The firm in Armenian Asian commerce of the seventeenth century

In his account of Iran, the French jeweller Tavernier (1666) has made an interesting analysis of the Armenian merchants’ success in commerce:

It is an acknowledged fact that the Armenians are well-versed travellers, robust and untiring people who undertake long journeys, strong in words and swords, are great managers; and being Christian they negotiate easily in the Christian world. Having made the choice of those whom he (master) thinks most proper, and most intelligent, he gives each of them bales of silk according to his capacity. The accounts are settled when the factors return…they return in a short time as experts, and there is no trading point today, which their trading activities do not embrace. Not only in Europe, but all of Asia, India, Tinquin, Java, Philippines and all the orient with the exception of China and Japan. ¹

In the memoirs of another Frenchman George Roques (1678), we come across another description of the Armenian merchants and their organisation. Roques clearly states that these merchants do not work alone, but operate as part of a well-knit network.

They are the descendants of the people from Armenia. Shah Abbas let them live in his kingdom, and gave them a suburb named Julfa, close to his capital, Isfahan, so that they could establish themselves there. With the help of the generosity of the great prince and the lands which they cultivate, they have profited a lot and also, owing to the negligence that the Persians have shown in commercial affairs, they have finally got all affairs in their own hands or everything has fallen into their hands. They have procured five or six very powerful houses from where they disperse agents all over the world. These houses have become wealthy due to the hard work of the agents. These people are as subtle in the affairs of the foreign nations as the local people themselves. ²

He adds that since the factors were completely dependent upon their masters and each master had a large number of factors, the Armenians always found fellow factors to help them out whenever needed, even in distant lands. There was complete cohesion between them:

…in the same town, there are so many factors of the same master, that all speak the same language, or, in other words, endorse the proposal the master has made because they are completely dependent on the big merchants of Julfa: some [masters] have 80 factors, some have 100, some more, some less. They have [as factors] members of their own family, or servants or peasants whom they have groomed in trade. They conduct their trade very well and are able to raise a large amount of capital. They can make profits up to 2,000–3,000 livres, and it is this, that is absolutely marvellous. They go to the far corners of the world and increase the money [principal] as much as they can. They come back to Julfa and give a proper account of their profits and these 2,000–3,000 livres now become at the second time 40,000–50,000 livres owing to their shrewdness. They know they are going to make the most profit by going to the farthest point, and for their masters they take the goods as far as they can. They also settle and get married in these distant trading centres. ³

Profits from trade were supplemented by gains from credit transactions; there was no avenue of profit-making which was left untapped by the Armenians.

It is to their credit, that they become very rich in a few years, by their better evaluation of commerce, either in merchandise, textiles, precious stones, pearls, jewels, insurance, maritime exchanges and all that they come across: because they neglect nothing. Where there is competition with other merchants, no matter how agile the other person is, the Armenian gets the better of him. ⁴

Rich Armenian merchants of Julfa, sent out their factors to different parts of the globe. This was a traditional practice of the Armenians. ⁵ According to Fryer, the Armenians are:

…a kind of privateers in trade, no purchase, no pay; they enter the theatre of commerce by means of some benefactor whose money they adventure upon, and on return, a quarter part of the gain is their own. From such beginnings do they raise sometimes great fortunes for themselves and factors. ⁶

While discussing the wealth of substantial Armenian merchants in New Julfa, he adds, ‘for whilst they sit lazily at home, their factors abroad, in all parts of the earth return to their hives laden with honey’. ⁷ Hamilton has also stated that ‘they [the Armenians] send factors all over India to carry on trade’. ⁸ According to this form of partnership, the Armenian Khojas or rich merchants gave cash or merchandise, or a combination of both, to their factors for trading purposes. A factor did not receive a fixed amount of salary but a share in the profits, which was traditionally one-quarter of them. ⁹

Hovhannes Joughayetsi is a very good illustration of this type of agency. His case was not an exception, for apart from this practice being mentioned by contemporary writers, it is to be found as ‘established and verified cannons of law’ in the statutes of the Armenians of Astrakhan, drafted in 1765. ¹⁰ Nearly a whole chapter in these statutes is devoted to the mutual rights of both the parties.

In running their commerce, the Armenians also followed the practice that corresponded to the commenda ¹¹ of the European trading world and to the qirād, muqarada (= muqāraẓa) and mudaraba (= muẓāraba) of the Islamic world. ¹² It is believed to have come into use in the late tenth century in Europe but was present in West Asia, much earlier. In the absence of adequate data it is difficult to say when exactly the practice began to be used by the Armenians. From the account of Fryer and from Hovhannes’ Journal, it is obvious that it was a traditional custom in use since long. ¹³ Sebouh Aslanian who has widely studied Armenian documents is of the opinion that there are ‘compelling reasons to, at least, allow for the possibility that the Julfan Armernian commenda originated from the Islamic mudaraba or one of its other variants. First, Julfans lived in an Islamic world not only geographically, but, religious differences notwithstanding, also culturally’. In the Mediterranean or Islamic contracts, the maintenance of accurate records was one of the foremost duties of the factor or agent and so also was it with the Julfan commenda. ¹⁴

Another important aspect was that repayment was linked with the success of the venture, whereby it also acted as an insurance against loss, so vital in the risky world of long-distance trade. ¹⁵

Hovhannes, in 1682, entered into a contract with two wealthy brothers of New Julfa, Embroon Agha and Zakaria, who were leading merchants with wide-ranging trading interests. ¹⁶ According to the contract, Hovhannes received 250 tumans in goods, bills and cash, to proceed to India for trade. ¹⁷ The masters were entitled to three-quarters of the profit apart from the capital which they had put in. He left via Bandar Abbas for Surat. ¹⁸

The factors were by custom bound to maintain a diary in which all transactions were recorded in detail and with dates. ¹⁹ It was called a ‘roozlama’ (Pers. Rūznāma). Hovhannes, in accordance with this custom, compiled a register, and thanks to its preservation, we are in possession of considerable amount of material pertaining to Armenian trade practices. ²⁰

Apart from this ledger, the factor also had to maintain two copies of a shorter version of the double-entry accounts ledger. It was called tomar (Persian t]ūmār) in Armenian. The tomar was written on a roll of paper, at times three to four yards long. In the beginning of a tomar, the summary of the contract was given, then the individual transactions, and a list of commodities dealt with, all in double-entry accounting, that is, in terms of debit and credit. If the factor traded in different regions, then the transactions were divided region-wise into separate sections. The tomars and the commenda contract had to be presented to the master when accounts were settled so as to get a discharge. Both parties had to write that the contract had been concluded and each of them had received their due share. ²¹

The goods remained the property of the master, the factors’ share was only in the profit and not in the capital. It is clear from Hovhannes’ case that the goods belonged to the master. Similarly, we find that Khwaja Sarhad, an eminent Armenian merchant of Bengal, had factors in Goa, trading with goods, on his account. In connection with a debt he owed to the English Company, he authorised the Company to take over the goods lying with his factors at Goa, a clear proof that ownership of the goods rested with the master or commendator. ²²

Khachikian feels that the legal terms were formulated mainly to serve the interests of the masters and the agents were just servile executors of their master’s will. ²³ Harsh measures were prescribed for them, if they did not return at their master’s first command or if they did not produce the accounts ledger. ²⁴ Experienced factors could make investments at their own discretion but those not experienced, even if overseas or in distant land, had to function according to their master’s orders, sent usually in the form of letters of instructions called ordanagirs in Armenian. If the factors disobeyed, then the resultant losses would be borne by the factor alone. The master, on the other hand, was responsible for attending to the needs of his agent’s family. The money so spent was adjusted when the accounts were settled. ²⁵

Accounts were meticulously maintained, as is evident from Hovhannes’ diaries, from the trade manual, by Lucas Vanandeci and from the legal documents of Armenian merchants such as Petros. ²⁶ They followed the ‘double-entry’ method of book-keeping. Scholars have placed much importance on the Armenian accounts system and felt that it contributed substantially to their commercial success. Some have gone to the extent of stating that it influenced the use of double-entry accounting in Europe. ²⁷ From Hovhannes’ account it is clear that very complicated calculations were made by him without any mistake. There were special schools where Armenians were taught arithmetic and accountancy, amongst other things. One such school was that of the clerk Constant (Kostand) of New Julfa, which functioned in the latter half of the seventeenth century. ²⁸ The trading manuals compiled by the Armenians for their fellow countrymen contained detailed instructions on arithmetic and accountancy. Lucas’s manual has been described as a manual for commerce and practical arithmetic for the use of ‘our merchant brothers of the nation of Haik (Armenia)’. It served as a textbook in Kostand’s School. ²⁹ It first appeared in 1699 as a ‘gateway of wisdom for the use of the novices, inexperienced children of our nation’. ³⁰

Aghassian and Kevonian have aptly pointed out that the style of numeration differed from one period to another. The style used by Constant of Julfa was based on the classical alphabet of 36 letters divided up to four classes and of nine signs which was in regular use for numbers under 200. He also introduced zero which, they say, was useless in this style. On the other hand Lucas used only Arabic numerals. And this system came into increasing use in the eighteenth century. Interestingly in the documents analysed by Aghassian and Kevonian, Arabic numerals have been used but the system followed is that of Constant. ³¹ The maintenance and production of the ledger was given considerable importance because it was the key through which profit and loss could be gauged.

Fryer stated that the Armenian factors were at times able to raise great fortunes for their masters and themselves. ³² In the span of a few years Hovhannes himself, starting as a mere factor, got transformed from a petty merchant to a substantial one, dealing in costly items and maintaining contact with high officials and nobles. ³³

Another interesting point is that Hovhannes, though already under a contract with Embroorn Agha and Zakaria, entered into other partnerships. In 1686 Hovhan of Shiraz and Hovhannes formed a partnership in which both invested an equal amount of money. ³⁴ Yet, Arasaratnam has cited evidence from Coromandel which shows that the Armenian factors could not enter into other partnerships until they had settled accounts with the first and obtained a discharge from him. ³⁵ One can presume that the factor was entitled to enter into other partnerships provided they were outside the sphere of the first partnership, because when Hovhannes signed a contract with his masters in New Julfa it was for trade with India and the partnership he made with Hovhan of Shiraz was for trade in Tibet. However, this point is negated by the fact that Hovhannes entered into a contract within India also, for whilst speaking of the 50 bales of cloth bought at Lahurpur and sent to Surat he stated that, ‘Hovhan of Shiraz has the right to sell at his discretion for we are partners’. This entry belongs to January 1686, prior to the second contract. ³⁶

In partnerships, broadly, when one partner supplied capital it was called mekkalamani by the Armenians, meaning ‘one-sided’. A partnership in which both sides supplied capital, regardless of whether the contribution was equal or unequal, was called erkukolmani or two-sided. In the latter type of partnership profit was shared according to the ratio of the capital contributed. The contract between Phanos and Petros which has been studied by Kevonian and Aghassian appears to be an example of the erkukolmani type of partnership. ³⁷

Aghassian and Kevonian have transcribed one document from the Armenian archives of All Saviours Monastery. It throws light on a contract between two Armenians Phanos and Petros entered into in 1727 at Surat. ³⁸ The document itself was on a fixed-term basis. This partnership was not of the commenda type in which the factor got a fixed percentage of the profits. It was a simple partnership in which both the partners invested capital, one a larger amount, the other a smaller one. The share in the percentage of the profit depended upon the percentage of the capital invested. In fact it appears to be the erukulkomani type of partnership mentioned in the preceding paragraph. Phanos had put in ₹3,500 and Petros had initially contributed ₹500 but later added another ₹1,000 to it, which was apparently borrowed from Phanos. ³⁹ One wonders why Phanos who had contributed the lion’s share, should associate Petros who had just put in ₹500, but it becomes clear when one realises that the travel involved was undertaken totally by Petros, be it from Surat to Aurangabad or overseas to Basra. Phanos was merely the sleeping partner, the actual running around was done by Petros. ⁴⁰ The Armenians often did not have a written contract. Their word was sufficient. But in this deal Petros gave a certificate to Phanos regarding the capital invested by the latter.

It is interesting that Phanos lent Petros ₹1,000 with which the latter augmented his share in the partnership. When the accounts were settled the amount was returned to Phanos. Apparently no interest was charged. This is surprising because we find from the same series of documents, pertaining to the period 1710–30, that Phanos had himself borrowed 600 tomans from Armenian merchants in order to conduct trade in Basra, Russia and Surat. Perhaps he had borrowed to finance this partnership. Perhaps the amount of interest was included in the principal, as is the case with a bill, ⁴¹ and Petros had really lent a smaller amount than ₹1,000.

Just as in Hovhannes’ ledger, in this partnership also, the number of commodities traded were on a high side—more than 200 items. Pearls, Mecca senna and Mocha coffee which were typical west Asian goods and Malabar and south east Asian commodities like pepper, cinnabar, tin, were bought in Surat itself to be sold at Aurangabad. We do not know through whom the Armenians bought these commodities at Surat, but for Basra it is clearly stated that their factor Awet resided there and looked after their business. It is also apparent that all trading operations in Basra were conducted through fellow Armenians. ⁴²

Money was not left idle, but immediately given out at interest. A couple of months after buying commodities at Surat for Aurangabad, a balance of ₹651. 25 remained with Hovhannes, and this was given out at an interest of 12 per cent per annum. At Basra also money was lent on ‘avak’ (a form of bottomry) at profit ranging from 19.75 per cent to 25 per cent. ⁴³

According to Gujarat ‘chitties’ (letters) preserved in the Bibliotheque Nationale, Parsi and Bohra merchants at Surat in the early eighteenth century not only procured their wares through Armenians but also exported goods through them on a commission basis. Apparently goods were not only sent through the Armenians, but they were also entrusted with the task of selling them. For this they got a commission of 5 taka (copper coin) per bale which was called their hakshai (haqq sahih). A particular consignment which is mentioned in these documents belonged to Seth Behramji and it was freighted by an Armenian khoja from Surat to Basra and Istanbul. It consisted of bales of turban cloth, muslin, calico and other textiles. ⁴⁴

All contemporary sources are unanimous regarding the wealth of these New Julfa merchants. They ran almost the entire Armenian trading network. Ina McCabe has shown how they were financing trade as well as the Khassa or royal household in Iran. They controlled the silk trade, on which much of Iran’s economy depended, right from its production to its export, especially after 1629 when it was no longer a royal monopoly. ⁴⁵

Factors in their turn, once they became wealthy, stayed at home and provided capital to other factors, that is, they became masters but naturally they must have conducted business on a much smaller scale than the well-established merchants. According to one study there were certain families who were very important and in a way controlled New Julfa. ⁴⁶ A central feature of the Armenian commercial world was the family or tohm. The tohms operated somewhat like family firms, being associations based on bonds of family. Nearly all the partnership contracts that have come to our notice show that the family members operated jointly. Hovhannes’ masters were Embroom Agha and Zacharia, two wealthy brothers of New Julfa. In the Armenian documents we find Phanos borrowing from three associates, Khodga Safraz, Sahib Agha Emniaz and Agha Baron Gregor, who were sons and nephews of Khoja Minassents. ⁴⁷ It is interesting how these bonds of family helped, as in the case of Zakaria of Agulus who started work under the supervision of his uncle by transporting his father’s goods: he borrowed money from another family member for his own business and later on lent money to his brother-in-law to help him start his business. Ter Yovhaneanc who has studied this merchant group is of the opinion that sons and nephews were generally used to supervise factors. ⁴⁸