Abstract

"The Legal and Political Foundations of Permanent Capital for the English East India Company and the Bank of England"

Zane Jennings, University of Oxford (z.jennings@lse.ac.uk)

Permanent capital is a defining feature of the modern business corporation, and its historical foundations matter for how we understand the ‘constitutive role of law’ in capitalist institutions (Deakin et al., 2017). Hansmann, Kraakman, and Squire (2006) propose that ‘special legal rules’ are required for ‘strong entity shielding’, a necessary condition for permanent capital. This paper tests that proposition by examining the legal foundations of permanent capital in the English East India Company (EIC) and the Bank of England (BoE).

Historians have long asserted the EIC acquired its permanent capital by Oliver Cromwell’s 1657 charter (Hunter, 1898; Stern, 2011; Dari-Mattiacci et al., 2017). No copy of Cromwell’s charter exists, and none has for some time. EIC meeting minutes offer contrary evidence. Cromwell’s charter likely granted perpetual corporate succession, as did James I’s in 1609. But a withdrawal clause in the preamble to the 1657 New General Stock indicates the charter did not make the capital permanent.

Instead, permanence emerged through contract and through the EIC’s political-economic position. The minutes suggest that in March 1665 the share capital was locked in by contract within the Company’s corporate governance, meeting a necessary condition for permanent capital and strong entity shielding (Blair, 2003; Squire, 2021). The de facto transition to permanent capital was then completed in 1698, when the EIC lent its entire share capital to the Crown, a loan legally redeemable in theory but not in practice.

For external validity, the paper considers the permanence of the BoE’s capital. It examines the Bank of England Act of 1694 and an abstract of the 1694 charter, finding a similar pattern.

Law shaped but did not design for permanent capital for the EIC and BoE. In both cases, what ultimately made the capital permanent was fiscal-political entanglement, not statutory innovation.