News and Document archive source
copyrighted material disclaimer at bottom of page

NewsMinecoldwar-imperialismeast-india-company — Viewing Item

Free trade imperialism

Original Source Link: (May no longer be active)

LINTON, Derek S. (1997) "Asia and the West in the New World Order. From Trading Companies to Free Trade Imperialism: The British and their Rivals in Asia", a EMBREE, T. & C. GLUCK (Ed.), Asia in Western and World History (pp. 81-116). Nova York: M.E.Sharpe.

Asia in Western History: Essays

Derek S. Linton


By the beginning of the eighteenth century European merchants had been trading directly in Asia for over two hundred years. The Portuguese, Spanish, Dutch, English, and French had all established permanent footholds and become recognized communities within the Asian trading world. European mercantile settlements were well ensconced in port cities like Surat, Hooghly, Cochin, Bantam, Canton, and Nagasaki. In addition, Goa, Macao, Bombay, and Batavia had been developed as European forts and factories. Mughal and Chinese officials welcomed the massive influx of gold and particularly silver brought by European commerce, since bullion was becoming vital for their steadily monetarizing revenue systems. European demand for Asian goods and the substantial European involvement In the country trade quickened economic life in Bengal, along the Malabar and Coromandel coasts of India, and in the Canton delta, redounding to the benefit of artisans, sailors, farmers, and merchants.

Rulers and consumers, not to mention pirates and smugglers, also gained from the rapid growth in direct Asian trade, particularly in the late seventeenth and early eighteenth centuries. As a quid pro quo for chartering East India companies and granting them monopolies, European governments could demand loans and levy duties. Saltpeter Imports from India, vital for the manufacture of gunpowder, eased the provisioning of arinies. While many of the goods such as precious gems, Japanese lacquerware, or Chinese porcelain graced the households of the wealthy, spices and Indian cotton goods (which by 1700 had replaced spices as the major import from the East) were used by members of an social strata. Tea drinking rapidly spread to all classes, prompting the English social reformer, Joseph Hanway, to lament in 1756, 'It is the curse of the nation that the Tabourer and mechanic will ape the lord ... There is a Jane where beggars are often seen ... drinking their tea. You rifay see labourers mending the road drinking their tea. . . ." Thus the availability of a wide range of Asian products contributed to the rise of consumerism in Europe, where entrepreneurs began to manufacture such products as Delft, English, or Meissen porcelain, displacing the original imported goods in the domestic market. In particular, the development of English calico printing and, most importantly, the mechanization of the cotton textile industry were spurred by the Asian example.

Despite the mutual advantages accruing from this multifaceted long-distance commerce, trade relations between Europe and Asia were not free of problems. While Asia seemed a sinkhole for bullion, there was little demand for other European exports. At the same time, imports of Indian piece goods posed stiff competition to European textile industries.

By 1700, an estimated 10 million guldens worth of gold and silver-over a fourth of the annual output of Latin American precious metals--was wending its way around the Cape to Asia. As much as 80 percent of imports from Asia were paid for in silver.

Even in the seventeenth century sophisticated mercantilists like the East India merchant Thomas Mun, arguing in terms that foreshadowed Ricardo's theory of relative advantage, cast doubt on the purely negative consequences of the specie drain.5 For them, bullion was a commodity like any other. Because of Spanish ownership of Latin American mines, bullion could be procured more cheaply in Europe than In the East. By freely exporting specie in order to purchase and reexport Eastern goods otherwise unobtainable or more expensively produced in Europe, England would accumulate more wealth than by restricting the outflow of silver and gold. But this analysis ran counter to conventional mercantilist doctrine, which equated the wealth of states with stockpiles of precious metals. Hence throughout most of the seventeenth century European exchequers attempted, with only moderate success, to control the exit of gold and silver.

Such concerns and restrictions, however, did have substantive effects. European interloping in Asian coastal shipping, the 'country trade," was undertaken in part to limit bullion exports from Europe. Trading companies hoped that multilateral intra-Asian trade would finance the purchase of Asian goods for the European market, for example, through the exchange of pepper for cotton piece goods or opium for tea. Moreover, under public pressure, they sought to augment the export of European manufactured goods to the East. But apart from some woolen pieces, used as draperies or as Muslim prayer rugs, metals like copper and mercury, and such luxury goods as clocks, coral, and ivory, European companies could find little, apart from bullion, that appealed to Asian customers.

The reasons for this peculiarly lopsided structure of trade continue to be debated. According to classical trade theory, the influx of bullion to the East should have raised price levels, reducing the comparative advantage of such Indian goods as textiles. Although data on Asian prices in the seventeenth and eighteenth centuries are fragmentary, there are few indications of widespread inflationary pressures. (Limited evidence of inflation in eighteenth-century India can be imputed to war, famine and other nonmonetary causes.) Two explanations have been advanced for the ability of Asian economies to absorb vast quantities of bullion without notable inflation. The first is the monetarization of Asian economies that resulted when the bullion was minted into coins, which were then funneled into domestic trade or commerce with other regions of Asia. The second claims that there was a special Asian propensity to hoard.8 Gold in India and silver in China served as repositories of wealth and were buried in gardens or wrought into gold jewelry and ornaments used for dowries, for conspicuous display, or as insurance against calamity. While supporters of either position recognize that both monetarization and hoarding took place, proponents of the first position regard the economic behavior of Asians and Europeans as essentially similar, whereas those of the latter assert that distinctive Asian social structures and cultural values resulted in hoarding. Although the empirical evidence is far too slender to decide these issues, the debate is a potentially fruitful one for elucidating similarities and differences in European and Asian economic orientations and social structures in the early modern period.

Whatever the reasons, the capacity of Asian economies to absorb large quantities of bullion without major inflation enabled Indian cotton fabrics to retain their competitive edge until wen after the onset of the industrial revolution. This was largely attributable to lower costs of production, although diversity, technical skill, and high quality also mattered. In 1736 it was estimated that wages in France were six times higher than in Bengal. The East India companies were able to garner high profits in Europe by marketing an extraordinary variety of low-cost Indian piece goods: chintzes, dungarees, ginghams, diapers, percales calicoes, and taffetas. Fabrics were sometimes sold at more than ;our times their procurement prices. Such imports, however, faced strong opposition from domestic textile interests; their protests prompted the English government to ban calicoes in 1700 and to introduce high tariffs on other Indian fabrics, the latter measure instituted also to raise revenue. France protected Its domestic textile manufacture against Asian imports as well. Despite legislation that permitted the English East India Company to import calicoes only for reexport, large quantities of banned Indian fabrics continued to be sold illegally in England, testimony to the vitality of the trade and the consumer's preference for the attractive and high- quality Indian fabrics.

If European governments were concerned mainly about the economic consequences of Asian trade, most problematic for Asian rulers were the political and military activities of European trading companies: their demands for trading privileges, their use of naval power to blockade ports and eliminate rivals, their construction of fortified settlements. Such measures obviously in- fringed on the sovereignty of Asian potentates. As K.N. Chaudhuri has written of the attitudes of Mughal rulers.

What mattered to them was the indisputable fact that the European traders were totally different from any other Asian commercial groups with which they came into contact. For one thing the corporate structures of the Companies gave them a collective strength and unity of purpose not available to the individual groups of merchants trading with or resident in the Mughal Empire. Through their command over sea power, the chartered Companies were also in position to inflict material damage to the seaborne trade of the Empire. A tacit recognition of the political reality was implicit in the treatment given by Asian rulers to the local Chiefs of the East India Company's main trading establishments. In the European travel accounts of Surat, for example, the heads of English and Dutch factories appear as the coequals of the Mughal ruling elite in life style and they were treated as such on the point of diplomatic status. (Chaudhuri, The Trading World of Asia, p.109)

Ever since the arrival of the Portuguese, suspicion, brutality, violence, and lawlessness invariably surrounded European enterprise in Asia. The Dutch had colonized extensively in the Moluccas and enslaved islanders; panicked by a false rumor of a planned revolt, they massacred thousands of Chinese laborers in Batavia in 1740. Although it could not pose a serious military threat, the English company waged war on the Mughal Empire between 1686 and 1690. But as the Mughal historian Khafi Khan has noted, even during this war, European trade was valued too highly to consider expeffing the companies.

Indeed, trade was far too lucrative and beneficial for either side to contemplate a rupture. An "age of partnership," based on a dynamic equilibrium between Asian and European commercial interests, still prevailed in 1700. Close collaboration with local merchants, moneychangers, and officials was indispensable to the functioning of European mercantile companies. The country trade was still conducted with Asian crews in Asian-built cargo vessels, and in India it was often jointly financed by European, Gujarati, and Bengali merchants. Even in Bengal, which was heavily penetrated by Europeans, the companies and their servants probably carried less than half the seaborne trade. Nonetheless, the foundations of a world economic system linking Europe, the Americas, and Asia had been laid by the eighteenth century.

The international division of labor and economic integration that developed between 1550 and 1750 has been aptly summarized by K.N. Chaudhuri as follows:

American treasure helped to finance Spain's balance of indebtedness. The cost advantage enjoyed by Genoese bankers and later by the Dutch and English in the entrepot trade accumulated capital in the hands of Europe's most efficient entrepreneurs. This capital helped to finance the imports of Indian cotton textiles, Asian spices and Chinese silks and tea. Indian textiles and cowries were in turn exchanged for African slaves who produced new agricultural commodities in the New World for consumption in the Old. The circuit seems to have ended as Barbados sugar sweetened Chinese tea in porcelain cups copied from products of Ching-te-chen kilns in imperial China.
With the secular upswing of the eighteenth and nineteenth centuries, Eurasian trade relations and the international political economy underwent a series of far-reaching transformations, bringing the 'age of partnership' to an end and inaugurating the era of European "free trade imperialism." Cooperative, albeit tense, trade relations gave way to trade based on unequal ex- change, and colonial economic policies which fostered underdevelopment were introduced. Instead of exporting manufactured goods to Europe for bullion, many regions of Asia became exclusively exporters of raw materials, often produced on European- owned and European-managed plantations. For the first time, they also became net importers of European finished goods, thus helping to sustain the industrial revolution. Eastern wealth was channeled to European investors. These new arrangements were undergirded by the enormous expansion of European economic and military power, but would also be facilitated by changes within Asia itself as well.
Four elements conjoined to bring about these decisive transformations. First was the triumph of the English East India Company (EIC) over its Dutch and French rivals. Second was the decline of Mughal power, which opened up opportunities for European aggrandizement in the Indian subcontinent. The English East India Company was drawn by its commercial interests into the political intrigues and warfare that marked Mughal disintegration. The upshot was the British colonization of Bengal in the 1750s and 1760s, a major turning point. Third was the subsequent colonization of Bengal under the administration of the EIC, which set out to refashion the Bengali economy to meet its own needs. The Institutions of the new colonial economy largely displaced native bankers and merchants, gave rise to a more commercialized agricultural system, and finally eradicated the export-oriented textile sector. Fourth was the tremendous growth of the China trade, especially the trade in tea; the English East India Company battened on the growth of the tea trade. The London-Calcutta-Canton nexus was made manifest by the trade in Bengali opium for Chinese tea, which was then shipped to England. The Opium War of 1839-42 and the resulting treaty port system showed that even the Chinese Empire was no longer invul- nerable to the new economic and military might of England as the company era gave way to the age of colonialism. Ironically, the very success of the EIC contributed to its downfall. Although long waning, the company era would end definitively with the dissolution of the English East India Company following the Sepoy Mutiny of 1857.


By the third quarter of the eighteenth century, the English East India Company had soundly defeated its French rival and was steadily surpassing the Dutch East India Company (VOC). The reasons for its success are complex, and include organizational economic, military, and political factors. The more streamlined business organization and simpler corporate practices of the English East India Company enabled British merchants to carve out a large niche in the Asian country trade. Also, because of the Dutch quasi-monopoly of spices, the English company was forced to deal largely in other commodities than spices. In particular, Indian textiles and Chinese tea would be the foundation of Eurasian trade starting in the late seventeenth century and a major source of the profits with which the company would erect its empire. Third, the better organization and greater wealth of the English East India Company provided the wherewithal for it to overcome its French rival during the warfare of the mid-eighteenth century. The triumph of the English East India Company would parallel the emergence of London as a port and financial center of international significance and the rise of England to great power status.

Founded by London merchants, the EIC was capitalized at about one-tenth the value of its Dutch rival, and initially it treated each voyage as an entirely independent enterprise. The Dutch virtually drove the EIC from the Spice Islands and thus compelled it to retreat to India. There it established unfortified factories at Surat and Hooghly under Mughal suzerainty, as well as at Madras on the Coromandel Coast. The company governed no Asian port of its own comparable to Goa or Batavia until 1669, when it reluctantly accepted Bombay from Charles II. Unable to enforce the sort of trade monopoly policed by the VOC, the English company permitted its servants to engage in the country trade on their own account. Although business surged in the last decades of the century, the EIC was confronted with well-organized political op- position in Parliament from merchant interlopers who demanded that its monopoly be rescinded. In the 1690s these opponents set up a rival company. As mentioned, it was also assailed by textile manufacturers who thought the company's primary role should be to export English woolens rather than to import Indian piece goods.

In 1708 the English East Indian trade was rejuvenated when the old East India Company and the newer company of interlopers finally concluded their merger to form the United East India Company. Not only was this recast company far more heavily capitalized than either predecessor, at 3.2 million pounds; but by lending this capital to the government, which was strapped for revenue as a result of the War of the Spanish Succession, and maintaining close relations with the Bank of England, the United Company Was guaranteed strong political and financial backing. Double-digit annual profits and 8 percent dividend rates soon confirmed the solidity of the United Company. Moreover, its minor role in the spice trade and its concentration in India proved to be no longer liabilities but advantages.

Another advantage enjoyed by the company was a far more streamlined structure than that of its continental competitors, especially the VOC with its labyrinthine bureaucracy. lr3 A twenty- four-member court of directors elected annually from stockholders presided over the company. In reality the directorate was com- posed of a closed, self-perpetuating oligarchy. The company divided its Asian operations into four administrative units: three in India (Bombay, Madras, and Calcutta) and the fourth in Canton. AR company accounting was centralized in London. In the eighteenth century the structure of the East India Company approached Max Weber's ideal type of rational bureaucracy, with clear lines of descending authority, an upward flow of information, and strict demarcation of functional tasks.

Two company policies that distinguished it from its rivals deserve mention. First, although the company manned its ships and maintained strict control over their captains and crews, the ships themselves were rented rather than owned. This meant that at the outset the EIC required less fixed capital; it reduced the company's Mks and enhanced its flexibility. But by the mid-eighteenth century the EIC was held hostage by a tightly knit London shipping interest which colluded to charge exorbitant shipping rates. Second, rather than monopolizing the country trade, the company encouraged both its servants and licensed free merchants to conduct intra-Asian trade on their own account. As the historian P.J. Marshall has pointed out,

A policy begun in weakness was eventually invested with princi- ple. Freedom of trade, it was argued, would enable the servants to earn fortunes which cost the Company nothing, while at the same time it would tum the English settlements into thriving ports from which the Company could collect a large revenue in customs and taxation.
Both of these arguments seem valid. The size and prosperity of Calcutta waxed in tandem with the growth of the British-owned private merchant fleet carrying the Indian country trade. Moreover, Marshall's case studies suggest that many East India Company officials who served in Bengal during the eighteenth century could realistically expect to retire to a country estate and live a gentleman's life in England. As a result of company trade policy, British merchants were soon undercutting the VOC's Asian trade. It is clear that Dutch officials, prohibited from private trading until the 1740s, often violated the rules and cooperated closely with British merchants. Certainly many EIC officials were also corrupt, but by providing a legal outlet for their voracious greed, the company restrained speculation. To some degree, it even managed to transform the private vices of its servants into public virtues advantageous to the company.
The aggressive invasion of the country trade by British private merchants helped to undermine the VOC, but probably more important was the dominant position which the EIC attained in the more dynamic sectors of Eurasian commerce, the trade in textiles and tea. In 1684 over 1.7 million pieces of fabric were imported from the East,21 and between 1730 and 1750 annual imports often reached close to a million pieces. Moreover, in the eighteenth century more expensive and better-quality fabrics, purchased in the marketing centers or arangs of Bengal, accounted for as much as 80 percent of the company's sales.

Above all, however, it was tea that made the East India Company's fortune. The company's zenith coincided with what the French historian of Chinese trade, Dermigny, has appropriately entitled "the era of tea." Much about the spread of tea drinking in England and on the continent remains surprisingly obscure.23 Already in the 1650s small quantities seem to have been available for medicinal purposes, and one early London coffee house advertised it as an exotic drink. But only in the late 1660s did the East India Company import tea on a regular basis, largely from Taiwan. Two decades later, the company tried to enter direct trade with China, initially without success. Even so, by the first decade of the eighteenth century, imports already surpassed 100,000 pounds. Among the gentry tea drinking may have been part of the "civilizing process." Tea reduced the intake of liquor, and tea time presented an opportunity for sexually mixed sociability. For laborers and the poor, tea became an inexpensive and tasty medium for imbibing energy-replenishing sucrose calories and moistening their daily bread.

In 1716 the East India Company was able to secure permanent direct trade with Canton, thus ensuring itself a regular supply and laying the basis for long-term China trade. Company tea imports rose exponentially: almost 9 million pounds of tea were officially imported between 1721 and 1730, 37 million pounds between 1751 and 1760. But until tariffs were lowered in the 1780s, smuggling tea was big business, and the British government acknowledged that legal tea imports probably made up as little as half the real supply.

The EIC took the lead and engrossed the lion's share of European tea imports. The Dutch originally bought tea in Batavia, but it deteriorated during the long voyage to Europe since it was shipped in bamboo cases rather than zinc-lined chests. Moreover, the VOC sold fewer varieties, since it could buy only what Chinese merchants offered. When in 1729 the VOC finally resolved to purchase directly in Canton, the English company was already firmly in place and went so far as to buy up all available green tea in order to forestall Dutch orders.2-9 The belated arrival and limited role of the Dutch in Canton betokened the less venturesome approach of the VOC than that of its English rival.


If the EIC gradually overtook its Dutch competitor in economic performance, its victory over the French was largely political and military. Despite earlier interest in eastern trade, it was only after 1664 that Louis XIV's great finance minister Colbert launched a serious French Company of the Indies. In contrast to the VOC or the EIC, the French company was purely a state-sponsored syndicate; that its agents were often unqualified political appointees rather than merchants certainly contributed to its lackluster per- formance.26 Nonetheless, by the 1680s the company had set up profitable factories In Surat, at Pondicherry on the Coromandel Coast, and in Bengal. But undereapitalization, France's schemes to colonize Madagascar, and its incessant warfare with the Dutch converged to keep the company teetering on the brink of bankruptcy. It finally went into liquidation during the War of the Spanish Succession. Reconstituted in 1725, the company flourished during the next quarter-century, when between eighteen and twenty ships departed annually for the East. Its prime source of profits was the textile trade on the Coromandel Coast, but its commerce with China also expanded steadily. Even at Its height, however, the volume of French trade was probably one-fourth that of the EIC. As was often the case with the French in the seventeenth and eighteenth centuries, promising economic initiatives were soon stifled by warfare. Between 1744 and 1763 France and England were embroiled in almost continuous military operations in India. Despite some efforts by the trading companies to neutralize the East, in order to avoid costly military campaigns, national and military interests ultimately overrode mercantile coneems. As a result, the French role in the East was rendered insignificant.

Two important military innovations, both of which ironically were pioneered by the French, but then used to greater advantage by the British, were introduced in Asia at this time. The first was a revolution in military organizational strategy, whereby European officers drilled uniformed armies composed of Europeans, Eurasian 'topasses,' and native sepoys. Armies were trained to lay down synchronized volleys of musket fire rather than fighting as aggregates of individual soldiers. The effectiveness of this strategy was demonstrated at the Battle at Adyar River, south of Madras, in 1746, where an army of French and native troops trained in musket volley defeated a force of 10,000 Indian soldiers allied with Britain. By 1750, however, the British forces were following the French example. With its greater financial strength the EIC was able to recruit a larger army and defeat the French and their allies in southern India.

The second innovation was the active involvement of the European companies in Indian politics and rivalries. While English East India Company officials originally conceived of intervention exclusively as a means of protecting trade, their French counterparts sought political allies as a way of building a French empire in India. Military alliances should be concluded in return for economic and territorial concessions. It was a vision, however, that would be realized by their rivals, the British, in Bengal.

The prerequisites for interventions by the French and English companies in Indian politics were the precipitous decline of the Mughal state and the accompanying devolution of power into the hands of regionally based princes and nawabs, the latter still nominally governing for the Mughals. A variety of interpretations has evolved to account for the collapse of the Mughal Empire. According to Braudel, the perennial campaigning of the Islamic emperor Aurangzeb against the Hindu Marathas and Sikhs virtually bankrupted the empire. The bloody intrigues for succession that followed his death further paralyzed the regime, and by mid- century the empire was reduced to a sort of theater state with some vestiges of authority but little real power. Its collapse was accompanied by considerable economic dislocation as the depredations of Maratha warriors, widespread banditry, and the financial demands of warfare curtailed production and trade.

To C.A. Bayly, however, the interpretation of the fall of the Mughals as a result of decadence and political anarchy is overly simple. His recent work describes the various kingdoms, military adventurers, and new social groups that rushed into the vacuum left by this Mughal disintegration. Not only were these new social groups often heavily involved in commerce, but their commercial activities sometimes transcended caste distinctions. A new society, based on aristocratic landownership and merchant capitalism, began to crystalize. In many cases these commercial elites allied with the European trading companies to guarantee the stability necessary to continue trade, thus playing an active role in the process that ultimately led to the colonization of India. Gujarati merchants, for ex- ample, encouraged the English East India Company to protect trade and shipping activities; it was at their urging that in 1759 the British wrested control of the city from the impotent Mughals.

A similar process, and one with far more spectacular consequences, played itself out in Bengal, where the nawabs had been autonomous rulers for decades.31 Appointed nawab of Bengal in 1756, Siraj-ud-Daula's excessive demands for funds from tax farmers and the great Parsi banking house of Jagat Seth turned them against him; his purge of the military and administration outraged generals and officials. When the EIC fortified Calcutta, largely against French attack, Siraj's army sacked Calcutta and drove the British out, thereby incurring the wrath of the local merchant community as well. In revenge the EIC raised an army of almost 3000 Europeans and sepoys to retake Calcutta. The company, In league with the Jagat Seths and disaffected members of the nawab's military and administrative establishment, defeated him in the battle of Plassey In 1757. But three years later, Siraj's successor was In turn replaced when he refused to cede land revenues to the company to offset its losses on military operations. It was clear that henceforth the East India Company would determine who would rule Bengal.


The de facto rule of the East India Company in Bengal was legally ratified in 1765 when the Mughal emperor recognized the company as the diwan, or revenue agent, of the province. The company immediately reduced the nawab's army to ceremonial functions and ensured that its own mercenary troops monopolized the means of control. Thus without any initial plan or expectation of creating a colonial empire and over the objections of its directors in London, who were averse to political entanglements which diverted the company from trade, the East India Company had established itself in less than a decade as the colonial ruler of northeast India's most prosperous state. This takeover would have been utterly impossible, however, if the exactions of the new nawab had not been widely considered illegitimate and if the EIC had not received strong support among the indigenous political and commercial elite, like the house of Jagat Seth.

As colonial administrator of Bengal, the East India Company in 1767 agreed to pay the British state ?4OO,OOO annually; its relationship with the British government was further institutionalized by the India Act of 1784, which set up a board of control to superintend the company's operations and finances, which were in disarray. But the privileged position of the company drew fire from Adam Smith, Edmund Burke, and Bristol and Liverpool mer- chants, who protested its administrative abuses and its monopoly of Indian trade. They would be effective in loosening the company's hold over the India trade in 1793 and in eliminating its monopoly of trade between India and Britain entirely through the Charter Act of 1813.33 But throughout the period the company dominated the Bengali economy.

Its policies had several major economic repercussions. Company servants and private merchants used their newly acquired political power to encroach on sectors of the Bengali economy, such as the salt monopoly, previously reserved by the nawab. The salt monopoly became a major source of income, as did opium production, which by the 1830s yielded one-seventh of the total revenue of British India.

Several other changes also had long-term significance, both economic and social. First, of course, was that the company, as diwan, collected the taxes and fees that had previously filled the nawab's treasury. This meant that it had to import very little bullion into Bengal. The stream of silver dwindled to a trickle as Bengali revenue was used to purchase Bengali goods for export and to finance the army and administration. Although Bengal still maintained a positive balance of trade, it became a net exporter of bullion, reversing the traditional pattern. Complaints of specie shortage soon followed. There can be no question that the company and its servants drained wealth from Bengal to Britain, although the size of this drain and its overall impact have been subject to debate, with estimates ranging from 100 million pounds during the first fifty years of British rule to as high as ten times that amount. While these funds did not in and of themselves finance British industrialization, which initially required little capital, they certainly did strengthen Britain's international financial position.

Whatever the effects, by 1789-90 British revenues from Bengal reached approximately 3 million pounds annually. Whether company taxation was more burdensome to the local population than that of the Mughals remains an open question, but collection was certainly more assiduous. Already by the 1770s the company had appointed European supervisors to ensure that tax farmers and zamindars, usually large land-owning revenue collectors, delivered their contracted SUMS. Fearing that extortion by native tax farmers was killing the golden goose, in 1793 Governor Cornwahis translated Whig notions of property and rural improvement into BengaR.39 The Permanent Settlement Act of 1793 converted the complex revenue-corecting rights of zamindars into absolute private property. In exchange for this legal tenure, zamindars were expected to pay a fixed sum to the company collectors in perpetuity. By freezing the level of taxation and consolidating property rights, company officials believed landowners would be induced to improve their land. These expectations were largely unfulfilled, however, since land values were considerably overassessed and zamindars were unable to meet their payments. Consequently, the Settlement Act was followed by a turnover of over 40 percent of taxable landed property in Bengal. Taxation thus tended to deter agrarian improvement.

The EIC also attempted to stimulate export-oriented agriculture and agroindustry. Following the famine of 1770, which killed at least a fourth of the Bengali population and seriously damaged the silk industry, the company sedulously revived sericulture by offering rent-free land to peasants willing to cultivate mulberry trees, bringing silkworm eggs from China, and even introducing Italian silk winders to teach new techniques. During the next decade raw silk exports to England rose to 560,000 lbs. annually. When the American Revolution cut off exports of indigo to England, the company advanced loans to encourage private European merchants to start indigo factories.42 Although initially sporadic, indigo production took off in northern India after the turn of the nineteenth century due to the vast increase in demand for dyes by the English textile industry and the absence of alternative sources of supply. In 1828, at the end of the indigo boom, there were as many as 900 European-owned indigo factories in Bengal, with up to half a million employees and dependents and aggregate profits of between I and 2 million pounds. To guarantee high profits, however, factories often coerced peasants into growing indigo and then kept them in debt peonage; it was an oppressive system that frequently precipitated riots. The company promoted other commercial crops as well, such as sugar cane-especiary during the Napoleonic Wars, when the West Indies supply declined-and, increasingly, opium and cotton, which, as win be discussed below, were essential for the China trade.44 AS one writer noted in 1835, however, the increased opium production in Bengal after the rnid-1820s 'had enhanced the value of the land fourfold, enriched the Zamindars, maintained thousands of people employed in collecting and preparing the drug .... "

While the social effects of the commercialization of Bengali agriculture continue to be debated, such observations suggest that it did conduce to some positive outcomes. Some zamindari landowners profited greatly from planting indigo, poppies, or mulberries. Wages of propertyless Bengali day laborers probably rose some- what during the late eighteenth and early nineteenth centuries. But while many peasants freely switched to cash crops in expectation of higher income, most seem to have accrued heavy debts, since advances were necessary to plant crops like sugar cane. In addition to the usual vagaries of the weather, they became vulnerable to volatile price fluctuations associated with distant events such as the Napoleonic Wars or the slumps in England between 1826 and 1935. The revenue demands of the EIC, shortages of bullion, and international market conditions led to serious depression in some rural regions during the 1830s.

The most serious consequence of company economic policy, however, concerned the fate of Indian textile manufacture in the early colonial era. In a word, British colonialism destroyed the vibrant export textile sector and deindustrialized India. By the last half of the eighteenth century Bengali textile manufacture was facing serious difficulties as a direct result of company policy. Although general demand for Indian piece goods remained high in Europe, prices were stable or fell in the 1770s and 1780s. To maintain its profits, the company had to obtain its supplies at low cost; it did so by eliminating competitors and imposing onerous constraints on weavers. First, despite company lip service to open trade, its agents prevented Dutch, French, or private merchants from buying in the arangs, thus creating a monopsony. Second, before advancing weavers the cash necessary to buy yarn, the company compelled them to sign contracts granting it exclusive rights over their output. In principle, weavers were exempt from various forms of taxation, one of the few benefits of the trade. But in the 1770s and 1780s, as company revenue demands mounted, weavers began to be subjected to heavy taxation by the zamindars.50 As a result, many weavers simply abandoned their trades and returned exclusively to farming, which was rendered an increasingly viable option since the situation of agricultural workers had improved somewhat as a result of the higher land/labor ratio after the famines of 1770 and 1787. Thus company policy had the unintended consequences of harming the export-oriented textile trade and inhibiting structural adaptation.

British policy and the mechanization of the English cotton industry would complete what company policy had begun. As described by Braudel, the growth of the cotton industry in England was itself a response to the challenge of Indian production:

The cotton revolution, first In England, but very soon all over Europe, began by imitating Indian industry, went on to take revenge by catching up with It, and finally outstripped it. The aim was to produce fabrics of comparable quality at cheaper prices. The only way to do this was to introduce machines-- which alone could effectively compete with Indian textile workers. That had to wait for Arkwright's water frame (1769) and Crompton's mule (1775-8) which made it possible to produce yarn as fine and strong as the Indian product, one that could be used for weaving fabric entirely out of cotton. From now on, the market for Indian cottons would be challenged by the developing English industry-and it was a very large market indeed, cover- ing England and the British Isles, Europe . . . , the coast of Africa where black slaves were exchanged for lengths of cotton, and the huge market of colonial America, not to mention Turkey and the Levant-or India itself. Cotton was always produced primarily for export: in 1800 it represented a quarter of all British exports, by 1850 this had risen to fifty per cent.
Although Braudel does not mention it, the timing of English mechanization can be plausibly linked to the inability of the EIC to maintain the supply of Indian piece goods during the disruptive warfare of the 1750s and 1760s. In the late 1750s prizes were offered in England for inventions to increase yarn production, thus giving incentives to Inventors like Arkwright.52 In the mid- 1760s British entrepreneurs, like the calico printing shop of Robert Peel, one of the key figures in the industrial revolution, stepped into the market temporarily undersupplied by the EIC.
Beginning in 1813, when a new company charter opened India to the free trade of British merchants, English manufacturers were able to export cotton fabric to the land that originally produced it: they carried calico to Calicut. Indian exports to Great Britain and the European continent had already fallen by over a third, however, during the Napoleonic Wars due to high tariffs in Britain (between 35 and 66 percent ad valorem for various types of cloth) and the French exclusion of British reexports. England's infant cotton industry thrived under these high tariffs. During the commercial boom which lasted from 1815, the year the Napoleonic Wars ended, until 1827-28, the export of Indian piece goods to Europe effectively ceased as cheaper English cot- tons supplanted them. English cottons also drove Indian piece goods from the American and Asian markets. Moreover, aided by low tariffs of 2.5 percent ad valorem on British imports, English fabrics and yam soon invaded the Bengali market, and by 1817 the Bengali imports of English piece goods surpassed exports to England. Within fifteen years over ?2 million worth of cotton goods was being imported annually. Although these imports probably covered less than 10 percent of Indian domestic demand, the growth of the Indian market for English cotton exports 'did much to alleviate the generally gloomy trading conditions of the period from the later 1820s to the mid-1840s.'-55 During this period export-oriented spinners, weavers, and dyers in India were ruined and immiserated as surely as were the handloom weavers of England. Once-flourishing weaving towns like Dacca decayed into insignificance. Reported the governor general in Calcutta in 1832,

Cotton piece goods, for so many ages the staple manufacture of India seem thus forever lost.... The sympathy of the Court is deeply excited by the Report of the Board of Trade exhibiting the gloomy picture of the effects of the commercial revolution, productive of so much suffering to numerous classes in India, and hardly to be paralleled in the history of commerce.
Although EIC and British policy destroyed its manufacturing base for foreign trade, in the first half of the nineteenth century Bengal continued to run a positive external trade balance thanks to its agricultural exports, e.g., opium, indigo, and raw cotton. Internal trade in grain continued to flow along the Ganges and its tributaries. And what became of the Bengali merchant communities and merchant capital that had been so crucial for the British takeover? Native merchants retained their hold on inland trade and money-lending, though even intra-Indian trade seems to have been somewhat hampered by tolls until they were abolished in 1835. Some merchants purchased zamindar land or urban real estate, and others switched to retailing imports, as opportunities for investment and involvement in foreign trade dried up.
After the 1780s, when company servants were forbidden to trade directly on their own account, their investments were placed with agency houses, usually owned and operated by Scotsmen. Such houses soon became multiple-purpose financial institutions combining banking and brokerage activities.59 They owned ships, invested in indigo and sugar factories, financed and insured the intra-Asian country trade, exchanged currencies, and made loans at high interest. Their close association with the indigo industry, however, made them extremely sensitive to gluts, as evidenced by the collapse of several leading Calcutta agency houses in 1833. In periods of tight money they sometimes received advances from the EIC. With their access to company funds, Its servants, and private British merchants and their affiliations with London banks, the agency houses gradually displaced the native agents who had previously been indispensable in acquiring goods for trading, lending money, and overseeing the private finances of company servants. After Plassey such agents had numbered among the wealthiest men in Calcutta.60 For some indigenous financiers, like the once powerful house of Jagat Seth, the British conquest was the beginning of the end. By the 1790s, forced to compete with the agency houses in its foreign exchange operations, Jagat Seth was in serious decline. A handful of Bengalis were able to become junior partners in European agency houses or even to start houses of their own along European lines, but for most the in- creasing dominance of foreign trade by British firms meant an introversion of capital into local or regional trade and a loss of status from a position of partnership with British mercantile interests to one of subordination.

This subordination was particularly evident in Calcutta, where even the wealthiest Indian merchants and landlords lived in the congested native section, or Black Town. Perhaps as symbols of their Intermediate position, their houses sometimes combined courtyards and other traditional elements with external features adopted from the Europeans, like Corinthian columns. The several thousand European residents-company officials, judges, lawyers, and free merchants--were concentrated In White Town, in the Chowringhee District, where, pampered by hosts of Indian servants, they recreated the life style of the English gentry. The British lived in detached villas with verandas which had the 'appearance of Grecian temples.' Along Fort William's Esplanade, which constituted the geographic and social center of European life, were arrayed the official buildings of the British administration. From the 1780s, when company officials were increasingly joined by their families, the British shopped in European emporia like Dring's or the Lall Bazaar, which sold everything from pickled herring to pianofortes. The reformation of manners and morals and the spread of evangelical Christianity -Tory reactions against the French Revolution- that were sweeping society in England were also evident among the British in Calcutta. Not only were heavy drinking and gambling, which had been notorious among company officials, frowned upon, but the keeping of Indian concubines was no longer tolerated. Although segregation was far from complete, relations were increasingly those between master and servant, not partners and equals.

The dawn of the nineteenth century also brought tightened political control, founded on an imperialist ideology and infused with modern racist sentiments. To a great extent, this change was prompted by Britain's experience in the Napoleonic Wars. Fearing that the rulers of Mysore and the Maratha confederation, who were advised by French officers, would be able to build and equip armies that could oust the EIC, Governor General Lord Wellesley set about enlarging the army, adding cavalry, and planning a better-organized military supply system. By 1799 his army defeated Sultan Tipu of Mysore and was able to hold the Marathas at bay. His troops were also deployed against the French and their Dutch allies during the Napoleonic Wars in Ceylon, Java, South Africa, and Egypt. Indeed, the army in India would provide the muscle of the British Empire in Asia, Africa, and the Middle East until independence in 1947. Wellesley and his successors encouraged the collection of information and development of knowledge that would buttress British military and administrative power. They promoted the study of Indian languages, gathered intelligence on the economic and military potential of Indian rulers, and mapped the subcontinent.

By 1815, the East India Company was completing the transition from trading company to ruler of a military despotism financed from Indian revenues, which in 1819 amounted to 22 million pounds.65 Indeed, the entire subcontinent was rapidly capitulating to British military power. Moreover, at least in Bengal, the economy was well on the way to becoming that of an underdeveloped colony, with a commercialized agricultural sector shaped by British interests. By the 1820s Bengal was an exporter of agricultural raw materials and an importer of English manufactured goods. Its textile export sector was already distressed and dying. Similar trends were apparent along the Coromandel Coast, too. International events and market conditions also affected India's economy. Revolts in Latin America In the 1830s combined with the reduction of textile exports resulted in a serious bullion shortage.

The three central problems which from a European perspective had plagued Eurasian trade in the early eighteenth century were disappearing in India: silver no longer flowed east from London to Bengal, since Indian exports were paid for with Indian funds; British traders commanded those commodities, namely, cotton textiles, that Indians wished to purchase, as a result, Indian piece goods no longer competed with European fabrics, whether in Europe or on third markets. Moreover, Indian raw materials were increasingly being substituted for silver to balance the China trade.

In China as well, the transformation of the pattern of trade would not be brought about by purely economic means. To invert Marx, it would be the heavy artillery of British gunboats, not the cheap prices of British commodities, that would batter down Chinese trade barriers.


By the 1780s the structure and pattern of trade between the East India Company, by far the largest trade company operating in China, and the port of Canton had become relatively fixed. The Chinese strictly regulated trade in an effort to contain the barbarians from the West. Under the Eight Regulations, foreigners were confined to their factory precincts, foreign women were denied entry, they were not permitted to winter In Canton, etc. The East India Company was compelled to deal exclusively with the cohong, a loose association of Chinese merchants licensed by the imperial government. While feigning indifference to foreign commerce, however, Chinese officials recognized that EIC business in Canton was an important source of income.

Although supplemented by silk, nankeen, china ware, and 'drugs" such as rhubarb and camphor, tea was by far China's most Important export to Europe. Exports to Great Britain, where the EIC held a monopoly, skyrocketed In the last decades of the eighteenth century as duties on tea were reduced from 100 percent to 12.5 percent by the Commutation Act of 1784, which made smuggling unprofitable, increased consumption, and actually increased government revenues. The China trade accelerated. Whereas in the 1770s fewer than ten EIC ships arrived in Canton in a season, by the end of the 1780s the number varied between twenty-five and twenty-nine. EIC imports of bulk tea rose from almost 6 million lbs. in 1783 to 15 million lbs. in 1785, and would grow to an annual average of about 30 million lbs. by the 1820s. By 1830 the British Exchequer was bringing in over 93 million annually from tea duties, about a tenth of its total revenue, and almost the entire profit of the EIC, perhaps ?1-1.5 million, could be traced to the tea trade.

The difficulty for the EIC, of course, was paying for Chinese tea. To be sure, Chinese mandarins found European watches and mechanical toys ('singsongs") amusing; Geneva artisans even made specially designed Chinese watches.69 But the only really important European export to China was woolens. During the 1780s the value of woolen exports to China rose to more than ?400,000 annually. It is doubtful, however, that this reflected a Chinese passion for wool cloth. Rather, the EIC apparently re- tailed these piece goods at a loss, largely to mollify British textile interests. Even so, in the 1780s, the EIC's bullion imports to Canton were sometimes double the value of the merchandise imports, at a time when Britain's war with Spain made it difficult to acquire silver coins.

Although the system worked passably well, the EIC, private traders, and other foreign merchants were dissatisfied with the drain of bullion and chafed at the galling restrictions imposed by the Chinese government. Company officials then hit upon the idea of stopping the bullion drain by financing the China trade with Indian goods. They also hoped to circumvent the Canton regulations by securing a Southeast Asian port. a British equivalent to Batavia, that could serve as a naval base and an entrepot where Chinese merchants could be attracted outside the framework of the confining Canton SySteM. Such a base was actually built in northern Borneo; it soon failed, though similar notions motivated the founding of Singapore in 1819. Hopes of protecting the tea trade, ending trade restrictions, and expanding exports of English manufactured goods to China prompted the 1793 mission to Beijing of Lord Macartney, former governor of Madras. He requested, inter alia, three new ports, a warehouse in Beijing, extraterritorial merchant settlements near Chusan and Canton, and permanent ambassadorial representation. The emperor peremptorily dismissed all the requests as wild ideas. In his famous response to George III, not only did he strongly reaffirm the arrangements with the Hong in Canton, he assured the king that China possessed all things, that he 'set no value on objects strange or ingenious ... and that he had "no use for your country's manufactures."

Nonetheless, both the structure and pattern of trade relations were already being loosened and would unravel completely within a few decades. The two factors working to destroy these arrangements were, first, the erosion of the company's monopoly and the concomitant growth of the free merchant community and, second, the takeoff of the opium trade.

Even before its monopoly of the China trade ended in 1833, the company had come to depend on licensed British private merchants for its system of payments in Canton. This was especially true after 1813, when the India monopoly ceased. Private merchants sold Indian or Malaccan Straits goods such as cotton, opium, tin, and rattan in Canton for silver. They would then transfer their silver to the EIC for bills of exchange redeemable in London, thereby remitting their funds back to England. Increasingly this complex system of transfers became a way of laundering and recycling profits from the opium trade. Although the EIC exercised a monopoly over the production and sale of opium in Bengal and earned a substantial portion of its revenues from its opium auctions in Calcutta, to preserve its official status, the company refrained from selling the illegal narcotic in China. Private merchants, however, who were shut out of the tea trade by the EIC monopoly could sell opium to the Chinese. From this situation arose a symbiotic arrangement between private merchants and the EIC based on the transfers of opium, silver, and tea.

Opium was the key to the entire trade relationship, as it was the only commodity for which the Chinese had a sure and rapidly rising demand. Chinese opium consumption had probably been climbing since the seventeenth century, when it began to be smoked with tobacco, initially introduced by Europeans from South America. A Qing edict of 1729 criminalized opium, and in the early nineteenth century only about 4,000 chests each weighing 140 lbs. were imported annually into China, largely via Macao. Despite periodic crackdowns by Chinese officials, consumption grew exponentially throughout the 1820s and 1830s. In 1836 more than 1,800 tons of opium worth over ?3.6 million poured into China, making it the world's single most valuable trading commodity. As a result of the opium trade, for the first time in history China's trade balance showed a deficit, with perhaps ?7.6 million worth of silver leaving China between 1828 and 1836. From an official Chinese perspective, the outflow of silver destroyed the reason for engaging in foreign trade. Moreover, Chinese officials estimated that I percent of China's entire population and perhaps 20 percent of its high officials and wealthy gentry were addicts. As in India, in the 1830s foreign trade was eroding China's monetary system, resulting in higher prices for the silver with which peasants were required to pay taxes and therefore adding to rural unrest. Worse still, the opium trade was being foisted on China by foreigners and was pursued through bribery, corruption, and gangsterism. In 1838 the Chinese government embarked on a major campaign to extirpate drug trafficking, whether by native Chinese or foreigners, a policy that clashed with the financial interests of increasingly aggressive British merchants.

Manchester manufacturers and private British merchants had lobbied in the late 1820s and early 1830s to end the monopoly of the China trade by the EIC, which they accused of failing to further the interests of British manufacturers and of passively complying with the restrictive Canton system. The end of the EIC monopoly in 1834, however, did not bring about the desired benefits, and the same coalition continued to pressure the British government to open up Chinese trade. Imperial Commissioner Lin Zexu's campaign to crush the opium trade served as a golden opportunity to pursue such an aim. Lin's seizure of merchants' opium and his attempts to force the British merchant community to agree to stop the contraband trade heightened tensions, and the refusal of the British to hand over a sailor who had murdered a Chinese peasant triggered hostilities.82 British merchants charged that the Chinese seizure of opium was a deadly insult to the British flag, and that China's failure to accept free trade and to deal with other nations as equals constituted grounds for war. Lord Palmerston, the prime minister, was easily persuaded to send an expeditionary force. The flag followed trade; free trade demanded war.

With their overwhelming naval superiority and more accurate guns, the British easily won the war in 1842. Indeed it was the first war in which iron steamers, "fire wheel boats' to the Chinese, were used extensively. On land, too, the ill-prepared Chinese army displayed little military prowess against the Indian sepoys. In the late summer of 1842 the humiliating Treaty of Nanjing was concluded, with the imperial regime agreeing to pay an indemnity of over ?4 million, ceding Hong Kong island, opening the ports of Canton, Amoy, Foochow, Ningpo, and Shanghai to free trade and consular representation, and setting up a uniform system of low tariffs.

The Treaty resulted in an enormous expansion in the volume of trade. Chinese tea exports spiralled from 66 million lbs. to 109 million between 1845 and 1855, while silk exports rose almost sixfold. Over the same period, opium imports almost doubled to 60,000 chests. The commodities traded, however, remained unaffected by the war. Whether because of immutable tastes or lack of purchasing power, the Chinese showed little interest in Western manufactured goods. Moreover, Chinese officials were dilatory in reforming the tariff system as demanded by the British. With its centralized government, integrated economy, long tradition of cultural unity, and sense of superiority, China proved far less cooperative and more resistant to Western demands, and its economy more impervious to Western goods, than had been the case in India.

But, despite the widening military, technological, and economic gap between Europe and Asia, even at mid-century there were very decided limits to Western power. Western penetration had always depended to some degree on Asian political weakness and economic receptivity. Although they had succeeded in battering down the old trading system, the British were not entirely successful in their efforts to introduce a satisfactory replacement. The treaty ports existed as foreign exerescences, and were never organically linked with the Chinese domestic economy.

Nonetheless, the British had dismantled the old system. What- ever the illusions of Chinese officialdom, the British were no ordinary barbarians. Their military superiority, still largely naval and organizational, and their economic dynamism had enabled them to conquer and colonize India and to embarrass the Chinese empire. Many Chinese tea and silk producers had become dependent on European demand. Whether under EIC rule in Bengal or under the rule of the Dutch in the East Indies, Asian peasants had become suppliers of unprocessed agricultural products-tea, coffee, cotton, spices, raw silk, and sugar-for the delectation of Europeans while Asian elites increasingly consumed imported European manufactured goods.

The vital importance of Asian empire and trade was widely recognized in Britain even during the 1850s and 1860s, the high era of laissez-faire, when European tariffs reached their lowest point in the nineteenth century. By 1860, 13.5 percent of Britain's imports came from Asia and 16.4 percent of its exports were destined for Asian markets. Asia was as important to British trade as was the United States.86 While Britain and the Netherlands were the only colonial powers in Asia by mid-century, and most other European nations purchased their Asian goods from these two, some continental industries, like the silk industry of France, drew their raw materials from the Far East. Liberal free traders cheered Palmerston's use of naval power to maintain open trade relations in China in 1857-58. Peter Harnetty has argued that the proponents of free trade known as the Manchester school of free trade economics vigorously supported imperial economic development in India in mid-century.

In this period, the Indian economy appeared to the Lancashire cotton interests as an ideal complement to Great Britain's economy: India would provide both raw materials for British industry and a vast market for British manufactures. Commercial penetration of India required a planned program of public works and significant investment by the state.
Even Cobden, the apostle of free trade, ruefully admitted, 'If you talk to our Lancashire friends they argue -that unless we occupied India there would be no trade with that country, or that someone else would monopolize it, forgetting that this is the old protectionist theory which they formerly used to ridicule. The notion of empire harmonized readily with the free trade demands of merchants opposed to trading companies and those of manufacturers for export markets in the East. Moreover, in the Royal Navy and Indian army, Britain commanded effective instruments for ensuring unequal economic relations.


Thus between 1700 and 1850 trade and political relations between Europe and Asia were dramatically transformed. Europeans had conquered India, the East Indies, and Ceylon by the mid-nineteenth century, and were able to dictate the conditions of trade to China.

To be sure, even in 1700 Europeans enjoyed some significant advantages when operating in the Asian trading world. First, they had access to large quantities of silver, which enabled them to establish themselves in the Asian trading world. Second, because European governments and mercantile companies sought to decrease bullion flows to the East, trading companies were encouraged to find other ways of financing their exports to Europe. They thus intruded in the intra-Astan country trade, acquiring extensive knowledge of Asian trade networks and commodities in the process. Although European merchants often cooperated closely with their Asian counterparts, in the long run, their position in the country trade would allow them to displace much native shipping and underwrite much of their European trade with profits from Asian goods. Third, Europeans possessed superior ships and naval armaments, naval technology was one of the few areas in which Europeans had any significant advantage. This advantage increased sl

Britian china history
British museum downplays opium role { May 24 2002 }
Causes opening china
China history
China qing dynasty
Free trade imperialism
Opium throughout history
Opium war

Files Listed: 8


CIA FOIA Archive

National Security
Support one-state solution for Israel and Palestine Tea Party bumper stickers JFK for Dummies, The Assassination made simple