The Dutch East India Company and the Economy of Bengal, 1630-1720

The Dutch East India Company and the Economy of Bengal, 1630-1720

by Om Prakash

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Om Prakash reveals the central role played by Bengal in the Dutch East India Company's activities in India in the seventeenth and the early eighteenth century and the resulting integration of India into the world economy.

Originally published in 1985.

The Princeton Legacy Library uses the latest print-on-demand technology to again make available


Om Prakash reveals the central role played by Bengal in the Dutch East India Company's activities in India in the seventeenth and the early eighteenth century and the resulting integration of India into the world economy.

Originally published in 1985.

The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

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The Dutch East India Company and the Economy of Bengal, 1630-1720

By Om Prakash


Copyright © 1985 Princeton University Press
All rights reserved.
ISBN: 978-0-691-05447-6



The Dutch East India Company was founded in 1602 by a charter granted by the States-General, the national administrative body of the Dutch Republic. During the last quarter of the sixteenth century — and particularly since the closure, in 1585, of Seville and Lisbon to vessels from Holland — the Dutch had been actively engaged in trying to reach the Asian sources of spices and other luxury goods and contest the Portuguese monopoly of the Cape route. In April 1595, the Amsterdam-based "Company of Far Lands" (Compagnie van Verre), which was the first among the so-called "precompanies' (voorcompagnieën) and which had managed to raise a capital of f. 290,000, sent out four ships to the East Indies under the command of Cornelis de Houtman. One of the ships was lost, but the remaining three came back in August 1597 with a cargo of pepper, nutmeg, and mace. Another voyage was scheduled for the spring of the following year, even though the Company lamented that it had suffered a net loss on the first voyage. In the meantime, a number of new companies had been organized for trade with the East Indies. One of these was in Amsterdam, two in Zeeland, and another two in Rotterdam. The two Amsterdam companies were merged in 1598 and came to be known as the "Old Company." It was on the account of this company that eight vessels were sent out to the East in the spring of 1598. The profit of the voyage was estimated at around 400 percent. By 1600, yet another four companies had been formed in the various provinces of the Netherlands. The inevitable result was an increase in the cost price of the pepper and other spices and a decline in their sale prices. To all those who realised the enormous potential of the East India trade, it was imperative that something be done to curb the cutthroat competition among the various companies.

The initiative was taken by the Old Company which, on the strength of being the pioneer in the East India trade and the most important participant in it, petitioned the States of Holland in 1601 for a monopoly of all trade east of the Cape of Good Hope for a period of twenty-five years. The request was turned down, but it was instrumental in setting in motion other moves to eliminate competition among the various companies. The States-General was interested in having the various companies come together, not only because a financially strong United Company would be equipped to conduct the East India trade more profitably but also because it would be in a stronger position to face the combined opposition of the Portuguese and the Spaniards in the East Indies. Indeed, the East India Company could then be used as an instrument in the war against Spain and Portugal. Mainly through the mediatory efforts of Johan van Oldenbarnevelt, the various units agreed to come together, and the United East India Company was chartered on March 20, 1602. The Company was given the sole right for a period of twenty-one years to sail east of the Cape of Good Hope and west through the Strait of Magellan.

Earlier, on December 31, 1600, the English East India Company had received a charter from the Crown. The two national monopoly companies introduced far-reaching changes in the organisation and structure of the seaborne trade between Europe and Asia. For the first time, trade with Asia was regarded as a purely economic enterprise with profit and loss as the ultimate measure of success or failure — and not, as in the case of the Portuguese, simply an activity engaged in by a "department of the State" without obligation to earn a profit. Although the Dutch East India Company was not as independent of the political authorities at home as was its English counterpart, and although there was often extensive cooperation between the Company and the Admiralty in the matter of ships and so on, nevertheless "there was never at any time a question of confusing the Company's and the Republic's separate economies."

Although the organisational structure of the Dutch East India Company is well known, one or two key features bear repetition. For one thing, even though the individual chambers of the Company enjoyed a certain measure of autonomy insofar as they equipped — and received — their respective ships on their individual accounts, the real decision-making authority in all respects was centralised in the Board of Directors, known as the Heeren XVII (seventeen Gentlemen). Again, though the charter provided that a stockholder might withdraw his stock at the close of each decade, this clause was withdrawn even before the first decade had closed. Shares could be sold but no longer withdrawn, so that a permanent joint stock was guaranteed. Further, the procedure of election of the Directors ensured that they were not responsible to the stockholders. As Steensgaard has put it, "In relation to VOC the stockholder was like the owner of a government bond: he could dispose of his claim at whatever price he could obtain, but he could no more influence the Company's policy than the owner of the bond can influence the State's policy." It might also be noted that, given the high price of the limited amount of land available and the heavy rate of land taxation, the favoured forms of investment in the Netherlands were shares in ships or mills and in fishing or trading voyages. It was, therefore, not very difficult to raise capital even under relatively adverse stockholding conditions.

The Role of Bullion

During the seventeenth and eighteenth centuries, Euro-Asian trade was characterized by a chronically and significantly unfavourable balance of trade for Europe. This necessitated the movement of large quantities of precious metals to Asia to settle the accounts. Thus, of the total value of cargo sent out by the Dutch Company to the East Indies in 1615, goods accounted for only 6 percent, the remainder being in the form of precious metals. Eight years earlier, the only merchandise exported by the Company was some iron and lead, the value of which was too small to be mentioned in the relevant resolution of the Directors. Even in the mid-seventeenth century, when significant amounts of precious metals were already being obtained within Asia, the proportion of bullion in the total export bill to the East Indies continued to be larger than that of goods. Thus, over the seven years 1651 to 1657, goods accounted for only 45 percent of the total of bullion and commercial goods received at Batavia. Again, between 1700 and 1750, commercial goods, together with provisions, equipment, ammunition, and so on accounted for only about a third of the total exports from Holland to Batavia. The picture was not very different in the case of the English East India Company. It should be obvious that if Europe had not been able to send out increasing quantities of bullion to Asia through this period, the trade between the two continents would not have attained such significant proportions.

The crucial role of bullion in the Euro-Asian trade of the seventeenth and the eighteenth century has sometimes been ascribed to the rigidity of consumer tastes in the East, which rendered the Asian markets for European goods extremely small and static. Alternatively, it has been suggested that the absorption of precious metals by India or China reflected the hoarding habits in these societies. But perhaps a more convincing explanation of this phenomenon is the inability of Europe to supply Western products at prices that would generate a large enough demand for them to provide the necessary revenue for the purchase of the Asian goods. Europe at this time had an undoubted overall superiority over Asia in the field of scientific and technological knowledge, but as yet did not have the cost advantage that came with the Industrial Revolution in the nineteenth century. This put the Indian producers, with their considerably lower labour costs and a much longer history of sophisticated skills in handicrafts of various kinds, in a position of advantage over their European counterparts in the production of a variety of manufactured goods. This is reflected in a wide disparity in the price level in the two continents, commented upon by several Europeans in the eighteenth century. The only major item Europe was in a position to provide to Asia was precious metals. This dimension of Euro-Asian trade conditioned to a large extent the nature of the impact of this trade on the Asian economies.

Since Europe imported a large quantity of silver from the New World during the sixteenth and early seventeenth centuries, it possessed a stock of precious metals necessary for a steady growth in trade with Asia. And within Europe, Holland was in a particularly happy position in this regard. It is remarkable that even though the Dutch were not permitted to trade in Spanish ports from 1585 onward and, in any case, there was a general prohibition on the export of precious metals from Spain, a substantial proportion of the South American silver coming to Spain did eventually find its way to Amsterdam, mainly via Hamburg. This made the Dutch the undoubted masters of the European bullion trade and Amsterdam the leading world centre of the trade in precious metals. It is an indication of the international standing of this city as a market for precious metals that the English East India Company obtained a large part of its requirements of these metals in Amsterdam.

Easy access to precious metals was a necessary but not a sufficient condition for their export to the East, for active mercantilist prejudice against the export of these metals could be a source of anxiety to the companies. Given the leading position of Amsterdam as a centre for trade in precious metals, however, this prejudice was far less vocal in Holland than it was in England. The only restriction that the Dutch Company had to contend with in the early stages of its trade was the prohibition against exporting precious metals in the form of bullion. In 1647, the States-General withdrew even this restriction, provided one-third of the amount exported was surrendered to one of the state mints or the Amsterdam Exchange Bank. In any case, practically throughout our period the export of foreign coins and of Dutch coins specifically intended for export — the so-called negotie-penningen — was freely allowed.

The Spice Monopoly

The Dutch realised from the very beginning that if the spice trade was to continue to be highly profitable, they must strive to gain control of both the total amount reaching Europe and the cost price in the Indies. The 1602 merger of the precompanies into the United Company was only the first step in this direction. The ultimate aim was to eliminate the rivals in this trade — the Portuguese, the English, and the Asian merchants. Between 1605 and 1609, the Company managed to wrest from the authorities in Amboina and Ternate agreements obliging the natives to supply their cloves exclusively to the Dutch. A similar agreement was concluded in 1605 with the Banda group of islands regarding the procurement of nutmeg and mace. The latter agreement was renewed after the conquest of the islands by the Company in 1621. Although the agreement with the English East India Company in 1619 obliged the Dutch to permit the former to buy one-third of the total amount of spices available in the archipelago, the English found the accompanying obligation to bear one-third of the cost of Dutch garrisons in the area to be crippling, and as early as 1622, they were planning to withdraw from the spice trade.

By the early 1620s then, the Dutch had acquired effective monopsony rights in nutmeg and mace. The case of cloves was somewhat more complex. There was a large-scale smuggling trade carried on between the producing areas and Macassar, enabling the English, among others, to obtain large quantities of this spice. Though from 1643 onward the Company had managed to reduce such smuggling, it was only after the conquest of Macassar in 1667 that the Dutch fully controlled the trade in cloves. As for pepper — which was a substantially more important item of investment in the Indies than all the other spices put together — in spite of the availability of formal monopsony rights in a number of states in the region, the Company never acquired effective monopsony rights. Pepper was, it is true, more abundant and the cost price probably lower for the Dutch than for the English East India Company. But the Dutch Company had to incur substantial costs in maintaining the forts and the garrisons necessary to enforce its privileges in buying spices. It is, therefore, important that the limitations of the term "spice monopoly/monopsony" used in this study be realised.

The control exercised by the Company on the spice islands enabled it to procure spices at unusually low prices. This ensured a very high rate of gross profit, often exceeding 1,000 percent. Before the advent of the Dutch, the spice growers had been used to exchanging their wares for Indian cloth, rice, and other necessities brought to them by Indian and other Asian merchants as well as the Portuguese. The Company could have obtained the Indian textiles — by far the most important medium of exchange in the spice islands — at Achin and other places in the archipelago, but its acute business instinct drove it to their source, the Coromandel coast, where a factory was established at Petapuli in 1606, and Gujarat, where regular trade was started around 1618 at the port of Surat. Thus began the Company's participation in intra-Asian trade, which in course of time assumed important proportions and became an object of as much concern as the Euro-Asian trade itself. The involvement of the Company in intra-Asian trade was facilitated by the spice monopsony available to it. Spices were in demand all over Asia, and provided the Company with an important source of purchasing power in areas where it sought trade, particularly because with its monopoly power, the Company was able to keep the selling prices at a fairly high level.

The Intra-Asian Trade

The high profitability and the crucial importance of the intra-Asian trade was evident to the Company soon after it first became involved in it. As early as 1612, Hendrik Brouwer, a future governor-general of the East Indies, described the Coromandel coast as the "left arm of the Moluccas and the surrounding islands because without textiles that come from there [the Coromandel coast], the trade in the Moluccas will be dead." In his discourse dated January 1, 1614, Director-General Coen emphasized the strategic significance of the intra-Asian trade. Four years later, Coen — now Governor-General — visualised a situation in which the entire Euro-Asian trade of the Company could eventually be financed out of the profits of its intra-Asian trade. In 1619, Coen sent to the Directors a blueprint of the Company's intra-Asian trade: cloth from Gujarat (obtained against spices, other goods, and rials) to be exchanged against pepper and gold on the coast of Sumatra; cloth from Coromandel (obtained against spices, Chinese goods and gold, and rials) to be exchanged against pepper at Bantam; sandalwood, pepper, and rials to be exchanged against Chinese gold and goods, the latter also being used in exchange for silver from Japan. Finally, rials of eight could be obtained at Arabia against spices and other sundry items. Since the Company already had spices available to it, all that was needed to turn this blueprint into reality was an adequate number of ships and enough capital for some time to establish the intra-Asian trade — "a little water to prime the pump." The Company already had a permanently circulating capital of between f. 2.5 and f. 3.5 million in the East Indies at this time, but Coen wanted more.

The Directors, however, would not have found it easy to meet Coen's demands. Though there were no serious problems with regard to the export of precious metals from Holland, there was a limit to the capital that the Directors were in a position to send to the East Indies. Whereas the total share capital of the Company was less than f. 6.5 million, its total debts in 1623 stood at f. 8 million. Although merchants of good standing could obtain credit in Amsterdam at between 3 and 4-5 percent, the Dutch East India Company in its early years had to pay as much as 6.25 percent. Resources for the development of intra-Asian trade, therefore, had to be found partly within Asia.


Excerpted from The Dutch East India Company and the Economy of Bengal, 1630-1720 by Om Prakash. Copyright © 1985 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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