EH.net is owned and operated by the Economic History Association
with the support of other sponsoring organizations.

The Trading World of Asia and the English East India Company, 1660-1760

Author(s):Chaudhuri, K. N.
Reviewer(s):Hejeebu, Santhi

Project 2000: Significant Works in Twentieth-Century Economic History

K. N. Chaudhuri, The Trading World of Asia and the English East India Company, 1660-1760. Cambridge: Cambridge University Press, 1978.

Review essay by Santhi Hejeebu, Department of Economics, University of Iowa.

Asia in the Making of the K. N. Chaudhuri’s East India Company, 1660-1760

The Trading World of Asia and the English East India Company reveals the monumental importance a single, long-lived organization can have on world history. Between 1600 and 1858 the East India Company operated mostly as a commercial enterprise, but in its last century it also became a territorial ruler. Chaudhuri’s book covers the long era of the Company’s commercial maturity, 1660-1760. The East India Company’s goals were simple: buy low in the East and sell high in the West. At its most basic level the Company was a great shipping concern that rented its fleets and owned its cargos of pepper, textiles, coffee, and tea. The Company straddled the major trading centers of Asia and the British capital, bringing together the talents of artisan-cultivators and the tastes of final consumers.

Mainstream economic history is still coming to grips with the importance of Asia and the history of economic growth outside of European frames of references. Through the lens of a single organization one sees the effects of monetary expansion (American silver) on trade flows and the development of bureaucratic multinational machinery. One also observes the unfolding of colonial conquest and the peculiar results that emerge when market power is wedded with political power. The Honourable Company has beguiled writers since the eighteenth century and the secondary literature alone would constitute a considerable library. But no future investigator of the East India Company or its complicated legacy will be able to progress far without engaging Chaudhuri’s “magisterial” (Raychaudhuri 1980, 433) Trading World of Asia.

Chaudhuri was the first to analyze the Company as a principally commercial enterprise. He first trained as a classicist and commands Sanskrit, Latin, and Greek, plus four European and at least two South Asian languages. His linguistic prowess made accessible to him the records of all the major European groups who traded with South Asia. In shifting to the early modern period, Chaudhuri displayed his distinct mathematical bent and brought a new formalism to the topic.

Trading World of Asia places Chaudhuri in the tradition of W.R. Scott (1910), the distinguished analyst of English chartered companies of the seventeenth century (1). It has been said that Chaudhuri did for the East India Company what Kristoff Glamann did for the Dutch East India Company (VOC), Ralph Davies for the Royal African Company, and E.E. Rich for the Hudson’s Bay Company — that he performed the role of Company historian, defender and critic. Chaudhuri’s authority, like those of the other Company historians, rests on his command of the source material. The sheer magnitude of the East India Company materials makes its comprehensive history extraordinarily difficult to achieve. Furthermore Chaudhuri brings to the subject an intimate knowledge of the regions in which the trade goods were acquired. He understood his Asian input markets — their language, history, and customs — better than historians of other chartered companies understood their overseas markets. His analytic approach, his enormous devotion to the sources, and his understanding of the very different societies joined by trade make the Trading World of Asia a most remarkable achievement.

The book’s objectives are threefold: 1. to reconstruct “the Company’s own history for the period from 1660-1760″ 2. to analyze “the economic life of those countries in Asia where the Company had established trading relations” and 3. “to discover through the records and the activities of the East India Company the general problems of long-distance trade in pre-Industrial Revolution societies” (p. xv-xvi).

As Company history, Trading World of Asia provided a fresh perspective. In contrast to earlier treatments that emphasized the Company’s role as a vehicle for British imperial aims (2), Trading World of Asia gazed unflinchingly at the structure of the Company’s organization and its decision-making process — at home and abroad. Using a systems analysis approach, Chaudhuri tells how the firm worked. Tasks were divided among seven committees that reported to the Court of Directors. The Court was made up of 24 directors who were elected annually by the General Court of Proprietors. He explains the specialized duties of the committees in London and the Presidency-factory system in place across Asia.

For each institutional unit within the firm, Chaudhuri identifies its access to information and its generation of specific decision-variables. He also identifies the time lags involved between one “subsystem” of the Company and another. For example, to decide how much bullion was required to fill the current order lists, the Directors would need to know the amount of cash reserves on hand at the Presidencies. Delays in receiving such information would likely result in an over or under allocation of funds, implying less or more reliance on Indian capital markets. The Directors would face this problem year in and year out. The recurrent nature of the problem would over time encourage them to establish decision-rules for minimizing the discrepancy. Institutionally this would link transactions in the Treasure Committee with those in Asian Presidencies and ultimately with those in the Accountant General’s Department. In terms of Chaudhuri’s model, this would illustrate the interaction between subsystem I (London) and subsystem II (Asia) and then between subsystem II (Asia) and subsystem III (London). By mapping decision-variables and information flows to specific units, Chaudhuri formalizes the management structure into a “trading model.” The technique gives him a global view of the Company’s operations and leads him to conclude that “the economic success of the East India Company was in large measure the result of a systematic process of decision-making, communication, and control.” (p. 33).

The Company history extends through a description of the pattern of commercial settlements in Asia as Chaudhuri describes the various methods of acquiring goods. In Bengal a system of brokers and middlemen was used to contract textile production, while in China goods were purchased onboard ships commanded by supercargoes. He provides quantitative analysis on the long-term fluctuations in the volume of imports and exports and in the “terms-of-trade.” He describes the politics of foreign trade in Mughal India, the Company’s pursuit of trading privileges and the private trade of the Company’s servants. The shipping schedule, the export of treasure — nearly every aspect of trade with Asia is addressed. As Company history, the work is “detailed and definitive” (Prakash 1980, 139).

The second objective is more ambitious than the first. Chaudhuri hoped to analyze the economies of Asia that traded with the Company. This would include the “Arab world, the Persian Empire, the Mughal dominions, South East Asia, and China” (p. 55). Given the heterogeneity of these economies and the constraints of space, it is not surprising that his discussion is truncated to the specific markets in which the Company operated. His subsequent works Trade and Civilization in the Indian Ocean (1985) and Asia before Europe (1990) however are not Company-centric and greatly illuminate the study of comparative Asian history.

Still Trading World of Asia makes important contributions in specific areas of Asian economic history, namely in dispelling the van Leur thesis and in the study of the Indian textile industry in the seventeenth and eighteenth centuries. In his 1955 classic Indonesian Trade and Society, J.C. van Leur characterized the Asian merchants as peddlers and Asian trading ports as overburdened with a multiplicity of currency, weights, measures, and customs. The overall picture is one of small-scale traders eking out a living in the face of crippling transactions costs. Van Leur’s thesis went unchallenged for decades and was crucial to Niels Steensgaard’s 1973 study of the decline of the trans-Eurasian caravan trade.

Chaudhuri contextualizes van Leur’s argument. He shows how the peddler characterization depends on a selective use of Dutch sources, the diary of a single Armenian merchant, and a handful of travelers’ accounts. Chaudhuri counters that the type of Indian merchant most often discussed in Dutch and English company sources resembles “the Indian equivalent of the Medici family, or Fuggers, and the Tripps” (p. 138). As for the nature of Asian trade centers, Chaudhuri points out that a multiplicity of weights, measures, and regulations was common in European cities as well. More importantly, Chaudhuri argues that however large the European companies were relative to their Asian counterparts, they were never substantial enough to “command the market” (p. 139) without resort to violence. Later substantiated by empirical research, Chaudhuri’s argument did much to undermine the then prevalent misconceptions about the nature of Asian merchants communities (3).

A second major contribution to Asian economic history is the astute analysis of the Indian textile industry of the period. Chaudhuri describes the four major regions of India (Punjab, Gujarat, Coromandel Coast, and Bengal) that specialized in the production of cloth for export. He explores the organization of the industry, including the very high degree of specialization of labor and the role of merchants in financing the different stages of production and marketing the finished products. He also explains the juridical tradition that gave rise to the system of commercial advances common in the period. After exploring the cost structure of handicraft production he considers the impact of European purchases of textiles on the wages of weavers. The a priori expectation that wages would rise in the face of growing international demand is complicated by the fact the sources speak almost categorically of the impoverished state of the weaver. The discussion of Indian textile producers raises, if not fully answers, many important questions. Finally, he addresses the issue of technological stagnation. Indian textile output increased over the eighteenth century not by process innovation but by the expansion of the labor force (and implicitly the replication of specialized human capital). Chaudhuri argues that workmen in India lacked economic incentives to shift to capital-intensive techniques so long as the appropriation of producer surplus remained acute. He writes, “Specialization had gone so far that it would have required very great incentives to induce such men to change their production methods and habits drastically” (p. 275). Morris Morris described Chaudhuri’s “analysis of production and marketing activities in Asia,” as “by far the best available” (1980, 390).

The third objective of the book is to identify the “general problems of long-distance trade in pre-Industrial Revolution societies” (p. xvi). Chaudhuri does this by exploring the role of the monsoon winds and the techniques used to minimize shipping expenses (pp. 71-4, 193, 201-2, 330) and by examining the persistent communication and control problems within the Company (pp. 32-3, 74-7, 208-213, 298-9, 302). The problem of forecasting future demand and determining which commodities in what quantities should be ordered(pp. 278-81, 299-305, 331-2) would also fall under the rubric of “general problems of long-distance trade.” Unfortunately, Chaudhuri does not bring these and other recurrent challenges under a single heading. They jointly constitute one of the unifying themes of the book, yet the problems are scattered across many chapters, in many differing contexts. This is a weakness in the organization of the theme and not in the sophistication with which Chaudhuri handles it. A careful reader will find all the elements there.

As Chaudhuri admits, his method of analysis can be disorienting. “The methodology adopted was exceptionally complex, though not by itself but because of its combinations. It is easier to say what the book is not than to say what the book is. It is not true narrative history. It is not pure economic analysis, nor is it economic history in the conventional sense” (Chaudhuri 1983, 10). He uses neoclassical economic analysis and yet borrows insights from Polanyi and Marx. The influence of Braudel, quite marked in Chaudhuri’s later works, can be traced here. Trading World of Asia situates the Company primarily in terms of its economic activities (the markets which it engaged). It also emphasizes the physical or geographic space (the Asian littoral) and the cultural space (the language, customs, and mentalit? of the directors, their agents, Asian merchants, and even the Mughal aristocracy) the Company occupied. To this Chaudhuri reiterates the importance of time, investment cycles, monsoon season, harvest season, and the arrival and departure of ships. His ability to discern almost at once the many dimensions of cross-cultural, transcontinental exchange makes the Trading World of Asia a methodological hybrid.

Systems analysis receives prominent attention. He writes of the Company as a trading system, one in which the decision-rules employed by management can be mapped to a sequence of physical inputs and outputs, suggesting the Company operated like an engine. Systems analysis enables him to test statistically a series of hypotheses, such as “average costs are a decreasing function of the volume of trade, the cost price of goods, and of time, with an associated level of fixed costs” (p. 486).

The approach looks rather alien to those who learned industrial organization from Tirole (1989) or Stigler (1968) a generation earlier. It is not typically taught in economics or in history departments though it is widely used in information systems management and environmental engineering. System analysis requires the investigator to redefine structural and functional relationships on a firm-by-firm basis. What surprises (and annoys) the economist is the absence of a theory of the firm. The cost functions in Appendix 3 are hypotheses relating costs to accounting and physical variables. They do not imbibe the idea that costs functions arise from production functions and must include opportunity costs.

Can systems theory be useful to economic history? Certainly. It requires a much lower level of abstraction than conventional microeconomics and can be particularly useful when a researcher needs to make a detailed plan of a complex organization. This is precisely the sense in which computing professionals in the business world use the theory. The emphasis on information flows and functional relations across different subsystems can help organize data-gathering efforts. And this is precisely how the theory was useful to Chaudhuri. Chaudhuri (1983, 14) writes, “The historical material was collected and analysed with very strict adherence to the concept of the model. The exposition was then ‘translated’ into the idiom of historians.” The gargantuan task of synthesizing the thousands of volumes of records pertaining to the Company over the period indeed required a coherent approach embedded in a structural model of the Company’s various operations.

The drawback to systems theory is that it is a static model of the organization and it therefore offers no guidance on how to ask the deeper questions about efficiency or organizational change. Writes Chaudhuri, “For a model cannot without destroying itself take account of the passage of time which affects its structural boundaries and parameters” (p. 41). Theories of institutional change are of fundamental concern and those that are not amenable to changes over time appear to have little explanatory power. Thus while useful as an organizing heuristic, systems analysis seems rather unlikely to yield insights regarding organizational change.

Beyond systems analysis and econometric estimation, much of the book uses a traditional narrative approach. His presentation of the Company’s overall financial position, for example, is alive with illustrative examples, contextualized by contemporary opinion, and balanced by principles of modern accounting. One reviewer considered such treatment as “a model of how “Old” and “New” methods of economic history can be fruitfully combined” (Ambirajan 1981, 79). Chaudhuri’s six chapters on individual commodities also move smoothly between general and specific, between theory and evidence. One of the book’s “special virtues,” as Curtin (1980, 508) rightly says is “the way in which [Chaudhuri] maintains a counterpoint between central aggregates and the intimate detail.”

The most long-lasting contribution of the book is the stunning amount of quantitative data on commodities and specie flows between Britain and Asia. Appendix 5 provides the annual time series for nearly a dozen commodities originating from six locations — representing a fraction of the 400 tables originally produced. Chaudhuri’s research involved tracking more than 91 different textiles, 7 types of tea, and 30 other commodities imported into London. On the export side, he followed the course of 12 products plus treasure. By following the order lists and invoices of literally every Company ship between 1660 and 1760, he and his assistants made available data that had been scattered across hundreds of volumes of financial records and thousands of volumes of correspondence. Clive Dewey wrote that Trading World of Asia “represented the work of a lifetime, not only — or even mainly — in the sense that it took a significant proportion of [the author’s] working life to write, but in the sense that such a book is only likely to be written once in a lifetime” (Chaudhuri 1983, 11). Ten productive years of archival work (involving English, French, Dutch, Belgain sources) went in to the production of Trading World of Asia and that staggering effort alone will ensure its longevity.

The book influenced numerous literatures within economics and history. Chaudhuri’s emphasis on the efficiency of the East India Company resonates in the literature on the origins of the multinational organization and on the character of the English chartered companies. While Chaudhuri used systems theory, others (Anderson et. al. 1983 and Carlos and Nicholas, 1988) have employed transactions cost analysis, agency theory, and Chandlerian analysis of firm structure to argue that the East India Company was an organizational innovation on par with a modern multinational firm such as General Motors. They emphasize the efficacy of the firm’s internal operations as its main commercial legacy. They de-emphasize the firm’s imperial legacy. Other studies by contrast have highlighted the significance of “merchant empires” to European expansion. These works have also drawn on Chaudhuri’s insights.

The contribution of Trading World of Asia to the study of the foreign impact on the Indian economy has also been fruitful. Most notably, Chaudhuri’s argument that India’s, and in particular Bengal’s, textile production increased through an expansion of employment has resulted in several important monographs. Om Prakash (1985) builds directly on the claim by asking how much did Bengal’s employment rise as a result of European demand for textiles. His qualified answer: about 10%. Numerous studies have focused on the economic dislocation experienced by weavers and other groups connected with the Company’s trade. From the perspective of the Mughal ruling classes it was certainly difficult, if not impossible, to separate the Company’s commercial purposes from its political ones. For example, in dealing with Asian powers, the Company, Chaudhuri explains, had every incentive to present itself as having the delegated power of the British Crown. In the Indian economy, the East India Company employees insisted on special treatment and trading privileges.

This brings us back to indigenous commerce. Chaudhuri effectively utilizes European archival sources to discern the contours of Asian trades and traders. In this way Trading World of Asia contributed to the growth of Indian Ocean studies such as Das Gupta and Pearson (1987) in which the European chartered companies are viewed as one among many participants in the emporia trade. Chaudhuri’s later books (Trade and Civilization and Asia before Europe) take a long view of the structure of Indian Ocean commerce and the merchants involved. These works have helped replace Van Leur’s peddler paradigm with a fuller identification and appreciation of diasporic communities, about the ways community norms mitigate problems of long-distance trade, and about the comparative advantage of family firms (Levi, forthcoming). Rather than an ill-informed, itinerant peddler, the early Asian trader is now recognized as a “portfolio capitalist” (Subrahmanyam, 1990) enjoying political and social along with spatial mobility. By bringing to the foreground the Asian commercial milieu Chaudhuri helped initiate new literatures in Asian history.

For the range and importance of its findings, its unique method, and its empirical bounty, Trading World of Asia deserved the unanimous praise it received upon publication in 1978. For those same reasons and for its lasting impact on economic history, Trading World of Asia certainly deserves its present distinction — one of the most significant works of the twentieth century (4).

Notes:

1. Philip Curtin (1980, 507) remarked, “Chaudhuri intended from the beginning to present a case study of a large, bureaucratic, pre-industrial trading firm as a contribution to the history of European business institutions in general.”

2. See for example The Cambridge History of India, Volume V (1922), Bal Krishna, Commercial Relations between India and England (1924), and S. Bhattacharya, The East India Company and the Economy of Bengal (1954).

3. My “Market Power and the English East India Company in Bengal” presented at the 1995 SSHA Conference estimates the residual supply curves faced by the Company in the cotton textile, raw silk, and saltpeter markets. In the first two markets, the firm faced high elasticities of supply suggesting little price-setting ability. The findings are consistent with Chaudhuri’s position that the East India Company was not large enough to determine input prices.

4. Before his recent retirement, Chaudhuri was affiliated with the European University Institute. The bulk of his career, however, was at the School of Oriental and Asian Studies, University of London.

References:

Gary Anderson, Robert McCormick and Robert Tollison. 1983. “The Economic Organization of the English East India Company,” Journal of Economic Behavior and Organization. 4 (4): 221-238.

Ann Carlos and Nicholas, Stephen. 1988. “‘Giants of an Earlier Capitalism': The Chartered Trading Companies as Modern Multinationals,” Business History Review. 62 (Autumn): 398-419.

K. N. Chaudhuri. 1978. The Trading World of Asia and the English East India Company, 1660-1760. Cambridge: Cambridge University Press. K. N. Chaudhuri. 1983. “The Trading World of Asia and the English East India Company, 1660-1760: A review of reviews.” South Asia Research (London) 3 (1) (May): 10-17.

K. N. Chaudhuri. 1985. Trade and Civilization in the Indian Ocean: An Economic History from the Rise of Islam to 1750. Cambridge: Cambridge University Press.

K. N. Chaudhuri. 1989/90. “Indian History and the Indian Ocean (Professor K. N. Chaudhuri Interviewed by Ranabir Chakrabarti).” Calcutta Historical Journal. 14 (1-2) (Jul 1989-Jun 1990): 78-83.

K. N. Chaudhuri. 1990. Asia before Europe: Economy and civilisation of the Indian Ocean from the Rise of Islam to 1750. Cambridge: Cambridge University Press.

Ashin Das Gupta and M. N. Pearson, editors. 1987. India and the Indian Ocean. Calcutta: Oxford University Press.

J. C. van Leur. 1955. Indonesian Trade and Society: Essays in Asian Social and Economic History. The Hague: W. Van Hoeve.

Scott Levi. Forthcoming. The Indian Diaspora in Central Asia and its Trade, 1550-1900. Leiden: E.J. Brill.

Om Prakash. 1985. Dutch East India Company and the Economy of Bengal, 1630-1720. Princeton: Princeton University Press.

W. R. Scott. 1910. Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720, 3 vols. Cambridge: Cambridge University Press.

Niels Steensgaard. 1973. Carracks, Caravans and Companies: the Structural Crisis in the European-Asian Trade in the Early Seventeenth Century. Lund: Studentlitteratur.

George Stigler. 1968. Organization of Industry. Chicago: University of Chicago Press.

Sanjay Subrahmanyam. 1990. Merchants, Markets, and the State in Early Modern India. Delhi: Oxford University Press.

Jean Tirole. 1989. Theory of Industrial Organization. Cambridge: MIT Press.

Reviews of The Trading World of Asia:

S. Ambirajan. 1981. Australian Economic History Review. XXI (1) (March): 77-79.

Philip D. Curtin. 1980. Journal of Modern History. 52 (3) (September): 506-508.

Morris D. Morris. 1980. Journal of Asian Studies. 39 (2) (February): 388-390.

Om Prakash. 1980. Indian Economic and Social History Review. XVII (I) (January-March):139-142.

T. Raychaudhuri. 1980. Economic Journal. 90 (358) (June): 433-435.

Henry G. Roseveare. 1980. “The East India Trade.” Journal of Imperial and Commonwealth History. VIII (2) (January): 131-134.

?

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Asia
Time Period(s):18th Century