The British East India Company

Founded in 1600 by royal charter, the East India Company was established as a joint-stock trading company to exploit opportunities east of the Cape of Good Hope where it was granted a trade monopoly. Crucially, to conduct this trade, the EIC was permitted to ‘wage war’. Although the EIC did not hold sovereignty in its areas of operation, it was permitted to exercise sovereignty in the name of the British Crown and government. This subtle distinction became even more blurred as the company became more powerful.  In order to protect its interests, the EIC paid for its own private armies in India. It also hired entire regiments of the regular British Army.

These armies of the EIC then took over territory which they then administered (tacitly under the authority of the Crown), extracting taxes and duties to further enrich its shareholders. In effect, the EIC became a nation within the British Empire even dispensing justice through its own courts. It was not accountable for its actions to anyone but its shareholders. Naturally, corruption was the byproduct of such hegemony.  As Adam Smith noted in his An Inquiry into the Nature and Causes of the Wealth of Nations, “a sovereign that was holding a trade monopoly could not possibly rule with fairness to all its subjects, the two ideas were simply not compatible.”  Over 100 Members of Parliament were actually in the employ of the EIC at one point, was also raising questions as to how the EIC represented British interests abroad and how its trade monopoly infringed upon the potential growth of other British companies.

One example of this graft lead to the Boston Tea Party.  Despite their monopoly in the British Empire, the East India company depended upon exclusive rights to trade with the colonies.  Competition with similar trading companies in the Netherlands and Portugal plus the expenses in subduing uprisings in India and Asia left the EIC in debt and huge stocks of tea sat on docks in London. The British Parliament (remember many of them were employees of the EIC) enacted the Tea Act of 1773, lowering the duty that the Company paid on its tea and enabling direct shipping from China to America only by the EIC, as a bail-out bailed to help keep the company afloat.

The Tea Act taxed the tea at source (i.e., in India) so there was no tax collection in the colonies. The act allowed the tea to go directly to America instead of having to be imported to Britain and then re-exported to the colonies. This made the tea 9 shillings per pound cheaper, even with the tax of 3 shillings. It also allowed the East India Company to sell the tea exclusively to chosen consignees in the American colonies. In addition, the government made a loan of £1.4 million to the East India Company.  This was intended to increase tea consumption and so the Company would be helped out of its financial difficulties.

Legitimate competitor traders and smugglers objected, but Parliament was well in the pockets of the EIC so these objections were dismissed.  When three East India ships, the Dartmouth, Eleanor, and Beaver all bearing tea, many merchants in Boston objected and demanded they be turned away.  Even the ships’ captains wanted to turn around without unloading and paying the duty for the tea but the Governor Thomas Hutchinson did not allow it, blockading the port, demanding the tea be unloaded.  On the night of December 16, 1773, a group of Sons of Liberty, disguised as Mohawk Indians, boarded the three ships, and destroyed over 92,000 pounds of tea. In April 1774, the British Parliament passed the Coercive Acts, which punished Massachusetts for the Tea Party incident. The Acts not only took away home rule from Massachusetts, allowed for British Regulars (remember the difference between EIC and Crown forces is fuzzy) to enact martial law in Boston, it closed the port until the damages to the EIC were paid.  Boston was now under the heel of the EIC and eventually this would lead to rebellion.

Eventually the Crown took back control of its empire from the shareholders of the EIC.  The Charter Act of 1813 demanded that any new territory captured by the EIC would come under the direct sovereignty of the British Monarchy.  It also ended the EIC’s trade monopoly in India and placed a ban on the EIC sending Christian missionaries in its territories. Further control came in 1825 when parliament rescinded the EIC trade monopoly with China and the EIC judicial system was nationalized.  Finally in 1857, the EIC was rocked by the Sepoy Mutiny which started with Indian soldiers (sepoys) in the EIC army rebelling against their officers. Sepoys protested against (amongst other things) their much lower pay compared to British EIC soldiers.  After the mutiny was quashed, the sentiment in Britain was that such an important colony as India could no longer be left in the hands of a private company.

The British Crown took full possession of EIC territories in India with the Government of India Act of 2 August 1858. The EIC armies were absorbed into the British Army, and the EIC navy was disbanded. The most aggressive and utterly ruthless private company ever yet created was effectively nationalized. India was divided into governorships, which were in turn split into deputy governorships. On 1 June 1874, after generously allowing its shareholders to reap yet more dividends for 16 years, Parliament formally dissolved the EIC. In 1877, Queen Victoria was proclaimed Empress of India. The East India Company was no more.