Merchant capital

Karl Marx was very interested in capital — an abstract concept referring to society’s wealth. And he was interested in the persons who owned and controlled capital — the capitalists. But the primary focus of his lifelong analysis was upon one particular species of capital, what he referred to as “industrial capital.” This is the form of wealth involved in the production process — factories, mines, railroads.  He had less to say about the aspect of capital that designated the exchange process — what he referred to as “merchant capital” and finance capital. This selective focus reflected one of Marx’s main historical opinions — the idea that history moves forward through the development of the “productive forces,” and that industrial capitalists (as well as the industrial proletariat) are the agents of this kind of economic change. Here is a brief description from Capital of the role of merchant’s capital in his analysis.

The reason is now therefore plain why, in analysing the standard form of capital, the form under which it determines the economic organisation of modern society, we entirely left out of consideration its most popular, and, so to say, antediluvian forms, merchants’ capital and money-lenders’ capital. The circuit M-C-M, buying in order to sell dearer, is seen most clearly in genuine merchants’ capital. But the movement takes place entirely within the sphere of circulation. Since, however, it is impossible, by circulation alone, to account for the conversion of money into capital, for the formation of surplus-value, it would appear, that merchants’ capital is an impossibility, so long as equivalents are exchanged; that, therefore, it can only have its origin in the two-fold advantage gained, over both the selling and the buying producers, by the merchant who parasitically shoves himself in between them. It is in this sense that Franklin says, “war is robbery, commerce is generally cheating.” If the transformation of merchants’ money into capital is to be explained otherwise than by the producers being simply cheated, a long series of intermediate steps would be necessary, which, at present, when the simple circulation of commodities forms our only assumption, are entirely wanting. (Capital I, Chapter 5)

According to the labor theory of value, only the expenditure of living labor into the production process of a commodity can create new value; so only industrial capital includes a process that creates new wealth. Merchant capital plays no role in the production process, and it is therefore historically unimportant — or so is Marx’s view in Capital.

If we now look back on European history from the sixteenth century to the twentieth century, this assessment seems badly wrong as an historical observation. Merchants and their companies played key roles in the establishment of a world trading system; they actively facilitated the race for colonies by the European powers; and often they played a quasi-military role in suppressing resistance by locals in distant parts of the world. So “merchant capital” and companies established for the purpose of international trade seem to have played a key role in the creation of the modern world system.

Robert Brenner undertook to provide a detailed historical account of the role of merchants and their organizations in the sixteenth and seventeenth centuries in Merchants and Revolution: Commercial Change, Political Conflict, and London’s Overseas Traders, 1550-1653 (1993). This is a departure from Brenner’s important contributions to the agrarian changes associated with England’s agricultural revolution in the sixteenth century (link), and it is also a much more detailed historical study than his previous works. Brenner is interested primarily in two topics: first, how did commerce evolve in the sixteenth century in England, both nationally and internationally; what were the institutions, organizations, and individuals that emerged as vehicles for pursuing individual and corporate interests by large merchants? And second, how did the emergence of large merchant fortunes and companies interact with the politics of the English state during this early modern period?

To offer a historical analysis of commerce, it is necessary to have extensive commercial data. Appropriately, Brenner’s research depends heavily on good information about imports and exports throughout the period. Here is his compilation of London cloth exports 1488-1614:

So aggregation of voluminous historical economic data represents one important portion of Brenner’s historical research here. The other important part, however, is at the other end of the scale — detailed information about many of the individuals who played leadership roles in the commercial and political developments of the period.

Fundamentally the book is about the political power of the merchant class. Brenner makes the point that English commercial interests were deeply dependent upon English political and military strength in the competition for import and export markets.

English merchants found it feasible to establish the new trades in large part because of the weakening hold of Portugal and Spain over their commercial empires, as well as certain other favorable political shifts in the new areas of commercial penetration. Even so, they could successfully capitalize on the openings presented to them only because of the growing political, as well as economic, strength of English commerce and shipping in this period. (5)

The development of England’s colonies was particularly important for English merchants:

During the first quarter of the seventeenth century, English traders, for the first time, sought systematically to establish commerce with the Americas. Important City merchants had opened up the new trades with Russia, Turkey, Venice, the Levant, and the East Indies that highlighted the Elizabethan expansion, and in each case, had had recourse to their favorite commercial instrument, the Crown-chartered monopoly company. (92)

This meant, in turn, that great merchants had great political interests, both in terms of military policies of the Crown and in terms of the privileges and monopolies upon which their profits depended.  And much of Brenner’s narrative is a careful parsing-out of the deliberate and purposive political alignments sought out by the great merchants and their companies.

The Levant Company’s privileges were indispensable for its elaborate system of trade regulation and, in turn, for the reservation of the profits of the trade to a restricted circle of merchants. As members of a regulated company, the individual Levant Company merchants traded for themselves with their own capital, but were required to adhere to rules and policies set by the corporation’s general court. (66)

Political alignments were especially important during the century of conflict leading to civil war and revolution.

The political activities and alignments of London’s merchant community both expressed and helped determine the character of City and national conflict in the period leading up to the outbreak of the Civil War. From November 1640, London politics and national politics became ever more inextricably intertwined, and ovesears merchants played key roles at both levels…. Civil war became inevitable when City and parliamentary conflicts became fully merged through the consolidation of alliances between the City radical movement and the opposition in Parliament, on the one hand, and the City conservative movement and the Crown, on the other. (316)

An overwhelming majority of company merchants ultimately fell into one of these two allied political categories [of royalist supporters]. But it is difficult to be sure how they were distributed between them … because surviving evidence on the political orientation of large numbers of citizens is available only for the period beginning in July 1641. (317)

But on the other side:

The traders of the colonial-interloping leadership stood at the head of the City popular movement and played a critical role in connecting that movement to the national parliamentary opposition.  The new merchants’ continuing intimate ties with London’s domestic trading community (from which many of them had come) put them closely in touch with a City parliamentary movement that was overwhelmingly composed of nonmerchants. Meanwhile, their activities in the colonial field gave them pivotal links with those Puritan colonizing aristocrats who constituted a key component of the national parliamentary leadership. (317)

If we wanted a single phrase to summarize Brenner’s task in this work, it is the idea that much of England’s politics in the early modern period were influenced or determined by the demands of the commercial sector. The great merchants wielded great political power. And so we need to have a fine-grained understanding of these companies and their networks if we are to understand the coalitions and policies of the period. Contrary to the view put forward by Marx above, merchant capital and its associated actors and organizations were indeed a potent historical factor in modern history.

A recent book by Stephen Bown, Merchant Kings: When Companies Ruled the World, 1600–1900, picks up the story of merchant capital from a different angle and with a very different level of resolution. Bown is particularly interested in demonstrating the active (and often violent) role that large merchant companies played in the development of the world trading system and the colonial relationships that emerged from the seventeenth century forward. Bown’s central focus is on the individuals and the companies that created the colonial world: Jan Pieterszoon Coen and the Dutch East India Company, Pieter Stuyvesant and the Dutch West India Company, Sir Robert Clive and the English East India Company, Aleksandr Baranov and the Russian American Company, Sir George Simpson and the Hudson’s Bay Company, and Cecil John Rhodes and the British South Africa Company.

Bown opens his book with the story of the Dutch efforts in the early seventeenth century to push English and Portuguese traders out of the East Indies (Indonesia).  The central actor of this story is an employee of the Dutch East India Company and an experienced naval admiral, Pieter Verhoeven. The narrative of Verhoeven’s assault on the Moluccas is a good place for Bown to begin, because it brings together the themes of armed violence and commercial interest that are the core of his book. Verhoeven’s instructions from the board of directors of the Dutch East India Company were explicit:

We draw your special attention to the islands in which grow the cloves and nutmeg, and we instruct you to srive after winning them for the company either by treaty or by force. (10-11)

Bown draws out a story of global competition between nations and trading companies that illustrates the brutality and self-interestedness of colonialism throughout the three-century period he traces. And the chief victims of this violence are non-European peoples from Indonesia to Alaska to South Africa. What the book doesn’t provide is what is so evident in Brenner’s book — a detailed understanding of the political and organizational relationships that underlay these military and commercial adventures.

Both books have something to add to our own efforts to understand big business in the twenty-first century. On the evidence offered here, business organizations — corporations and companies — have their own interests and agendas, and states have a great deal of difficulty in constraining them to the public good. This is obvious in the failures of large financial institutions to safeguard the interests of the public in 2008 — the harmful conduct of finance capital, but it was equally evident in the behavior of the Dutch East India Company or Brenner’s opening example, the Company of Merchant Adventurers. The hidden hand does not assure us that markets, commerce, and private interest will bring about the common good.


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