Economists consider free trade as the corner-stone of capitalism. Free trade was not born overnight, it developed in fits and starts. The state and trading companies were major players in the development of capitalism. Before the British state fully developed, trading companies protected English and expansion. For free trade capitalism to work, it needed a strong state-a state capable of protecting its merchants. This is the irony of free trade. Laissez Faire is a “policy or attitude of letting things take their own course, without interfering.” Capitalism, however, requires a strong state, willing to open markets, and protect businesses. Imperialism allowed Britain to grow economically. The U.S. followed in its foot-steps, but more as an informal empire than an imperialist entity.
The Company of Merchants Trading to Africa, a regulated company, offers insight into the role of the state in global trade. It marked the slow transference from corporate trading to free trade protected by the state. Designed to protect free trade, the CMTA managed trading post on the African shore for the English/ African slave trade. However, do to corruption and mismanagement, the English state stepped in and sent its military to protect newly acquired trading post from France in Senegal. This reveals an early stepping stone future state’s role in free trade capitalism.
Within the past two years historians interested in the British Atlantic Empire have urged scholars to reassess scholarly understanding of mercantilism – for instance, 2012, a forum led by historian Steve Pincus’ “Rethinking Mercantilism: Political Economy, the British Empire, and the Atlantic World in the Seventeenth and Eighteenth Centuries,” in the William and Mary Quarterlyand in 2013, Philip Stern and Carl Wennerlind edited Mercantilism Reimagined: Political Economy in Early Modern Britain and Its Empire. In these works, historians debated on whether “mercantilism” should still be used as a blanket term for explaining pre-modern economic thought. Pincus reminded scholars that our present day understanding of “mercantilism” relies on the writings of Adam Smith, who did not look favorably at economic theories before his own work. Pincus argued that “the mercantilist age ‘between the Middle Ages and the age of laissez-faire’ was much more than merely a descriptive shorthand for a bundle of centuries.” Scholars using mercantilism to describe pre-modern economic thought emphasized the role of a strong state in organizing a nation’s trade. States, such as Britain, preferred the use of monopolies or regulated companies to conduct trade rather than individual merchants. Historians, such as Bernard Simmell, used mercantilism as the antithesis of free trade to explain that modern or classical economics began in the mid 18thcentury around the time of Adam Smith. But works like Simmell’s The Rise of Free Trade Imperialism: Classical Political Economy the Empire of Free Trade and Imperialism 1750 – 1850 (1970) fail to explain earlier works by merchants such as John Cary from Bristol, who advocated free trade in the 1690s. Nor do the dates, used by Simmell and others, reflect public and political debates happening in the 1690s, when England entered an unprecedented era of free trade with Africa for slaves. In the wake of social and cultural histories in the 80s and 90s, notions of a strong centralized British state no longer suffice to explain mercantilist policies. For instance, historian Michael Braddick argued that the British state did not emerge from London as a strong fiscal military institution, but instead, the state formed through negotiations between provinces and merchants. In Cathy Matson’s response to Pincus’ essay, she urges that historians to focus on the diversity of economic theories and policies, which might reflect instances of both mercantilist, such as the zero-sum game, etc., and free trade concepts. In other words mercantilism and free trade existed side by side.
During the initial stages of overseas exploration, trade, and colonization, England outsourced the expansion of Empire to corporations.For instance, the British Crown issued monopoly charters to the East Indian Company, in 1600, and the Royal African Company, in 1672, giving these companies the sole right to trade in their respective areas of commerce. The companies provided their own means of governing and even military support. For instance, During the RAC’s monopoly, they built several forts (trading posts) on the African shore-primarily on the Gold Coast as gold was the original reason England started trade with Africa. The RAC believed these trading forts signified English presence on the coast to deter foreign competition-even though the Dutch also had forts. One of the stipulations of a monopoly charter was to promote and defend national interests. Companies absorbed the costs of expansion and provided efficient administrative networks in their respective area of influence. The early modern English state, according to historians, was too weak and poor to finance the expansion, defense, and government of Empire.
In 1696, William and Mary opened the slave trade to free trade. Historian William Pettigrew, in “Free to Enslave: Politics and the Escalation of the Britain’s Transatlantic Slave Trade, 1688-1714” and Freedom’s Debt: the Royal African Company and the Politics of the Atlantic Slave Trade, 1672-1752 (2013), argued that modern concept of free trade emerged from debates between the Royal African Company (hereafter RAC) and individual merchants trying to gain access to the African slave trade beginning in the 1690.The old ways of imperial expansion e.g. by using corporations and monopolies proved unable to meet the demands of a commercial empire.
The slave trade grew exponentially after the opening of free trade as the African coast was inundated with individual merchants. After the state opened free trade with Africa, it agreed with the RAC that the forts acted as important ‘signs of possession,’ and provided the RAC compensation for managing the forts. However, unable to compete with free traders, the RAC closed its door in 1750. The state wanted to keep the forts to protect trade, but they were not sure how to do it. Britons debated over whether a joint-stock company or the government itself should manage the forts. Having just defeated the RAC, individual merchants vehemently opposed the idea of a joint-stock company managing the forts, but merchants also distrusted the government.Parliament and merchants compromised and created the Company of Merchants Trading to Africa (hereafter CMTA), a regulated company. Historian Judith William Blow considered the CMTA as an experiment to protect free trade, because it was not a trading corporation nor was it part of the state. Contemporaries believed the state did not know about trade and thus should not be involved. The state financed the CMTA with an annual stipend and fees charged to merchants for using the trading post. The sole job of the company was to protect and facilitate trade. The Company of Merchants Trading to Africa was prohibited from trading i.e. competing with individual merchants.
Despite these prohibitions, mismanagement of employees pay and the power structure between the Fante (African merchants) and English merchants caused havoc on the coast. For instance, the CMTA’s governing council provided employees with goods, which they were supposed to trade with the Fante for their income, but the goods were not always in demand, thus leaving employees without pay and sometimes without food. The governing council also provided employees with means to procure slaves to provide individual merchants on the coast, but employees often sold the slaves for their own income and profit, thereby competing with individual merchants. After several cases of company chiefs competing with merchants and major corruption, the company came under investigation. Nothing came of the investigations, but company employees continued to trade off the coast.
After the Seven Years War, England acquired a French trading post in Senegal. At first, the state granted the CMTA with a contract to govern the post, but through an influx of bad press and negative public scrutiny of the company the state revoked the contract and sent the British military to occupy and manage the fort. This marked the first time the British military entered Africa and occupied territory. Before the end of the 19th century. The job of the military was to protect free trade, thereby serving as a precursor to the future of the British Empire and state’s overall role in free trade capitalism.
Another, not well known, example occurred in Senegal, Africa after the Seven Years War. The British state sent troops to protect trading posts from the French. Up until the Seven Years War, the defense of these posts was outsourced to corporations: first the Royal African Company, then the Company of Merchants Trading to Africa.
The CMTA put in a bid to protect the Senegal trading post, but after a year public doubt over the competence of the CMTA lead King George III to revoke their charter. While the CMTA certainly had its fair share of corrupt employees, the company’s inadequacies were the result of African politics and misinformation about the company’s behavior on the African coast.
In the Wealth of Nations, Adam Smith deals with the problems of the CMTA specifically. He agreed with Sir Josiah Child that regulated companies provided invaluable services, but they had not been used in foreign trade before the CMTA. Regulated companies, such as the CMTA, did not have adequate access to funds to provide the required oversight. The payment method of the CMTA, also, created an incentive for employees to trade for their own gain and sustenance, thereby creating competition with private merchants. This combination, for Smtih, spelled disaster.
Several British businessmen proposed that the Senegalese post should be protected by a joint-stock company, but the public was aware that this would simply create a monopoly on the trade. The age of monopolies were in question. And the CMTA, with its mismanagement, was beginning to operate like a monopoly. The only way to protect free trade would be through state involvement in trade. And that is what King George III did. In 1765, he revoked the CMTA’s charter to oversee the Senegal fort and placed it under direct supervision of the state, sending soldiers to Africa for the first time—before the late 19thcentury.
Although this aspect of the slave trade has largely been overlooked, it marks an era when the role of companies, traders, and the state were changing. Free trade could only grow in proportion to the state’s ability to involve itself in overseas trade and protection—whether as a formal or informal Empire. Free trade and laissez faire, contrary to what modern contemporaries might suggest, are dependent upon the state, just as states were once dependent on corporations.
It also required a state to implement protectionists policies so that domestic industries could achieve a competitive edge.
Steve Pincus, “Rethinking Mercantilism: Political Economy, the British Empire, and the Atlantic World in the Seventeenth and Eighteenth Centuries,” The William and Mary Quarterly69, no. 1 (January 1, 2012): 3.
John Cary, A Discourse on Trade: And Other Matters Relative to It(T. Osborne, 1745).
William A. Pettigrew, Freedom’s Debt: The Royal African Company and the Politics of the Atlantic Slave Trade, 1672-1752(UNC Press Books, 2013); William A. Pettigrew, “Free to Enslave: Politics and the Escalation of Britain’s Transatlantic Slave Trade, 1688-1714,” The William and Mary Quarterly64, no. 1 (January 1, 2007): 3–38.
Michael Braddick, “State Formation and Social Change in Early Modern England: A Problem Stated and Approaches Suggested,” Social History16, no. 1 (January 1, 1991): 1–17; Michael J. Braddick, “The Early Modern English State and the Question of Differentiation, from 1550 to 1700,” Comparative Studies in Society and History38, no. 1 (January 1, 1996): 92–111; Michael J. Braddick, State Formation in Early Modern England, C.1550-1700(Cambridge University Press, 2000).
Philip J Stern, The Company-State: Corporate Sovereignty and the Early Modern Foundations of the British Empire in India(New York: Oxford University Press, 2011), 3; Philip Stern does not use the term outsource. His works indicated that early trading companies functioned as “company-states. He defines Britain’s early political landscape as “an early modern world filled with a variety of corporate bodies politic and hyphenated, hybrid, overlapping, and composite forms of sovereignty.”; Stern’s work draws on revisionary histories of the development of the British state that have been occurring over the past two decades, most notably Michael Braddick’s State Formation in Early Modern England, c. 1550-1700(2000).
[As the works of Philip Stern on the East India Company have argued, company-states were often more organized and better able to govern because companies developed administrative institutions, which were too expensive for the contemporary British state.]
Michael J. Braddick, State Formation in Early Modern England, C.1550-1700(Cambridge University Press, 2000); Michael Braddick, “State Formation and Social Change in Early Modern England: A Problem Stated and Approaches Suggested,” Social History16, no. 1 (January 1, 1991): 1–17; David Armitage and Michael J. Braddick, “Introduction,” in The British Atlantic World, 1500-1800, Second Edition. (Palgrave Macmillan, 2002), 1–29.
Pettigrew, “Free to Enslave,” 3, 5–7.
K. G. Davies, The Royal African Company, by K. G. Davies(Longmans, Green and C°, 1957)?.
Judith Blow Williams, “The Development of British Trade with West Africa, 1750 to 1850,” Political Science Quarterly50, no. 2 (June 1, 1935): 194–213.
(5.Geo.III.20), (5. Geo.III.44)