Introduction: Monopolistic Companies, Agency Problems, and the Configuration of the Colonial Market

The Pombaline companies were established to stimulate trade between Brazil and Portugal, blending into a pre-existing market structure that had been developing since the sixteenth and seventeenth centuries.Footnote ¹ Consequently, they would need to deal not only with the overseas trade dominated by established merchant groups, but also with the groups residing in the colonies. The article focuses exclusively on how Pombaline companies engaged with residents of Brazilian marketplaces and the challenges faced by company colonial managers regarding the economic structures established by growers and merchants in Maranhão and Pernambuco. This analysis brings to the forefront the interaction between the theoretical model of the principal-agent problem and a specific historical context. In essence, it examines the conflicts between the monopolistic policies of the Pombaline companies and the internal commercial structures of the regions under monopoly. In doing so, it offers new insights that help problematize the difficulties of enforcing monopoly regimes in the early modern period, a historical era marked by the widespread use of such economic arrangements.Footnote ² The literature on the subject of the Pombaline companies highlights agency problems as a crucial factor for the challenges faced by these companies, emphasizing managers who frequently disobeyed orders from their principals. While these assumptions are acknowledged, the article further underscores the impact of internal trade and the role of colonists who used the companies’ credits to boost their own businesses, thereby compromising the duties of the companies’ agents in the colony. Thus, the central issue of this article is the interaction between the prerogatives of the monopoly and the structure of the colonial internal market.Footnote ³

Before the General Company of Grão-Pará and Maranhão (GCGPM, 1755–77), Maranhão did not have a strong export commodity, but the company encouraged the cultivation of cotton, which stood out in the following decades. Pernambuco was a major sugar producer, competing with Bahia, Rio de Janeiro, and West Indian growers. The General Company of Pernambuco and Paraíba (GCPP, 1760–80) focused on maintaining and expanding sugar production and only later encouraged cotton. Thus, Maranhão cotton and Pernambuco sugar are the main commodities of the article. The Pombaline companies were successful in financing the productive expansion of these and other commodities. However, according to Novais’s groundbreaking book,Footnote ⁴ the colonists did not benefit from this expansion precisely because the companies were a way of transferring income from the colony to the metropolis. The monopoly of the trading companies was “only a more rigid degree within the metropolitan exclusive,” and the constant indebtedness of the colonials is one of the main arguments to prove that the colonists did not benefit from the companies. This generated objections, and Novais pointed to a “resistance” of the colonials in the face of metropolitan interests.Footnote ⁵

Nonetheless, Novais’s interpretative framework made it difficult to fully understand the extent to which colonial merchants possessed power and autonomy within the commercial interactions between the metropolis and the colony, as well as how these relationships could encompass more than mere resistance and conflicts among merchant groups in the Atlantic. The next wave of historians, especially after Fragoso’s early work, placed colonial merchants as central to the history of colonial Brazil and the Portuguese Empire, arguing, in general terms, that they had the capacity to accumulate vast wealth and conduct business independently of merchants established in Portugal, especially when it comes to the Brazilian domestic market and the slave trade with African ports.Footnote ⁶ These arguments, in our view, have led to two interpretations. Some historians highlighted the connections between Portugal and overseas territories as being permeated by cooperation (and not hierarchy or disputes) between merchants in the different regions of the Portuguese Empire.Footnote ⁷ But some were more radical, contending that individuals settled in the colonies held greater importance than those in the metropolis.Footnote ⁸ Notwithstanding the diversity of the discussion, the most recent literature on the subject tends to highlight colonial resistance (whether from the Pombaline companies’ agents or other colonial residents) as a significant element that shaped the companies’ history and contributed to the monopolies’ non-renewal.Footnote ⁹ In any case, it is challenging to locate a persuasive explanation within this literature for the lack of cooperation among the colonials. Attempting to answer this question is one of the article’s primary goals.

The next section outlines more clearly the specificities of the Pombaline companies while refining the research question and emphasising the agency problems inherent to monopolistic companies operating within the distinctive conditions of Brazil’s colonial markets. The third section examines the GCGPM, and the fourth analyses the GCPP, focusing on their operations in Brazil, the functioning of regional trade, and the opportunistic behaviour of agents who disobeyed orders from Lisbon. The fifth section introduces additional factors that help explain the mismatch between monopoly regimes and the realities of colonial Brazil. Overall, the article seeks to present arguments and support the claim that the literature has overemphasized the dichotomy of “opportunistic agents vs. ill-informed principals,” ignoring how the very configuration of the colonial market – its credit structure, the presence of intermediaries, and productive-mercantile segmentation – shaped incentives, limited enforcement, and ultimately made monopoly structurally unviable.

The Specific Characteristics of the Pombaline Companies

If we broaden the discussion a little further and temporarily set aside the debates between metropolis and colony in the Portuguese Empire, we can glimpse, for example, how a supposed “resistance” of company agents would echo in the famous managerial relations explored by Carlos and Nicholas.Footnote ¹⁰ According to them, some European monopoly companies in the early modern period were successful because they employed the managerial hierarchy organizational model. In companies with a high flow of goods and information, these transactions would be cheaper if framed in this type of organization, where managers, equipped with information from their agents, would make the best decisions for the company’s good functioning.Footnote ¹¹ Yet in a scenario where agents did not cooperate with managers, as in the case of the Pombaline companies, Carlos and Nicholas’s hierarchical model begins to require more nuance. Jones and Ville made this point, using other European companies as case studies. For them, there is no proof that the managerial hierarchy organizational model was the best. In fact, it even resulted in “significant transaction cost disabilities.” What led economic actors to opt for the managerial hierarchy was the possibility of extracting maximum returns from direct exploitation, they concluded.Footnote ¹²

The debate can be further deepened by underscoring the need to consider the local particularities of each company, demonstrating that agency problems cannot be applied in a quick or overly simplified manner. Given their size and considering the commercial volumes transacted, it was understandable that the Pombaline companies employed several agents overseas and that relations between them and the principals were sometimes troubled, similar to what occurred with other European companies. Still, the detrimental characteristic of agency relationships cannot be taken at face value. The findings by Emily Erikson on the English East India Company in Asia during the seventeenth and eighteenth centuries show how agents engaged in private trade, favouring private merchant networks and reducing information asymmetry, which benefited the monopolistic company. The private trade conducted by the company’s agents for their own personal gain consisted of them buying goods at one Asian port and selling them at another. This gave them access to valuable information. Erikson argued that the East India Company’s growth resulted, in part, from the network created by this private trade conducted by the agents.Footnote ¹³ From another angle, Matthew Norton has pointed to the dual role of principal and agent in the Royal African Company, arguing that the company’s principals – attempting to supervise the agents in West Africa – at the same time performed as agents in England, where they had to answer to the Crown and the political establishment. According to Norton, the reasons for the Royal African Company’s failure lay in the orders given by the sovereign that led to the company’s “multiple inefficiencies.”Footnote ¹⁴

Still, in these cases, the opportunism of the agents occurred in regions without territorial monopoly, focusing only on ocean routes and not directly financing productive sectors or the slave trade, like the East India Company. And they involved a considerable degree of sovereign interference in company policies, as in the case of the Royal African Company. The Pombaline companies were distinguished by encompassing various economic sectors, and, despite managing much less capital, they had greater ambitions and scope than other monopolistic enterprises. For instance, whereas the capital of the East India Company amounted to £68,373 at the beginning of the seventeenth century, and the Royal African Company was founded with £111,100 in 1671,Footnote ¹⁵ the initial capital of the GCGPM totalled £6,509 in 1755, and that of the GCPP £18,584 in 1759.Footnote ¹⁶ Qualitatively, the Pombaline companies differed from other monopolistic enterprises by functioning in colonies that were already well established, thus dispensing with investments in forts and protection against natives and foreigners. They operated in navigation routes almost exclusive to the Portuguese, with a very limited participation of foreign merchants, and prohibited direct trade without the mediation of the companies. Unlike the Portuguese India Company and the General Company of Commerce of Brazil, which had limited monopolies, the Pombaline companies controlled all goods, including the slave trade, in the monopoly areas. They also differed in their involvement in agricultural production, unlike the Portuguese, Dutch, and English companies of the seventeenth and eighteenth centuries, which were, most of the time, limited to trade and shipping.Footnote ¹⁷

However, the Pombaline companies had a noteworthy particularity that significantly curtailed their effective control over Brazil. These companies allowed residents in the colony to ship products on their own account and at their own risk. The loophole in the companies’ charters that permitted this practice, however, was not entirely clear. In the charter of the GCGPM, it was stipulated that exchanges between Portugal and Maranhão had to be “fair.” When goods imported from Portugal were traded for products from Maranhão – whose prices were often uncertain – the value was to be determined by mutual agreement: producers in Maranhão were not permitted to demand excessively high prices, nor was the company allowed to pay so little as to discourage local agriculture. Yet – and this is the point that most concerns us – if no agreement was reached in Maranhão, producers had alternatives. They could send their goods to Portugal independently, through any intermediary they chose, including the GCGPM itself. In such cases, the company was obliged to transport these products: (1) charging only the standard freight rate, (2) ensuring proper handling and storage, and (3) selling them in Lisbon at prices no lower than those applied to its own goods. The same applied to the GCPP. Closely related to this loophole was the companies’ concern not to harm colonial merchants. To avoid undermining retailers, the companies were prohibited from selling in small lots; they could sell only in large quantities. This rule aimed to prevent the companies from engaging in unfair competition that might ruin smaller traders.Footnote ¹⁸ Intermediaries who operated between the companies and rural producers in Maranhão and Pernambuco is an element that is crucial for understanding the difficulties the companies faced in Brazil. These two features – the possibility for colonists to export independently of the companies and the protection of local merchants – together with additional clauses that limited profit margins, constituted mechanisms that, according to Madureira, “shielded resident colonists against the temptations of a totalitarian economy.”Footnote ¹⁹ To a large extent, these rules explained why the agents of the Pombaline companies in Brazil acquired so much power. The colonial branches were administered by local merchants, either born in Maranhão and Pernambuco or long established there, among whom members of the sugar elite, cotton producers, and small interconnected commercial groups predominated. In practice, the companies’ agents in the colonies continued to operate as local merchants, closely tied to local interests – something that included favouring relatives and specific groups in the colony, as Dias pointed out in the case of the GCPP.Footnote ²⁰

All the above had an impact on the interaction between monopolist policies and the colonial internal market. The economic configurations of Maranhão and Pernambuco were distinct, which influenced the interaction of the companies with the colonial populations. Both regions faced a shortage of slave labour. The GCGPM aimed to develop the Amazon, historically lacking in slaves, and economically regulate the region without the interference of other merchants. The Amazon region had a tenuous separation between productive and commercial sectors, with farmers also working as merchants.Footnote ²¹ In Pernambuco and Paraíba, the GCPP was created to address the shortage of enslaved Africans and support a debt-ridden sugar sector. Unlike Maranhão, there was a clear distinction between producers (sugar cane growers and sugar mill owners) and merchants, with the former traditionally indebted to the latter. The GCGPM promoted cotton cultivation and intensified the slave trade, while the GCPP retained the captives in the territory, ensuring more enslaved people for sugar production. The dependence of producers on the credits from colonial merchants in Pernambuco, which implies a separation between the two groups, and the strong integration between the production and mercantile sectors in Maranhão is what we call, for lack of a better term, the configurations (or structure) of the colonial market that existed prior to the establishment of the companies and remained during their monopolies.Footnote ²² It is important to incorporate into this market structure the colonial exclusive and Brazil’s substantial reliance on enslaved African labour. By the latter half of the eighteenth century, the colonial population had significantly increased and was simultaneously evolving more intricate forms of economic interaction. The internal market and merchant groups in major Brazilian marketplaces were key, serving as a crucial driver for both internal and external exchanges. The colonial populations in Portuguese America were able at handling business and developed a distinctive commercial rationale while concurrently utilizing credits from individuals in Portugal and other regions of the empire.Footnote ²³ Drawn by these debates, we argue that agency problems not only stemmed from the opportunistic behaviours of colonial agents but were also intrinsically linked to the structures of the colonial internal market. In the same line of argument, notwithstanding agency problems and colonial debt, the companies persisted in making profits, and their shares remained in demand in Lisbon. This may suggest that the absence of collaboration on the part of the agents was perhaps not especially relevant to the companies’ operations.

The remainder of the article will aim to address these points based largely on the correspondence that the principals in Lisbon exchanged with the agents in Brazil; nevertheless, it is necessary to make some important reservations before we begin our examination of the Pombaline companies. If we take the theory literally, the correct approach would be to consider shareholders as principals and managers as agents. In this article, we will treat the managers elected in Lisbon by the shareholders of the company as principals, while the employees abroad will be considered agents. Two reasons support our choices. First, the existing literature acknowledges the presence of many principals and multiple agents.Footnote ²⁴ Second, apparently, the power of shareholders to manage Pombaline companies was very limited, and this point deserves additional comments. The most recent study on these companies shows that only the richest shareholders controlled the companies. The shareholders elected the principal governing entities, the boards (juntas), but the shareholders held infrequent elections to choose these entities. The first elections for the GCGPM occurred in 1760, followed by the next round of elections in 1768. The GCPP followed the same pattern, holding only two elections: the first in 1768 and the second in 1776. Participation in the governing entities’ election was contingent upon the quantity of shares held. Shareholders were required to possess a minimum of 5,000 cruzados (five shares) to vote. Yet, those with fewer shares could establish partnerships to meet the requisite threshold for one vote. Involvement in the administration created an additional differentiation among the group of proprietors: only those with shares worth at least 10,000 cruzados (ten shares) were eligible. At the end, the amount of capital, Portuguese nationality, Lisbon residence, and merchant status determined eligibility to control these huge companies. As a result, the power to vote was denied to over 60 per cent of the shareholders in both companies in 1777.Footnote ²⁵ And, overall, Marcos considers shareholder involvement in the administration of Pombaline companies, similarly to other European enterprises, as non-existent.Footnote ²⁶ On the other hand, according to Madureira, the shareholders received substantial profits from the companies, and their most prominent members figured among the protagonists of Portugal’s economic-social elite, very close to the king and to Pombal.Footnote ²⁷ Although these companies were closely associated with the Portuguese Crown, particularly the Marquis of Pombal, there is no evidence that they were used to compromise their commercial interests. The objectives of these monopolies, according to Pedreira, were to favour Portuguese merchants, even though they were still under the umbrella of the Portuguese state authorities.Footnote ²⁸

The GCGPM Operating Plan, Illicit Practices and the Opportunism of the Administration in Maranhão

During the GCGPM’s monopoly period (1755–77), raw cotton was the main export commodity (rice was the second), with the captaincy of Maranhão leading production. The output of cotton and the slave trade grew in parallel, coordinated by the company. All the decisions came from the Board (Junta) in Lisbon, which distributed credits, enslaved people, and goods, while the agents in the colony – the Administration, as it was called – managed assets, enslaved human beings, and collected debts.Footnote ²⁹ The cultivation and trade of cotton in Maranhão entailed planters purchasing enslaved people and commodities on credit. The GCGPM sold goods and enslaved people in the hopes of recovering the credits from future cotton crops. The harvests could be marketed through three methods. The cotton owners could dispatch their cotton to a commissioned agent in Portugal, paying freight to the company. The cotton owners could use the GCGPM as an agent, paying commissions and freight to the monopoly company, but they assumed the risks of transporting the cotton across the Atlantic and of sales in Lisbon. Or they could sell directly to the GCGPM administrators in São Luís, avoiding the risks of transatlantic transport and sales in Lisbon. In 1760, to prevent losing commissions, the Board prohibited the colonists from sending cotton through the first method, forcing them to either consign it to the Board or sell it to the Administration. Thus, the company did not hold a complete monopoly on exports from Maranhão, but for much of the monopoly’s duration, it was the main exporter. Regardless of the method of sale, the planters were expected to pay their debts with their own crops.Footnote ³⁰ However, the internal mercantile organization and the strategies of the residents of Maranhão presented several obstacles to the company’s plans.

The hope that growers in Maranhão would settle their debts by using their cotton and rice was unsuccessful. In 1760, a concern emerged among the principals in Lisbon regarding the explicitly forbidden activities of growers who sold cotton and rice not cultivated on their own lands. This strategy indicated that indebted growers were not supplying their crops in order to pay their debts; rather, they were offering the crops to third parties, which could consist of either growers or merchants, who then sold the products directly to the Administration or forwarded them at their own risk to the Board in Lisbon. The growers did this not only to escape paying their debts but also because the Administration rarely paid the growers in cash. The third parties, on the other hand, paid promptly in cash. Clearly, during this process, the debts owed to the GCGPM were not being settled. Six years later, the principals in Lisbon instructed the Administration in São Luís to prioritize cash transactions, allowing credit sales only with signed commitments and charging interest. In 1767, the Board forbade credit sales to defaulting debtors and reaffirmed the necessity for payment in cash or goods. Notwithstanding these measures, debts escalated in 1769, prompting the Board to question the likelihood of the 488 debtors in Maranhão fulfilling their obligations.Footnote ³¹

During much of the monopoly period, residents of Maranhão preferred to sell directly to the GCGPM Administration, avoiding the risk of commercialization, but in the final years of the monopoly, the company would suffer from yet another problem. Most likely due to the high price of cotton in Europe, residents of Maranhão took the risk of exporting cotton to Lisbon on their own, both legally (with their own cotton, paying off the debts) and illegally (using third parties to avoid paying their debts). Throughout the monopoly, the GCGPM shipped 198,827 arrobas (72.4 per cent), while colonial residents (or private individuals, as they were referred to in the correspondence) sent 75,727 arrobas (27.6 per cent). Still, in the final years of the monopoly, colonial residents exported more cotton than the GCGPM itself.Footnote ³²

The process involving credit (through enslaved people and goods), cotton trading, and payment of debts to the company produced three main scenarios, which sometimes overlapped. First was a scenario essentially composed of illicit practices: indebted growers sold cotton to local merchants or wealthy farmers to avoid paying off debts to the GCGPM, encouraged by the Administration’s reluctance to promptly pay the growers in cash. Second, indebted farmers used the name of non-indebted third parties to sell cotton to the Administration or send it to the Metropolis, once again circumventing payment of debts. Third, exports occurred with residents in Maranhão bearing the commercial risks in the transatlantic route, thus enabling colonial farmers and merchants to achieve greater profits.Footnote ³³ The first and second scenarios prevailed throughout most of the monopoly, with colonial debts mounting. The third scenario emerged in the last two or three years of the company’s existence. But the second and third scenarios may have overlapped, as indebted farmers and merchants could send out cotton at their own risk to evade giving it to the Administration, thereby avoiding the seizure of their properties to settle debts. Figure 1 clarifies these processes, distinguishing between legal and illegal practices.

Figure 1.

This flowchart consists of two sections. The upper section illustrates the legal trade flow intended to occur between the GCGPM and the inhabitants of Maranhão. The Board in Lisbon dispatched goods, money, and enslaved individuals to the Administration in São Luís, which subsequently sold them on credit to planters and colonial merchants. The latter settled their debts using colonial commodities including cotton, rice, and money. The lower section of the flowchart depicts illicit trade practices. Planters and merchants engaged in these practices by selling cotton and rice to third parties rather than delivering them to the Administration in São Luís to settle their debts. The former dispatched the crops to the GCGPM. Money was a crucial component in this process. Prominent merchants and planters utilized it in the colony to purchase crops from farmers indebted to the GCGPM, who engaged in these transactions due to the immediate cash payment. Delivering goods directly to the GCGPM would result in delayed payment. Furthermore, the worth of their crops would be subtracted to settle debts.

Figure 1 Long description

Board in Lisbon at the top connects by arrows to Administration in São Luís. Between Board in Lisbon and Administration in São Luís, a label reads: Goods Money Slaves. Administration in São Luís connects by arrows to Planters and to Merchants. Between Administration in São Luís and Planters, labels read: Goods Money Slaves and Colonial goods (with payment of debts). Between Administration in São Luís and Merchants, labels read: Goods Money Slaves and Colonial goods (with payment of debts). Planters connects by arrows to Board in Lisbon. A label near this route reads: Colonial goods (with payment of debts). Merchants connects by arrows to Board in Lisbon. A label near this route reads: Colonial goods (with payment of debts). On the right side, two stacked labels read: Legal practices and Illegal practices. In the lower section, Third parties - Planters - Merchants appears as a separate box. Arrows connect Planters to Third parties - Planters - Merchants and Merchants to Third parties - Planters - Merchants. A label near the routes from Planters and Merchants to Third parties - Planters - Merchants reads: Colonial goods (without payment of debts). A box labeled Money appears near the lower right. An arrow connects Money toward the lower flow. A box labeled Colonial goods (without payment of debts) appears near the lower center. Arrows connect this box into the lower flow.

What perhaps contributed most to individuals starting to send cotton at their own risk – but with the intermediation of the Board, which collected freight and sales commissions in Lisbon – was the aim of not paying debts, in addition to the more obvious intention of obtaining better prices for the fibre.Footnote ³⁴ The fact that they were sending cotton – and other goods – to the Board did not mean that exporters in Maranhão were settling their debts. The Board in Lisbon might not even have known who the debtors were. Moreover, third parties in Maranhão who were not indebted could export the crops of indebted colonial dwellers. But the Administration’s payment policy was also important, as it refused to pay producers in cash. This encouraged growers to sell all or part of their crops to residents of the colony (big merchants and planters), who would promptly pay them in cash. These big merchants and planters, who were also indebted to the company, would then settle their debts by delivering cotton from the indebted farmers, who consequently remained in default.

The obvious solution would be to pay the farmers in debt with money, thus encouraging them to deliver their crops to the GCGPM and not to the merchants and large colonial planters. The Administration in Maranhão, however, argued that the problem was the lack of cash in hand to pay the growers. Although they sent money to the colony in 1771, the Board warned that it was only to encourage rice cultivation or for things indispensable for increasing trade “and not for the house of this Administration to be like a bank of commerce to provide money to any resident.” Loans, though, were permitted, but they should be made with moderation and prudence. According to the Board, the Administration was always asking for cash from the members in Lisbon, because the colonial branch lent without caution, not observing the fundamental use of the money, which was to buy the goods of the residents. But according to the Board, most of the loans were made to colonial merchants and, while these loans were being made, the Administration was still selling goods on credit to these merchants. These two factors contributed to the colony’s debt reaching 609,578,515 réis that year.Footnote ³⁵ For comparison’s sake, the GCGPM was established in 1755 with 480,000,000 réis as its initial capital.Footnote ³⁶

In 1775, the Board sent more money: 10,102,000 réis to buy cotton and rice only from farmers without debts. The Board asked the governor of Maranhão to prohibit third parties from sending goods to Lisbon, claiming that this was harmful to the company and the farmers. Simultaneously, certain groups within the colony criticized the Administration for its detrimental effects on commerce and agriculture, citing a shortage of goods in the colony. The Administration was accused of preferential treatment regarding specific residents, and the Board argued that the shortage of goods resulted from the Administration’s erroneous sales strategy, which extended credit indiscriminately. This encouraged debtors to seek help from third parties.Footnote ³⁷

The tithe tax farmer, merchant, and planter José Gomes da Silva was one of these intermediaries, and the GCGPM Board alerted the governor about the case. They said that “many residents” used Silva’s name to send goods to their “representatives” in Lisbon, thus “exempting” themselves from paying their debts to the GCGPM.Footnote ³⁸ The same Board warned in a direct letter to Silva that they were aware of what he was doing, reminding him that such practice was prohibited and that they classified it as contraband.Footnote ³⁹ If we are to believe the calculations made by the Board, third parties who exported tropical goods without paying their debts to the company shipped 107,600,000 réis in 1775, 186,000,000 réis in 1776, and 224,000,000 réis in 1777. Added together, the amounts reached 517,600,000 réis.Footnote ⁴⁰

As was known, it was forbidden for anyone else to buy crops and send them to Lisbon, a rule that can be verified in different sources and moments in the history of the GCGPM.Footnote ⁴¹ This GCGPM rule, however, failed to take into account an important aspect of Maranhão’s internal trade, according to one of its governors. For him, this policy harmed intermediaries who performed the essential function of buying cotton in distant lands. Small farmers who did not have the resources to gin the cotton, bag and press the bales, and transport it, ended up selling the cotton to individuals who could, such as wealthy planters and traders. Without these last ones, the governor argued, small growers would not be encouraged to grow cotton.Footnote ⁴²

Both merchants and farmers engaged in illegal activities to avoid paying their debts, but the Administration also contributed to the situation with its arbitrary practices. The administrators, probably driven by the high commissions they would receive, sold goods to people who were unable to honour the payments. In addition, the Administration acted dishonestly, creating false records, charging undue interest, and supplying goods to individuals who could take them outside the company’s jurisdiction. The lack of transparency in the accounts and in the information sent to the Metropolis was frequent, raising doubts and constant criticism from the Board. On 31 January 1776, for example, the Board wrote to the Administration that they should only sell on credit “to people established in the trade and secure and well-off.” They prohibited the Administration from selling on credit to priests and widows, as they were people “unqualified for commerce,” and also mentioned that it was “scandalous” for a priest, Aires Antônio Rodrigues, to be in debt for 21,284,707 réis, a debt that was never reduced, but always increased.Footnote ⁴³ Moreover, the prohibition of retail trade imposed by the GCGPM’s charter did not prevent the company’s colonial agents from engaging in this sector on their own. They benefited from their privileged position and from exemption from the ordinary courts – bearing in mind that the Pombaline companies had their own judicial tribunals. Among the shop owners in Pará and Maranhão were, in fact, some of the company’s administrators.Footnote ⁴⁴

The Board interfered directly by terminating several administrators. João Paulo Diniz was fired in 1775 for supporting smuggling and neglecting the company’s concerns. New replacements occurred in 1776, when Luís Antônio Ferreira de Araújo and Marçal Inácio Monteiro assumed control. In 1777, the Board expressed concerns about the rising debts in Maranhão and the imprudence of the Administration, resulting in the dismissal of José Vieira da Silva. His failure to provide accounting aroused concerns regarding the personal utilization of the company’s resources. In 1778, the governor seized his assets following an inquiry into mismanagement. In February 1778, the Board notified the governor of the termination of the monopoly, suspending the transfers of capital and goods to the captaincy and concentrating on the recovery of debts. At the same time, they dismissed more administrators charged with theft by the courts in 1778.Footnote ⁴⁵ Dismissals did not resolve the problem, pointing instead to the configurations of the colonial market as the main drivers of the mismatch between the company’s policies and the local population’s interests. However, one should not dismiss the hypothesis – which we return to in the fifth section of the article – that an excessive workload placed considerable pressure on the very small number of colonial agents, undermining their ability to perform effectively. Yet, despite the outstanding debts and fraudulent activities, at the end, shareholders accrued substantial profits over sixty-nine years (1755–1824), getting both their invested capital and 242.2 per cent in dividends, according to Carreira.Footnote ⁴⁶

The GCPP Operating Plan, Illicit Practices, and the Opportunism of the Direction in Pernambuco

In the second half of the eighteenth century, Pernambuco stood out for its sugar economy. The GCPP, similar to the GCGPM, functioned via a Board in Lisbon, regulating the allocation of investments and goods to the Pernambuco colonial managers, referred to as the Direction. Colonial residents (planters and merchants) could send sugar on their own or hire commission services from the Board, but they only received payments after sales in Lisbon. The credit chains in Pernambuco functioned similarly to that of Maranhão: goods and enslaved people functioned as credit that would be paid with agricultural crops. Likewise, the colonials resorted to illicit practices and the GCPP managers in Recife to opportunistic behaviour. By offering a distinct kind of record, the GCPP documented a number of activities and issues that the GCGPM failed to notice, which helps to clarify the connections between colonial market configurations and agency problems. For the GCPP, apparently the problem had its roots in the wholesale sales policy, in the commissions of the Direction in Pernambuco, and in the traditional practice of colonial merchants financing sugar planters.Footnote ⁴⁷

The GCPP was a wholesaler, both in Portugal and in Pernambuco. In Lisbon, the Board received a commission of 2 per cent for purchases and 2 per cent for sales. In Pernambuco, the members of the Direction only received 2 per cent on sales to residents and did not receive a commission for shipments to Portugal,Footnote ⁴⁸ a clear contrast with the GCGPM Administration, which had a higher percentage of commissions than the Board and also received commissions for sales to residents and commissions for shipments to Lisbon. In Pernambuco, wholesale sales and commissions would lead to two problems. The majority of the settlers lacked the resources to expend 100,000 réis – the minimum amount permitted for purchase from the GCPP. This compelled them to purchase from local merchants, which were the only groups capable of expending such an amount. Consequently, this triggered debt mechanisms that were beyond the control of the GCPP. The commissions, as stated by the Direction, were small, as the Board in Lisbon received a total of 4 per cent. The Direction continued to express dissatisfaction, arguing that, prior to the GCPP, merchants received a 10 per cent commission,Footnote ⁴⁹ which probably was not true. The commission was likely the sole source of income for the Direction, thus the more commercial activities they undertook, the greater their commissions would be. This facilitated the misconduct of the Direction who, according to Angélica Silva, engaged in all kinds of dealings to extract greater profits.Footnote ⁵⁰

Alongside wholesale sales, conducted either in cash or on credit, the GCPP provided financing for the demands of sugar mill owners and cane growers, demanding an equivalent return. This financing provided the enslaved individuals and means of production; however, the sugar producers were compelled to acquire the remainder of their consumption necessities, including dry (mostly textiles) and wet goods (mostly wine and olive oil), from local merchants. These merchants received payment in both commodities and currency. The merchants subsequently acquired goods from the GCPP to sell to the producers and other colonial inhabitants, including small shopkeepers. The cycle would theoretically end when agricultural producers and traders settle their debts to the GCPP, either in goods or currency, at which juncture the GCPP would initiate another round of financing for the producers and traders to continue supporting the overall economy.

The relationship between the company and the colonials was supposed to function as described above, but the history of the GCPP was marked by so many deviations from the rules that the original way of its operation was lost over time. The way the GCPP was supposed to operate in Pernambuco was altered several times due to the conflicting interests of the Board in Lisbon, the Direction in Pernambuco, colonial merchants, and the productive sector (cane growers and sugar mill owners). More specifically, the problem lay in the mercantile manoeuvres that linked the company’s credit with its consumers, which, over the years, undermined the GCPP’s ability to continue renewing investments. These difficulties are easily identifiable from the late 1760s onwards.

In 1767, the GCPP faced financial problems in Pernambuco due to defaulting on loans, leading the Board in Lisbon to adopt measures to restrict credit to merchants while expanding it to sugar mill owners. In 1768, the Board suggested waiving interest if debts were settled by the conclusion of the 1769 harvest, along with prolonging the period for levying interest on dry goods sales. In 1769, the GCPP appointed solicitors to collect from debtors and monitor the production of sugar mills. But in the early 1770s, a practice began to take hold that would be highly detrimental to the GCPP’s ability to recover its capital. Some merchants in debt to the company, instead of paying off their debts with cash, deliberately withheld the cash to buy sugar from producers at a reduced price, and only then paid off their debts to the company with the sugar purchased at lower prices. This was, in fact, one of the reasons why the Direction in Pernambuco did not have money to buy sugar.Footnote ⁵¹ Of course, growers preferred money from local merchants, as it provided an attractive and fast method for receiving compensation for sugar sales, rather than selling directly to the GCPP, which would require settling their debts, or shipping commodities at their own risk to Lisbon, where the company would only compensate producers in Pernambuco after sales were finalized in Europe.

The Board of Lisbon sought to prevent money from circulating among merchants in Pernambuco, instructing the Direction to sell goods to colonial merchants in exchange for cash to ensure a constant inflow of money into the company. If the merchants did not agree, the Direction should step up debt collection. The goal was to receive money to buy products from producers, who in turn could pay off their debts to the merchants and the merchants to the GCPP, maintaining a healthier commercial cycle. Yet, some merchants withheld the money, forcing sugar sellers to accept lower prices. In 1778, the Board asked the Direction to collect merchants’ debts in cash, blaming the merchants for using the GCPP’s capital for their own benefit. These practices demonstrate a transfer of credit from producers to merchants, affecting the debts of sugar mill owners and merchants to the GCPP. The result, as Table 1 shows, is that cane growers and sugar mill owners found themselves more in debt than merchants.

Table 1.

Sectors indebted to the GCPP (1777 and 1780), in réis

Table 1 Long description

Debts in réis are grouped by economic sector for 1777 and 1780, with 1780 also listing the number of debtors and average debt per debtor. Overall debt increased from 964,391,431 réis in 1777 to 1,451,264,922 réis in 1780. In 1780, the largest debt total is “Others” at 425,598,624 réis across 727 debtors, averaging 585,418 réis each. Merchants total 406,433,617 réis with 208 debtors and the highest average debt per debtor at 1,954,008 réis. Sugar mill owners owe 394,690,741 réis with 253 debtors, averaging 1,560,042 réis, while cane growers owe 139,179,713 réis with 541 debtors, averaging 257,264 réis. Leather manufacturers have a smaller total, 41,982,045 réis, but a high average of 3,498,504 réis across 12 debtors; sugar tenants appear only in 1780 with 43,380,182 réis across 54 debtors, averaging 803,337 réis. Interpretation note: the “Others” category is undefined in the source and may combine multiple occupations, so comparisons involving that group are less specific than for named sectors.

Sources and notes: in réis. Arquivo Histórico Ultramarino, Avulsos de Pernambuco, Cx. 137, D. 10242 and D. 10206. The 1777 document is not as detailed as the one from 1780. The summarized data for 1780 were derived from a systematization of nearly 1,800 individual debtor records. The category “Others” – “diversos” in Portuguese – appears as it does in the original source, though without any explanation of its nature. It likely included individuals engaged in multiple activities, combining production and commerce, small shopkeepers, and perhaps even a general designation for residents with various occupations who obtained credit from the company. The “Others” category may have encompassed some company directors, but not all of them. Only four were listed under this label: Antônio Francisco Monteiro owed 573,122 réis in 1780 and had served on the first Board of Directors. Likewise, Francisco Carneiro Sampaio, a member of the second Board, owed 18,579,877 réis in 1776 and 15,616,677 réis in 1780. Henrique Martins, also from the second Board, owed 6,927,818 réis in 1780. Manuel de Almeida Ferreira, another member of the second Board, owed 1,719,200 réis that same year. Three additional Directors appeared under different classifications: Antônio José Souto, who served on both the first and second Boards, had substantial debts – 36,442,561 réis in 1776 and 18,445,990 réis in 1780 – but was categorized as a “Leather manufacturer.” João de Oliveira Gouvin, from the first Board, was listed as a sugar mill owner and owed 1,467,000 réis in 1780. José Timóteo Pereira de Bastos, a member of the second Board, was likewise classified as a sugar mill owner and owed 10,288,967 réis in 1780. For the names of the members of the Pernambuco Board of Directors, see Ribeiro Júnior, Colonização e monopólio, 87; and Dias, “As pessoas mais distintas em qualidade e negócio,” 184–90.

The circulation of money was a challenge for the GCPP in Pernambuco, affecting credit and impacting debt in the region. Initially, the Board in Lisbon was reluctant to acknowledge the severity of the problem, but in the 1770s, measures were taken to replenish Pernambuco with currency. Despite this, the increase in debt between 1777 and 1780 suggests that these policies may not have been effective. Furthermore, colonial merchants exploited the GCPP’s regulatory loopholes to their advantage, using the company as an intermediary to ship sugar to Portugal or to receive products through representatives, although the GCPP still profited from freight and commissions on these transactions.Footnote ⁵²

As the relationship between the GCPP and the residents of Pernambuco became more complicated, independent trade grew, leading to a significant reduction in the GCPP’s share of exports by 1779 (as happened with GCGPM at the end of its monopoly).Footnote ⁵³ This occurred because merchants reduced their credit ties with the GCPP, allowing them to ship sugar on their own and not be subject to the company’s prices. They achieved this by buying sugar at reduced prices from the producers, to whom they were creditors. In turn, the producers, who were indebted to the company, avoided paying the GCPP, opting instead to do business with local merchants, who had currency and paid promptly, unlike the GCPP, which was slow to pay. In short, the producers owed to the company and to colonial merchants, but they favoured the latter.Footnote ⁵⁴ Thus, it became more advantageous for local merchants to ship sugar on their own even if this required paying commissions to the Board or an agent in Lisbon. The commercial and productive structure that emerged in Pernambuco’s internal market and its interactions with the monopolistic policies of the company closely resemble those in Maranhão.

The growth of these activities was further propelled by the reckless conduct of the Direction, which frequently refrained from making cash payments to merchants and producers who were not indebted to the GCPP. In mid-1778, the situation became critical when the Direction in Pernambuco issued a letter to the Board of Lisbon regarding the debts in the captaincy. The Board regarded the letter as a statement that the loans were entirely uncollectible and irretrievable, given that the Direction did not suggest any methods for recovering the capital. The Board was astonished by the debts incurred by the merchants of the captaincy, but more so by the liabilities of the directors and their relatives, alleging that the directors had obtained debts without repaying them.Footnote ⁵⁵ The Board also assessed the Direction’s complaint regarding the scarcity of goods in Pernambuco, contending that the value of goods transferred to the colony exceeded that of the colonial goods sent to the metropolis. The Board disputed the assertion that the goods were inadequately selected, arguing that the Direction failed to specify which goods were most consumed in the colony (a classical principal-agent problem).Footnote ⁵⁶

Apparently, the Board was already preparing for the end of the monopoly, since in mid-1778 it instructed the Direction to begin preparations for the liquidation and collection of assets spread throughout the captaincies of Pernambuco and Paraiba. Yet, the Board was unaware that the Direction had sold approximately 200 million réis on credit to residents of Pernambuco between 1776 and 1777. Later, around 1778–9, the Board issued new orders regarding the payment of debts and financing. For merchants in debt, the Direction was to accept part of the payment and provide two-thirds of the financing. For those not in debt, the Direction was to sell only in exchange for cash or for goods and bills. Regarding producers, only those who were paying their debts were to receive loans.Footnote ⁵⁷ As a result, the GCPP’s credit flows to Pernambuco gradually decreased, reflecting a reduction in the quantities of imported goods, especially towards the end of the monopoly. Yet, during most of the company’s administration, the flow of goods to Pernambuco was constant. The Direction ended up favouring a few merchants who speculated in the colonial market. This contributed to the emergence of an oligopoly controlled by local merchants in a monopoly area ceded by the Portuguese authorities to a company that, at the limit, worked with capital from shareholders resident in Lisbon.Footnote ⁵⁸

It is noteworthy that several of the first shareholders, directors, and even members of the Recife city council were among the debtors of the GCPP in 1780. Notably, certain debtors, comprising directors and shareholders, advocated for the dissolution of the company to evade their debts. Among the fourteen agents who participated in the Direction from 1759 to 1780, seven were indebted to the company at the conclusion of the monopoly. Furthermore, numerous officials of the Recife city council were indebted to the GCPP from 1776 to 1780. In addition, the directors had familial ties, which led to the formation of groups aimed at promoting themselves.Footnote ⁵⁹ The “hidden and scandalous negotiations” between merchants and the Direction hindered the company’s profitability, as stated by the Board. As a result, the productive sector suffered because some of the GCPP funds were not allocated to support it. The Board consistently expressed dissatisfaction regarding the insufficient information provided by the directors in Pernambuco, even requesting the governor to oversee the Direction members. Nevertheless, accounting books and secondary literature contend that, despite these challenges, the GCPP remained profitable.Footnote ⁶⁰

Further Explanatory Factors Behind Company Outcomes

The history of the Pombaline companies in Brazil highlights the complexity of the relationships between principals, agents, and colonial residents, and underscores the importance of considering these multiple factors for a comprehensive understanding of their performance. This article has emphasized the mismatch between company policies and local interests, largely resulting from colonial economic configurations characterized by a complex interplay of intermediaries, non-debt payments, and shipments that operated outside the companies’ effective control. The difficulties in cooperation between the residents of Maranhão and Pernambuco and the companies can also be attributed to some additional factors that further complement the broader argument we advance here. One of them is the fact that the Pombaline companies closed off the colonial monopoly spaces to merchants residing in other places, which limited the opportunities for profit for the colonials. Initially, this restriction may have been favourable to local economies, as it channelled much capital from shareholders in Portugal to the monopoly regions. Still, it later became unfavourable, as residents could not profit in any other way than through the companies.Footnote ⁶¹ The organizational structure of the companies also contributed to the problems of cooperation. A small number of managers were responsible for handling a large volume of goods and a large number of customers. In Maranhão, for example, in 1767, two managers handled the debts of 488 residents, a number that would certainly increase in the final stages of the monopoly. In Pernambuco, in 1780, eight managers dealt with 1,795 debtors. This workload, very likely, limited the managers’ ability to process information and effectively manage the company’s operations.Footnote ⁶² Here, one of the tenets of organizational theory – that “the smaller the decision-makers, the less information they can process”Footnote ⁶³  – is crucial. The companies’ organizational structure, which only had a few members in Brazil (and in Lisbon for that matter), actually made it more difficult to share trustworthy information.Footnote ⁶⁴ This likely influenced the poor collaboration between the colonial population and the monopoly companies.

These large monopolistic companies faced significant challenges due to the extent of their monopoly areas, the large number of customers/debtors, and the diversity of economic sectors they managed. The workload of managers, combined with the complexity of the colonial mercantile environment, made it difficult for them to effectively handle all the necessary transactions and information. Furthermore, the ways that colonists tried to avoid paying their debts made it harder for the companies to run their businesses and make sure that they followed the monopolistic rules. Nonetheless, this appeared to be a sound investment. Shareholders in Lisbon persistently acquired the company’s shares,Footnote ⁶⁵ and it appears that the two enterprises established by Pombal never made losses.Footnote ⁶⁶ This could suggest that the companies calculated their profit margins taking into account the losses incurred from overseas debts. But would the companies have experienced sustained profitability if monopolies were prolonged for an additional ten or twenty years, or would they have been supposed to endure only for the duration of approximately twenty years for shareholders to benefit from profits and them transition to other business? It is difficult to say, but the companies certainly did not fail in their objectives of developing the regions where they operated economically and providing profits to shareholders based in Portugal. At the end of the day, the companies’ success appears to be unrelated to their control of overseas agents; rather, it was contingent upon other factors. A crucial element was the supply of enslaved people for agriculture. The companies achieved success in this infamous trade. The GCGPM effectively initiated the extensive slave trade to the northern regions of Brazil.Footnote ⁶⁷ Compared to the time before its monopoly, the GCPP did not increase the slave trade; still, it did have the distinct advantage of not allowing the re-exportation of enslaved individuals to other Brazilian ports.Footnote ⁶⁸ Another important element was the Atlantic shipping that connected Recife and São Luís to Lisbon. Before monopolies were set up, ships had to operate under the fleet system that caused problems by creating an excess of colonial products in Brazil that were unable to be transported. Fleets ended due to the companies, and agricultural production flowed more efficiently to Portugal.Footnote ⁶⁹ Clearly, the companies’ profitability stemmed from the lack of competition in their respective marketplaces, which constrained the options available to private traders seeking to engage in commerce between Brazil and Africa, as well as between Brazil and Portugal.

The persistence of the companies in selling to defaulting producers did not stem from irrationality, but from the very institutional and structural logic in which they operated. Since the domestic market was composed mostly of debtors,Footnote ⁷⁰ suspending sales would have meant paralyzing colonial production, undermining the central function of the monopolies, which was not only commercial but also involved agricultural financing, or more broadly, was part of the political economy of the Portuguese Empire. Moreover, the statutes required the companies to sustain productive continuity, while the Boards in Lisbon often did not know who the real debtors were, due to the use of intermediaries, falsified accounts, and omissions by colonial agents. Added to this were perverse incentives: administrators and directors received commissions on sales, encouraging the continuation of credit even for insolvent clients. Delving even deeper, we could argue, following Madureira, that the company’s jurisdictional and managerial autonomy – meaning, ultimately, the formal absence of third-party oversight over its actions – renders credible the contemporaries’ accusations of corruption at various levels of the hierarchy.Footnote ⁷¹ This general lack of oversight must have extended down to the company’s branches in the colonies. Thus, the combination of institutional rules and obligations, information asymmetries, and local incentives explains why the companies did not interrupt their sales despite widespread indebtedness.

Concluding Remarks

It is interesting to note how Pombaline companies in Brazil faced similar challenges, especially in relation to the lack of cooperation from colonial residents and companies’ agents, and also by the clashes between the two. The companies’ difficulties went beyond agency problems between principals in Lisbon and agents in Brazil; they also had to do with the configurations of the colonial market. In Maranhão and Pernambuco, the employment of intermediaries to evade the payment of debts to colonial managers and the significant exports driven by colonial inhabitants arose in both instances. And in both companies, the exports undertaken by colonial traders surpassed those of the companies themselves in the final years of their respective monopolies, though not throughout the entire remaining period of monopoly. Considering the analogous performances, one may hypothesize the persistent unviability of monopolies in established colonies with a commercial structure upheld by local merchants and growers. Although the residents’ tactics to avoid paying their debts were similar, there were some specificities between the GCPP and the GCGPM. Producers in Pernambuco traditionally sold their sugar crops directly to colonial merchants, who then sent them to metropolitan merchants. Consequently, producers were in most cases excluded from transatlantic commercial networks, and this situation appears to remain unchanged with the establishment of the GCPP. Conversely, in Maranhão, planters engaged actively in the export networks of their cotton production, but some small planters were employing a “third party” primarily as a strategy to evade debt obligations to the GCGPM.

In Pernambuco, producers avoided paying their debts to the GCPP by doing business directly with local merchants. In Maranhão, farmers associated themselves with other farmers and merchants, who acted as intermediaries to avoid paying their debts. These differences reflect the nuances of commercial and social relations in each region, contributing to a more comprehensive understanding of the economic dynamics during the colonial period in Brazil. An analysis of the Pombaline companies reveals that it is not enough to simply consider the opportunistic behaviour of colonial managers to understand their tortuous path. Although the behaviour of these agents significantly influenced the management of the companies, their performance was also shaped by the way in which colonial residents exploited institutional loopholes and engaged in illicit practices to obtain commercial advantages and avoid paying their debts.

Regional peculiarities influenced these dynamics. The presence of colonial merchants was essential to the economy of both captaincies, requiring the integration of them into the operational framework of the companies. The activities of inhabitants and colonial agents undermined the attempts of the Boards in Lisbon to regulate both companies. Notwithstanding the dismissals and policies enacted to mitigate managerial opportunism, problems continued to persist. This indicates that the difficulties encountered by Pombaline companies cannot be exclusively ascribed to the actions of local agents, but also to the structure of local economies. In other words, simply looking at agency relationships is not enough. To have a fuller understanding of how monopolies worked in the early modern period, it is necessary to understand the context and general economic structure in which monopolies were being implemented. On its turn, the end of the companies was linked to reasons that are not yet entirely clear but certainly had a lot to do with Pombal’s departure from government and probably pressure from merchants who were not benefiting from the monopoly. This article demonstrates that sustaining monopolies in colonial empires was challenging, as the regulations established by monopolistic companies often failed to align with the prevailing economic realities, resulting in conflicts with the configuration of the colonial market. It also illustrates the increased complexity of the principal-agent problem when examined through a specific historical context.