Capitalism In The Colonies: African Merchants in Lagos, 1851 - 1931 [Chapters 1 - 2]

Professor Tony Hopkins has a new book that interests us. So we have decided to attempt a read-along on this blog. We will share our thoughts as we go along as well as anything we find interesting. We hope we can pique your interests and spark some debates in the comments.

We may also do some chapters in podcast form depending on how things go. The book covers an incredible amount of detail (Chapter 2 alone has almost 200 footnotes) and it may not be possible to do it justice with posts like this.

This post starts off with the first two chapters of the book.

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The first chapter covers a lot of theory and sets the scene for the book. Much of it is heavy going but there were a couple of interesting things I noted. The first is that Lagos had both natural and unnatural advantages that turned it into the economic powerhouse it was then and is now.

First, the natural advantages. Lagos had an island nestled between the Atlantic Ocean and the mainland, perfectly positioned at a break in the region's network of waterways. Rivers connected this island to the rest of the country. But here's the thing about geography: a single feature doesn’t usually make a place unique—rivers, islands, and coastlines exist all over the world. What set Lagos apart in West Africa was the way these common features came together in combination. Nowhere else in the region had this same blend.

Then the unnatural. Port Cities are as old as documented history around the world. What Lagos was, however, was a Colonial Port City. This time, the uniqueness was man made as Colonial Port Cities were ruled by a foreign power and crucially, were selected because that foreign power decided that the hinterland behind the Port City carried a lot of potential. This helps explain the development trajectory of Lagos compared with Freetown. Both were Port Cities but the hinterland behind Freetown was not judged to be worth the investment or trouble and so it never developed as Lagos did. These advantages compounded. Professor Hopkins writes:

Decisions affecting the location of colonial ports had the further consequence of influencing the starting points of the railway lines built during the second half of the century and a corresponding commitment to costly harbour improvements. (Page 14)

And so Lagos became a place that attracted people who wanted to get rich and held out the promise of opportunity:

The town exhibited the sense of restlessness that characterised all frontier settlements, where enticing opportunities allied to commensurate levels of risk attracted adventurous spirits. Immigration, accompanied by different shades of ethnic differentiation, filled out the port and filled it up with a high proportion of poor and semi-employed inhabitants. Lagos was typical, too, in having extremes of wealth. Old wealth was attached to chiefs who commanded followers and enjoyed rights of tribute and taxation. New wealth stemmed from trade in the goods that replaced the slave trade. The bulk of the population struggled on limited incomes and had low standards of housing, sanitation, and nutrition compounded by high rates of disease and death. (Page 12)

That is a paragraph that could very well be written today. This brings me to the second point I found interesting. The extent to which the abolition of the slave trade was a resetting event is underrated. So much established wealth which had been built on the slave trade was simply destroyed. The trade had been so profitable that those who had gotten rich off it were simply not enticed by anything else even though they had ample warning and time to pivot away from a dying industry. They ended up losing their wealth and power and were simply replaced almost wholesale. In the context of a place where wealth destruction happens every 5 minutes, this reads like no big deal. But as Professor Hopkins writes:

When the Atlantic trade was abolished, many established supply systems were disrupted; those invested in them faced losses of wealth and power; alternative possibilities were uncertain and seemingly less profitable. Asian ports did not experience upheaval on this scale or with comparable rapidity. Merchants in Karachi and Bombay enjoyed a greater degree of continuity than their counterparts in West Africa; the Hongs in China survived the Opium Wars, even though some of them lost influence in ports that became uncompetitive. (Page 15)

Was this Nigeria's first bout of industrial scale wealth destruction? Maybe, maybe not. But it was definitely not the last. The fortunes built during Ibrahim Babangida’s regime in the ’80s and ’90s were quickly eclipsed by a new batch of power players when democracy returned in the 2000s. Nigerians often say wealth in the country never survives a generation—take M.K.O Abiola, for example. His once-mighty fortune has dissipated to the point that many of his heirs can hardly be called rich today.

What's behind this relentless cycle of wealth destruction? I'll admit, I'm speculating here, but the slave trade was the ultimate resource extraction play. As I've mentioned when discussing Formation, the business of selling slaves from Nigeria was pure resource extraction—no frills, no added value. Nobody was giving slaves a makeover before selling them off; they were simply captured and sold to the highest bidder to be used however the buyer saw fit. To break this cycle, we pivoted to palm oil, and later to crude oil. Seen through the lens of history, it’s all just an unending loop of resource extraction. Innovation? Nowhere in sight. Each new "hot commodity" inspires a fanatical devotion—'we die here'—until it's inevitably replaced by the next thing. And when the shift happens, the people who have obtained so much wealth and status from the outgoing thing can't evolve beyond rent-seeking; they’re stuck in a self-destructive loop, unable to transition even to another flavour of resource extraction. Destruction, in the end, is the only constant.

As we go along we will get to meet some or all of the 116 African entrepreneurs Professor Hopkins has collected data on from a mixture of Land Registry Archive records (going back to 1860), Supreme Court (1867), Probate Registry (1880s), Lagos Town Council (1900), Register of Companies (1912) and good old fashioned walking around and talking to people.

- Feyi

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Professor Hopkins’s new book focuses on Lagos—a city I call home and deeply care about, yet one that has suffered from decades of poor governance. I tend to see Lagos in three distinct forms (or perhaps four). First, there is Lagos, the Port City, a hub for the trade of the most sought-after commodities in its region, serving as the main source of wealth for the elite. Over time, Lagos has been a gateway for slaves, palm oil, and crude oil. Then there’s Lagos, the Commercial City, a vibrant, cosmopolitan market and cultural center that drives economic exchange, art, and diverse industries. Finally, there’s Lagos, the Political City, where the elite wield their financial power to shape the political landscape of the surrounding areas.

Hopkins' narrative presents these three forms of Lagos, and I am looking forward to seeing how they evolve throughout the book. The book starts with the natural and economic geography of Lagos—an island (which eventually expanded to its hinterlands) that grew into a port that was a large and profitable hub for the slave trade. Crucially, Hopkins identified three shocks that Lagos went through starting in 1851.

The first shock, in 1851, was transmitted by Britain’s decision to end the slave trade by bombarding the town and establishing a consulate, which became a colony ten years later.

The outcome was decisive in shifting external trade from exports of slaves to exports of palm oil and kernels. Saro merchants took advantage of the change to establish their place in Lagos, whether in business, colonial service, or the Church. The development of legitimate commerce produced the first ‘merchant princes’ of Lagos, men who made money but were also motivated by a desire to show that Africans could absorb mid-Victorian values and carry the civilising mission into the interior.

Saro merchants led these revolutionary changes, which can be summarised as laying the foundations of the economy that characterised the greater part of the colonial period. What is not well known is how the creation of the colony enabled entrepreneurs to adapt business structures to fit new opportunities.

A major transformation, known only through the Lands Office and Court Records, recast property rights. In the 1860s, freehold land became the basis of credit and, by extension, mercantile fortunes. The surprise here is how quickly indigenous merchants adjusted to the new system and also piled into the land market.

The change was accompanied by another of fundamental importance, though one that indigenous merchants were slower to adopt: the emergence of wage labour. This development, which was momentous in principle if not yet in practice, was initiated by Saro merchants led, as will be shown, by James Davies.

The second shock hit Lagos in 1892, when the British government decided to enlarge the colony, which at that time was still confined to the island of Lagos and a narrow strip on the mainland side of the lagoon.

The assessment of this event begins in the 1880s, when declining terms of trade reduced profits and caused relations with states in the hinterland to deteriorate. The invasion of the hinterland was an attempt to restore the fortunes of legitimate commerce. It formed the prelude to subsequent advances that led to the creation of the Colony and Protectorate of Nigeria in 1914. It did not, however, improve commercial prosperity.

There was no instant recovery; the century ended with another serious commercial crisis. The advance of the expatriate firms inland after the turn of the century added to the difficulties faced by African merchants, whose limited capital resources made it hard for them to compete.

Adverse trends extended beyond issues of economic development: increasing racism destroyed the universal ideals of the mid-Victorian period, reduced the status of educated Africans, and limited their opportunities for advancement in the Church and government employment, though not in business.

It is easy to see why many studies of the period conclude that by 1914 the ‘Golden Age’ enjoyed by African merchants in the West Coast ports had turned into what might be called an ‘Age of Lead’. The interpretation advanced here suggests that the decline thesis needs modifying.

Analysis of a large sample followed over a long period shows that, though some merchants declined, newcomers arose to take their place. Moreover, after 1900, African merchants responded to changing circumstances by innovating. Some developed new export crops. Others began to diversify the staple import-export economy. Another group turned from commerce to money lending and property rentals.

Most of these activities took place within business structures founded in the 1850s and 1860s that were characterised by sole ownership. Nevertheless, after the turn of the century, African merchants recognised the need for change and began to experiment with new forms of organisation, including limited liability companies.

The third shock began abruptly in 1914. The war disrupted international commerce and presented fresh challenges for African merchants. Yet, they survived the conflict, participated enthusiastically in the post-war boom, and suffered correspondingly, if far less enthusiastically, in the slump that followed.

The grim commercial outlook was confirmed by the global economic crises that struck in 1929 and 1931. Expatriate firms survived by amalgamating. African merchants responded, though less successfully, by forming limited liability companies in an attempt to increase capital resources while also limiting risks.

The most obvious hypothesis identifies this period as the one that marked the irreversible decline of the merchants who had made such an important contribution to the Lagos economy since 1851. Any assessment of their fortunes between 1920 and 1945, however, has to be speculative because the necessary research on the period has still to be undertaken. Meanwhile, there are alternative possibilities, discussed in the concluding chapter, which suggest that the file should be kept open.

Hopkins started with the first shock in Chapter Two. This chapter examines the period following the British bombardment of Lagos in 1851, which significantly transformed the city's political and economic structures. He describes this era as creating a "cosmopolitan frontier," where the intersection of local interests and imperial ambition led to profound changes in Lagos' economy and society. I will do a rundown summary of the key themes in this chapter.

Following the British intervention, the slave trade was gradually replaced by the trade in "legitimate" goods such as palm oil and other agricultural products. This shift, though morally driven by abolitionist motives, was also pragmatic, as British interests in the region focused on securing alternative sources of wealth. Lagos became a centre for palm oil exports, creating opportunities for local merchants to expand their activities beyond the slave trade. Important to also add here that the shift to palm oil was very reluctant as it was obviously much less profitable than slave trading.

Despite the shift to legitimate commerce, uncertainty loomed over Lagos due to the precarious nature of British influence and the limited resources available to the consulate. Hopkins points out that the consuls struggled to enforce British policies, as they were understaffed and under-resourced. This instability created challenges and opportunities for local entrepreneurs, who had to navigate the volatile political environment while capitalizing on new commercial possibilities.

In 1861, the British formally annexed Lagos as a colony, marking a turning point in its political and economic trajectory. This formalization of British control brought new administrative structures, affecting trade regulations, property rights, and the legal system. The colonial administration sought to create a stable environment for commerce, which benefitted local merchants by providing more predictable conditions for business. However, the growing colonial presence also imposed restrictions and introduced competition from European firms, which began dominating key economic sectors.

As Lagos evolved into a colonial city, its population became increasingly diverse, with the arrival of European traders, missionaries, colonial officials, and African migrants from other parts of the continent. This cosmopolitan population contributed to the city's complex social fabric, where African and European influences mixed in both public and private life. Local merchants, particularly the Saro, played crucial roles in mediating between these groups, leveraging their knowledge of African and European systems to maintain their economic and social status.

The Saro - liberated Africans and their descendants - occupied a unique position in Lagos society. They were often well-educated and Christian, with strong ties to British officials and missionaries. Hopkins explores how the Saro established themselves as an elite group in Lagos, using their education and connections to gain influence in commerce and politics. However, their status was not uncontested, as they faced resistance from other local groups, including indigenous elites who viewed them as outsiders.

By the end of the 19th century, a new social and economic order had been established in Lagos, with British colonial rule firmly in place and the Saro emerging as key players in the city’s economy. However, this order remained fragile, as it depended on the colonial administration and the fluctuating global market for palm oil and other exports. Hopkins closes the chapter by hinting at the challenges that would arise in the coming decades, particularly as colonial expansion into the hinterland and competition from European firms intensified.

Two Big Themes

So far, I have found two things very captivating in the book. Hopkins centred on the role of entrepreneurs in this history. Most economic historians favour grand narratives about broad structural factors and political actors. But here Hopkins makes the bold and insightful claim that entrepreneurs are the visible hand of the market. In contrast to Adam Smith, who viewed merchants cautiously and warned of their monopolistic tendencies, Hopkins cited French scholars Richard Cantillon and Jean-Baptiste Say who offered a more positive view of entrepreneurship. Smith famously lacked a term for "entrepreneur" and considered merchants as part of an unproductive class. He relied on the "invisible hand" to organize production without directly acknowledging the entrepreneurs' role. In contrast, Cantillon and Say were entrepreneurs and approached the subject from personal experiences.

Cantillon defined entrepreneurs as risk-bearers who operated in environments of uncertainty, emphasizing that in pre-modern economies, nearly everyone had to engage in entrepreneurial activity due to the unpredictable nature of the environment (e.g., wars, robberies, or harvest failures). Say extended this definition to include individuals who managed their businesses and took risks. Both thinkers stressed the importance of entrepreneurship for economic coordination and resource distribution, portraying entrepreneurs as critical to economic stability, even if they didn't focus on innovation.

Many African economies today (including Lagos) still retain this "pre-modern" structure. Big firms are largely absent, and the economy is dependent on the efforts of millions of small entrepreneurs. Sadly, the interests, ideas, and incentives of these economic workhorses rarely feature in big policy debates and actions. Their fate is perpetually trapped between the dealings of overbearing and rent-seeking governments and oligopolistic and rent-seeking private powerbrokers.

Secondly, the success of legitimate commerce in Lagos required establishing new institutions to support its growth. When the slave trade ended, and Lagos transitioned to legitimate commerce, it was evident that this new form of trade required more than just political changes—it needed structural and institutional changes to provide economic stability. One of the key developments was the creation of freehold tenure, which allowed for the formalization of land ownership and the policing of debt.

Hopkins noted that the colonial government, responding to pressure from merchants, facilitated these institutional reforms. As a result, a thriving land market emerged in Lagos. Land became a valuable asset, with rising prices enabling sales and developing a credit system. This credit system, secured against land, allowed for more significant economic activity. This formal property market was pivotal for raising capital, from constructing houses to funding education and political activities.

Saro merchants were crucial in pioneering these changes. They developed single-owned businesses that contrasted with the older networks of slave traders, which lacked formalized investment opportunities. The development of wage labour and land markets amounted to a socio-economic revolution, further entrenching capitalism in Lagos and beyond. The introduction of formal property rights and the credit system revolutionized how trade and commerce operated, fundamentally altering the landscape of economic development.

I am looking forward to learning more about the emergence of labour, land, and credit markets and the legal institutions that supported them, especially as a comparative exercise for how those markets work in today's Lagos.

- Tobi

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