The principal-agent problem revisited:
supercargoes and commanders of the China trade
Meike Fellinger, University of Warwick
m.fellinger@warwick.ac.uk
Supervisor: Professor Maxine Berg
Introduction
Scholars have long been fascinated with the organizational structures that characterized early
modern long-distance trade. The European joint-stock companies provide an attractive topic
for economists, sociologists and economic historians alike for studying principal-agent
problems via a combination of economic modelling and the qualitative analysis of historical
records. Unsurprisingly, a number of recent studies have focused on the different degrees of
success or failure by which the competing East India Companies of the 18th century exercised
control over potentially malfeasant, self-interested and corrupt employees in geographically
dispersed nodes of the Asian trading networks.1 In this literature, private trade is consistently
seen as an unavoidable feature of long-distance trade that was tolerated by the Companies to
varying degrees in order to contain the damage for the Company monopoly.
This paper argues that such a ‘negative’ interpretation of private trade is problematic
and at least partly misleading. By focusing on the role of merchant-mariners active in the
Canton trade in the first half of the eighteenth century, this paper aims to challenge the
assumed rigid divide of interests between ‘principals’ and ‘agents’ on the basis of an in-depth
analysis of private and Company records.2 By means of an exemplary case study, it will focus
on the synergies between Company trade and private enterprise rather than on individual acts
of malfeasance that form the usual focal point of the discussion. To be sure, there is much
scholarly merit in analysing the firms’ use of incentives to try to align the interest of the agent
with those of the principal (shareholders and managing directors). There is, however, too
much of an emphasis on the costs for principals to uncover or limit acts of sabotage (such as
smuggling, fraud, nepotism and so forth). As a consequence, the important contributions of
the private trader for the Companies’ success have been silenced in most studies,
contributions that were well understood by Company directors at the time. It is argued that by
focusing exclusively on the negative effects of the agents’ multi-tasking, there is a danger to
overlook some crucial aspects of a trade system that lasted for more than two hundred years in
different incarnations. Private enterprise was always a vital part of that trade.
Mariners as merchants
The size and scope of private trade in Chinese export wares has been greatly underestimated
for the first half of the eighteenth century. One crucial reason for that is the very limited
selection of archival material that is generally used to measure the flow of private goods on
Company ships. Historians of the Canton trade have mostly relied on official records,
Company by-laws, privilege trade regulations and registers for calculating the volume on
board of individual ships, and for establishing long-term trends.3 To be sure, this focus on
E.g. Julia Adams, ‘Principals and Agents, Colonialists and Company Men: The Decay of Colonial Control in
the Dutch East Indies’, American Sociological Review, 61:1 (1996), pp. 12-28; Santhi Hejeebu, ‘Contract
Enforcement in the English East India Company’, Journal of Economic History, 65:2 (2005), pp. 496-523.
2
The examples chosen derive from the English and Swedish East India Company records.
3
Earl H. Pritchard, ‘Private Trade between England and China in the Eighteenth-Century (1680-1833)’, Journal
of the Economic and Social History of the Orient, 1:1 (1957), pp. 108-37. H.B. Morse, Chronicles of the East
1
official documentation (fragmentary as it is) can give us a clearer picture of the rules
prevailing in different Companies and at certain points in time. However, it rarely tells us
what was brought back in reality. Only the comparison between official records and the
private correspondence and account books of China traders can reveal the significant gaps
between formal ‘rule’ and economic reality, and thus provide us with a better understanding
of the functions and importance of private trade activities for the China trade.4
One example may suffice to illustrate this point. In 1738/39, the Aberdonian merchant
mariner Charles Irvine (1693-1771) acted as chief supercargo of the Swedish East India
Company (hereafter: SEIC) in Canton. Irvine was one of perhaps fifty Britons who joined the
Swedish Company during the first two decades of its existence, the majority of whom were
Scottish-born like he himself.5 Irvine’s mercantile career brought him first to Rouen, from
thence to Ostend, from where he sailed to the East for the first time and further to Göteborg. 6
He made enough friends in East India circles to secure an offer to join the newly formed SEIC
as a supercargo. In 1736/37, Irvine was permitted to bring back to Europe 20 chests or ‘2 ½
last’ of merchandise freight-free, a privilege that reflected his elevated rank on board. 7 Since
Irvine’s business papers contain an unusually rich set of shipping records for several of his
voyages, it is possible to reconstruct his private investments over several years. In 1738/39,
Charles Irvine assembled a private cargo in China consisting of 273 chests and 48 tubs of
different sorts of fine teas, 1424 pieces of Indian cotton textiles, 223 pieces of Chinese
wrought silks and 70 bales of raw silk.8 A long list of ‘speciality goods’ (including drugs and
customized souvenirs) complemented his investment. Even if we consider the unlikely case
that Irvine has bought up the entire ‘privilege’ cargo space of his colleagues to transport his
goods to Europe, he would still have exceeded the space that was allocated to the entire crew
according to the Company instructions. One might reasonably ask, then, why did the
Company not dismiss Charles Irvine, but instead sent him to Canton for two more voyages,
which were, as Irvine put it himself, ‘more for my Interest then for their Service’?9
In order to explain this incident, we must consider the possibility that Irvine’s private
trade was thought to be beneficial to Company concerns, rather than ‘malfeasant’ – as is
usually assumed.10 There are a few important points to be made here that help to put into
perspective Irvine’s seemingly rude infringement of private trade restrictions. On a purely
economic level, exceeding one’s private trade yielded considerable income for the Company.
The SEIC settled a ‘fine’ of 1000 silver dollars for every excess last (the equivalent to 2,448
kg) of privilege trade.11 Thus, instead of preventing the growth of private trade, the SEIC
simply charged those employees who had the capital to invest in additional goods.12 On top of
the freight-free cargo, China traders were usually permitted to import more goods if there was
India Company in China, Vol. V. Christian Koninckx made estimates in The First and Second Charters of the
Swedish East India Company (1733-1766) (Kortrijk, 1980), esp. p. 267.
4
H.V. Bowen’s work for the second half of the eighteenth century is an important exception; idem, ‘Privilege
and Profit: Commanders of East Indiamen as Private Traders, Entrepreneurs and Smugglers, 1760-1813’,
International Journal of Maritime History, XIX, No. 2 (2007), esp. 59-62.
5
See, letter books and account books, legal documents and unclassified papers, Charles Irvine Papers, James
Ford Bell Library [hereafter: FBL], University of Minnesota.
6
On Irvine’s connection to Jacobite circles, Douglas Catterall, ‘At Home Abroad: Ethnicity and Enclave in the
World of Scots Traders in Northern Europe, c. 1600-1800’, JEMH 8:3-4, p. 319-57.
7
‘Instructions etc. for the voyage of ship Three Crowns, 1736-37’, letter books and account books, 1736-48,
Irvine Papers, FBL.
8
Calculated from ‘Invoice of Goods for my own Acc[oun]t’, Canton, 14 January 1739, Shipping Documents,
1733-1738, Irvine Papers.
9
Charles Irvine (Canton) to Samuel Greenhough (Madras) 31 January 1746, letter book, 1746-47.
10
Emily Erikson and Peter Bearman, ‘Malfeasance and the Foundations for Global Trade: The Structure of
English Trade in the East Indies, 1601-1833’, American Journal of Sociology, 112:1 (2006), pp. 195-230.
11
Koninckx, The First and Second Charter, pp. 155-56.
12
Instruction nr. 15, in ‘Instructions (… ) Three Crowns, 1736-37’, Irvine Papers.
space left in the hold or their own cabin.13 The payment of ‘indulgence’ fees for excess goods
was worth the investment for many private traders and must be regarded as a matter of astute
calculation rather than moral decay.14 The Company also derived income from every private
trade good that passed its public sales because warehouse fees, handling charges and
commission had to be paid by the importer. In short, the Company profited directly from the
trading activities of its servants through the introduction of duties and charges.
In addition, Charles Irvine’s private trade (whose case is exemplary) was important to
the commercial success of the SEIC in a number of other, perhaps more subtle ways. Instead
of thinking of private and Company trade as two antagonistic systems, there is strong
evidence to believe that private trade actually contributed a great deal to the competitiveness
of the Swedish East India Company. This concerned especially the need to attract foreign
buyers, on whose purchasing power the Swedish venture essentially depended, since their
home market was too weak to generate a seller’s market. A network perspective is key for
understanding the individual contributions of supercargoes, commanders and officers to the
success of the SEIC, especially during the critical phase of its first charter (1731-1746). After
all, this was a period in which the Company was steered predominantly by foreign manpower,
capital and expertise. 15 The multi-national composition of its staff did not only secure
valuable overseas experience, but also widespread contacts to buyers and foreign markets.
The reason was that the majority of the leading personnel of the SEIC had made previous
experiences in the East India trade as servants of the EIC, the VOC or, most significantly, the
Ostend Company.
Charles Irvine continued to rely on his connections to ‘old Ostenders’, such as his
long-standing agents in the Low Countries (including George Clifford, Urbano Arnold, and
Thomas Wilkieson), once he had joint the SEIC. At Company sales in Göteborg, Irvine
bought tea and textiles on their behalf, but he also used them as agents to dispose of his own
goods on the continent.16 The leading merchant houses that had dominated the public sales of
the Ostend Company still featured in the correspondence of these British China traders even
when the latter had moved on to Göteborg, Copenhagen or London to seek new
opportunities. 17 The personal networks of private traders to petty smugglers and major
wholesale dealers in Britain, Spain, Northern Germany, France and the Netherlands were
crucial to the Swedish venture as a whole, as these networks generated a strong base of
customers, whose individual needs were known and attended to by individual employees.
There are a number of other ways in which private trade contributed to the mercantile
success of the SEIC (as indirect beneficiary). Curatorial research on Chinese porcelain,
wrought silks and other export wares revealed that private traders bought more expensive
pieces, ready-made objects and novelties of all sorts in comparison with Company imports.18
There are many goods that were imported exclusively through private trade channels, such as
Chinese paper, soy sauce, rosewood furniture, mirror paintings, armorial porcelain and the
most expensive types of black and green tea. Private trade imports thus greatly diversified the
range of goods and qualities sold at Company auctions. The impressive trading portfolio of
Charles Irvine clearly supports this assumption for the Swedish case. China traders (of all
13
The total volume of private trade on board the Three Crowns (as noted by Irvine as chief supercargo)
comprised of at least 836 boxes and chests, 139 bundles and tubs as well as a number of Jars and bulky items.
‘Copy of letters Ship Three Crowns 1736 a 1737’, letter books and account books, 1736-48, Irvine Papers.
14
Pritchard, ‘Private Trade between England and China’, p.118.
15
Koninckx, The First and Second Charter, pp. 335-341; Leos Müller, ‘Scottish and Irish Entrepreneurs in
Eighteenth-Century Sweden’, in David Dickson et al. (eds), Irish and Scottish Mercantile Networks in Europe
and Overseas (Gent, 2007) pp. 147-174; Andrew MacKillop, ‘Accessing Empire: Scotland, Europe, Britain, and
the Asia Trade, 1695-c.1750’, Itinerario, 29:3 (2005), pp. 7-30.
16
Irvine (Göteborg) to Urbano Arnold (Rotterdam), undated, letterbook and account books 1742-43, Irvine
Papers.
17
Conrad Gill, Merchant and Mariners of the 18th Century (London, 1961).
18
For a fine overview concerning the main export arts in Canton see Margaret Jourdain and R. Soame Jenyns,
Chinese export art in the eighteenth century (London, 1950).
European East India Companies) did not normally specialise in any particular good, but
traded in everything from golden snuffboxes and hand-painted wallpaper to rhubarb and
gunpowder. By contrast, the SEIC and most other Companies focused on a much narrower
range of imports and qualities, a trend that became even more pronounced in the second half
of the eighteenth century.19 It was no secret to informed contemporaries that private traders in
the EIC also dealt in a stunning variety of Chinese export wares ‘by which the company either
cannot gain at all by, or are not so gainful as others they prefer to engage in.’20 In other words,
private and Company trade effectively complemented each other to supply all strata of society
and target dispersed markets across Europe with goods matching local demands.
Next to the argument of variety, there is also some consensus among curators and
historians that private trade was the more dynamic, experimental and market-specific trade.21
This is not to say, however, that the SEIC or any other chartered Company was blind to the
wheel of fashion.22 Yet, the Companies often picked up ideas only after they were ‘tested’ in
private trade and promised safe returns. This is true for the introduction of high quality teas
into European markets such as Souchon and Hysan, but also for many other items of trade
including fans, lacquered furniture, painted Canton enamels and rhubarb. The commission
trade that linked individual commanders or supercargoes to specific clients (who could be
collectors, wholesalers, or shopkeepers) was a rich source for innovation and enabled the
exchange of patterns, models, and instructions that created a continuum of novelties to travel
from Canton to Europe and vice versa.
Conclusions
As this paper has shown, it is important to acknowledge the vital role that private enterprise
played for the competitiveness of the Companies in the European marketplace. Firstly, private
trade was a key innovative force. Individual ‘agents’ diversified the market for Chinese export
wares in Europe and experimented a great deal to secure novel goods and styles, which the
Company often took over only after some time. Secondly, the Companies derived income
from every private trade item that was sold at their auctions. On top of the ad valorem duties,
private traders paid warehouse fees, extra charges of exceeding the value and tonnage, and so
on. This meant that private trade was a large and reliable source of income for the Companies.
Thirdly, Company servants were among the largest buyers at Company auctions in the first
half of the eighteenth century. They operated as agents for wholesalers, shopkeepers and
individual consumers, but they also bought goods on their own account. The involvement of
China traders in the profitable re-export and wholesale trade in Europe strengthened their
influence in Company circles. Thus, private traders were not only employees, but also vital
clients for the Company.
Lastly, much of the Company literature that focuses on the principal-agent problem
assumes a clear-cut line between the Company as ‘principal’ in metropolitan Europe and their
‘agents’ abroad. In reality, however, this line was very blurry indeed. Many of the managing
directors of the Company were heavily involved in private trade. The close cooperation
between Company directors and individual traders in the purchase of private cargoes has only
started to be uncovered but promises to yield fascinating results. Such personal networks had
an important impact on the ways in which private trade was conducted, tolerated and, indeed,
nurtured. Supercargoes and commanders were agents for the Company, but they also acted on
behalf of multiple other principals (including individual directors, wholesalers, investors, and
individual consumers). When considering these double roles of each and every individual
19
The English East India Company stopped trading in Chinese porcelain and silks altogether by the end of the
eighteenth century; Anthony Farrington, Trading Places: the East India Company and Asia, 1600-1834
(London, 2002), p. 87.
20
Malachy Postlethwayt, The Universal Dictionary of Trade and Commerce (…), 2nd edition, vol. 1 (London,
1757), p. 683.
21
For a good and concise discussion, David S. Howard, The Choice of the Private Trader, pp. 18-34.
22
IOR/G/12/33, p. 37. ‘Diary and Consultation Book of George Arbuthnot (…) anno 1732.’
within the firm, it is key to identify the synergies that arose from their business activities and
information networks for the Companies’ commercial success, instead of focusing on
conflicts alone.