in Europe who were fighting France and its allies. Just as the initial chartering of the English Levant Company helped the Ottomans gain an ally against Spain, preference given to the French in the 1740 capitulations helped to secure an ally against Austria and Russia.
5- What restrictions did the Levant Company impose on its members?
Levant merchants tended to operate in partnerships with senior partners based in London and younger partners working as factors in the Levant. The directors of the company (known as members of the Court of Assistants) were elected from the members in London. It was the court who periodically enacted policies governing the behaviour of members of the company. It is important to note that a significant majority of the court had spent time in the Levant earlier in their careers and had a detailed knowledge of the operational requirements of the business. This was quite different than some of the other chartered companies, the Hudson’s Bay and Royal African companies being good examples, where it was rare for company directors to actually have direct experience of operations overseas.
In my book, I discuss how some significant policies were put in place during the period 1718-21 as French competition intensified. One was the re-introduction of the use of general ships shared by multiple merchants and the end of private shipping. Another was the effective ban on the use of specie in trade, thus effectively transforming the Levant trade into a barter trade. Earlier, the company had banned the extension of credit to merchants in the Levant. These policies collectively were intended to support the price of English cloth in the Levant.
A particular concern of the company’s was the potential for clandestine trade via Italy, particularly through the port of Leghorn, where English cloth was sometimes traded for goods supplied by merchants who were not members of the company. As early as 1712, the company imposed double duties on ships caught shipping goods of non-members from Italy to London.
There were few restrictions on the activities of members in London. Many were involved in partnerships which owned and managed ships and it was the senior members of the company in London who were attracted to director positions in the joint stock marine insurance companies (the London Assurance and Royal Exchange Assurance). Factors in the Levant were permitted limited latitude to engage in private trade, but the bulk of their earnings came through the commissions they earned handling the cargoes of their principals in London.
6- Why did the Levant Company give up its charter in 1825?
The short answer is that changes to the position of both the British government and the Levant Company in the early nineteenth century meant that a chartered company was no longer needed nor desirable to further British commercial interests in the Levant. The government had taken over the responsibility to pay for British diplomatic staff in the Ottoman Empire from the Levant Company. In the Mediterranean, the British possession of Malta displaced Leghorn as an entrepôt for eastern Mediterranean trade and Britain gained control of the Ionian islands after the Napoleonic Wars. The revolt which led to Greek independence, and was to gain support from Britain, started in 1821. Salonica emerged as a major trading centre and there was a greater participation of Greek merchants in the Levant trade. Even American merchants began to trade with the Levant by paying a fee to the Levant Company. Most importantly, however, it was the development of the cotton trade which transformed the Levant business and led to a massive increase in membership of the Levant Company. Although the Levant Company’s traditional commercial bedrock, the importation of silk, was under pressure from increasing imports of Indian and Chinese silk, the industrial revolution created an almost insatiable demand for raw cotton in Britain. Most of the Levant cotton exports were sent from Egypt and manufactured cotton exported from Britain began to displace the traditional exports of woollen cloth. These developments made it more difficult and less necessary for the Levant Company to attempt to regulate the activities of its members and made more direct involvement of the state in diplomacy a necessity.
The Levant Company was not the only chartered company to see its operating environment transformed in the early nineteenth century. The reform movement in Britain was gathering momentum and these reforms extended to a number of important areas of overseas trade. The slave trade was abolished in 1807 when William Grenville, the last governor of the Levant Company, was Prime Minister. The East India Company lost its monopoly of trade to India in 1813 and China in 1833. In 1821, the Hudson’s Bay Company merged with its great rival, the Northwest Company, and was given delegated powers to govern in Rupert’s Land. More generally, free trade as an economic policy began to gain momentum in the 1820s and the monopoly privileges granted to chartered trading companies became more difficult to defend.
Interview conducted by Craig Encer