Did profitable slave trading enable the expansion of empire?: The Asiento de Negros , the South Sea Company and the fina
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Did profitable slave trading enable the expansion of empire?: The Asiento de Negros, the South Sea Company and the financial revolution in Great Britain Gregory Price1 · Warren Whatley2 Received: 18 May 2020 / Accepted: 30 October 2020 © Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract In 1711, British Parliament chartered the South Sea Company, a public–private corporation chartered to reduce the cost of government borrowing by swapping illiquid short-term government debt for tradeable shares of the South Sea Co. To attract subscribers, the government also awarded the South Sea Co. an international monopoly in the trade of African slaves to Spanish America—the Asiento de Negros. This paper considers the extent to which Asiento-related slave trading was profitable for South Sea Co. shareholders and beneficial to the British financial revolution between 1713 and 1743. First, we use historical financial data to estimate the parameters of a capital asset pricing model of excess returns for South Sea Co. shareholders. We find that the Asiento contract increased risk-adjusted excess returns on South Sea Co. stock between 18 and 24% per year. Second, we estimate profit margins in the South Sea Co. Asiento slave trade. These show a stark positive correlation with company share prices before and after the South Sea Bubble of 1720. Adding slave ship departures to the CAPM specifications confirms the direct contribution of slave trading to shareholder returns. We also find that the Asiento and Asiento-related slave trading increased central government fiscal surplus by 16%. This suggests that profitable slave trading by the South Sea Co. under the Asiento enhanced Great Britian’s fiscal capacity, which could be utilized to enhance a military capacity necessary for securing an empire. Keywords Slave trade · Britain · Public finance · South Sea Company · Financial revolution JEL Classification G12 · G14 · G23 · H62 · N23 · N43 · N73
* Gregory Price [email protected] 1
University of New Orleans, New Orleans, USA
2
University of Michigan, Ann Arbor, MI, USA
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1 Introduction What was the relationship between African slavery and the rise of western capitalism? Williams (1944) began his classic study Capitalism and Slavery with the following preface: “The present study is an attempt to place in historical perspective the relationship between early capitalism as exemplified by Great Britain, and the Negro slave trade, Negro slavery and the general colonial trade of the 17th and 18th centuries (page ix).” For Williams, as for Karl Marx, slavery and slave trading were sources of the primary accumulation of the capital that would finance the material triumph of what Joel Mokyr (2017) calls the Western culture of growth. Williams focused on the contribution of slave-based profits to financing the British Industrial Revolution of the early nineteenth century. Since then the debate has expanded to include William’s broader vision, including the contributions of slav
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