Did profitable slave trading enable the expansion of empire?: The Asiento de Negros, the South Sea Company and the financial revolution in Great Britain

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.