Haven't finished reading, but the Council Bills thing isn't new. ISTR it's in the Tooze we read, actually. IIRC the point was that buyers of Indian goods paid in gold in London, and the Indian exporters were paid in silver rupees in India. The rupee was fixed at an artificially low rate against gold, so London got a margin on the exchange (the actual ripoff), plus transaction fees and ancillary financial business. This
they were "paid" in rupees out of tax revenues - money that had just been collected from them.
is nonsensical. People were paid for what they sold, but at a discounted rate. (Presumably this had redistributive effects among Indians, I would guess upwards.)
Yeah, I don't really get the "for free" argument. Guess what, the US government pays for things with taxes too!
They brag about it in road signs in West Virginia.
Similarly, EIC using tax revenue to finance purchases is nothing new. All the Europeans did that, starting with the Portuguese. AFAIK it's also pretty standard practice among pre-modern states generally. eg. Siam collected exotics in tribute and re-exported to China; China always had state-run monopolies on salt and iron and sometimes other things, start-up costs at least funded out of tax; sometimes they also collected tax in kind, sometimes in export items like silk. State export monopolies were very common all over, though usually the rights were sold to private merchants rather than operated directly.
Basically, anyone who wanted to buy goods from India would do so using special Council Bills - a unique paper currency issued only by the British Crown. And the only way to get those bills was to buy them from London with gold or silver. So traders would pay London in gold to get the bills, and then use the bills to pay Indian producers. When Indians cashed the bills in at the local colonial office, they were "paid" in rupees out of tax revenues - money that had just been collected from them. So, once again, they were not in fact paid at all; they were defrauded. Meanwhile, London ended up with all of the gold and silver that should have gone directly to the Indians in exchange for their exports.
The last para seems to involve some very odd reasoning. Either the journalist doesn't understand the paper or the author doesn't understand economics. It's equivalent to me buying a US Treasury bill with sterling, then going to the US and swapping it for some goods, and the American who sold me the goods then goes to the US government and cashes in the bill in exchange for dollars. Yes, those dollars have just been collected from him in taxes. No, he has not in this case been defrauded. It's an odd way of running international commerce by modern standards, but not fraud.
Note that the Indian producer is still, in this case, ending up with some gold and silver. He gets it from the colonial office in exchange for his Council Bills. How in that case is he being defrauded? He's sold his products and he's ended up with some money.
Also I suspect that a lot of work is being done in that estimate by the casually dropped-in "oh and naturally I compounded this at 5% a year every year from 1765 to 1947". That is well above the growth rate of any economy in the world at any time in that period.
It seems fair to assume that Patnaik actually knows her stuff, so this is presumably a case of an over-excited journalist getting the wrong end of the stick rather than a bizarre outbreak of Vedic economics or something.
And this whole counterfactual essentially is bullshit
These are eye-watering sums. But the true costs of this drain cannot be calculated. If India had been able to invest its own tax revenues and foreign exchange earnings in development - as Japan did - there's no telling how history might have turned out differently. India could very well have become an economic powerhouse. Centuries of poverty and suffering could have been prevented.India was an economic powerhouse long before the West ever got there. Initially the Portuguese finances purchases out of taxes because they didn't have anything Indians wanted to buy. Likewise China, but more so. China had all the capabilities needed to build a global trading empire at least since the Ming*, probably much earlier. IDK India, but I'd guess much the same applies. They could have done everything the West did, far earlier, but they didn't. Likewise the Japan comparison is bullshit: they developed by exporting into the Western-created system (and borrowing vast sums from it for decades).
6: It's still fraud if you manipulate the exchange rate because you have all the guns.
Collecting plunder by force was invented before the Ming. Probably at least a thousand years old.
It's still fraud if you manipulate the exchange rate because you have all the guns.
it's a fraud cheerfully engaged in by every government in the world for quite a lot of modern history, and by many governments even today - including the government of India up to the 1990s.
That's very different from the case where you control both governments.
They could have done everything the West did, far earlier, but they didn't.
Robert C. Allen reckons not, arguing that the reason the industrial revolution kicked off in Britain is the combination of cheap energy, cheap capital and expensive labour. Say you're running a cloth mill and you want to make twice as much as you do at present; you have the choice of hiring more people or investing in machines. In India, doubling production by hiring more hand-weavers was always cheaper than doubling it by investing in power-driven looms; even if some Indian genius had built a power loom, no one would have bought one, because it would make more sense just to add people instead. The reverse was true in Britain.
That's very different from the case where you control both governments.
There's only one government in this case.
Right and it was setting the exchange rates to the disadvantage of India in a way that constitutes fraud, or theft.
If India had been able to invest its own tax revenues and foreign exchange earnings in development - as Japan did - there's no telling how history might have turned out differently
The snarky reply to this is: Hey, China wasn't colonised (a few tiny outposts on the coast aside; Ming and Qing-dynasty China colonised thousands of times more land than they had taken off them by other colonial powers). China had control over its own budget. China could run its own currency trade. China could invest its own tax revenues and foreign exchange earnings however it wanted.
How did that turn out for them?
Wait. Didn't China lose wars resulting in giving up control over its trade?
13: I was referring more to global maritime expansion, depending essentially on construction of oceangoing ships (which China could certainly do).
I haven't read much, but Song China certainly had the beginnings of an industrial revolution; producing cast iron in quantities IIRC unmatched until the 19th C. Also plentiful gunpowder weapons, including small arms.
All that said, Elvin makes a similar point to 13 wrt China - "the high-level equilibrium trap" - he attributes that not to plentiful labor but to efficient river transport and high-productivity agriculture: everything good enough that early innovations wouldn't be competitive. He says China was broken out of that trap only by attachment to the global market created by the West, especially the American conquests.
17: Yes. But only in the 19C.
Opium without Narcan. Very irresponsible.
15: no. You're getting confused because there are two locations and two metals involved, but what is going on here is:
One lump of gold is worth ten lumps of silver on the international free market. Indians will sell a sack of rice for a lump of silver.
Foreigner: I would like to buy ten sacks of Indian rice.
Britain: You'll need a Council Note for 100 lumps of silver. That will be 12 lumps of gold please.
Foreigner gives Britain 12 lumps of gold, receives note.
Foreigner gives note to Indian, receives 10 sacks rice.
Indian gives Britain Council Note, receives 100 lumps of silver.
The effect is that Indian rice, on the world market, is priced at 0.12 lumps of gold, or 1.2 lumps of silver, per sack, when it should only be priced at 1 lump of silver per sack. The long-term effect is going to be to drive silver up and gold down on the world market, though, because the British government is willing to pay more gold for silver than anyone else, which will increase the purchasing power of silver rupees... this is a complicated question that doesn't boil down to simple "fraud or theft".
"The chapter on the Fall of the Rupee you may omit. It is somewhat too sensational."
Wait. Didn't China lose wars resulting in giving up control over its trade?
China lost a couple of wars in 1841 and 1860 as a result of which it was forced to open a few of its agricultural markets to foreign imports. It didn't lose the ability to export whatever it wanted wherever it could find a buyer and it didn't lose the ability to run its own taxes and invest the results in development.
21: I understand that it could work that way. I'm expressing my doubt that it did work that way because if it did, there would be no reason for Britain to require those extra steps. There's men with guns preventing the Indian from successfully complaining that he didn't get 100 lumps of silver and trying to sell directly to the foreigner.
open a few of its agricultural markets to foreign imports
That's a very technically-true way to put it.
22: They did lose the administration of customs in some ports; and in 1895 they lost control of all customs revenues to service the loan they needed to pay the Japanese indemnity. Your general point (and mine) still stands though. (And they did in fact invest in a lot of development.)
Broadly speaking the principle of governments paying taxpayers for the stuff they buy off them out of tax revenues goes back at least to the early Roman Empire and probably a lot further than that. The opposing principle that "a king should live of his own" was only ever very localised and very short lived; and probably never borne out in practice.
There's men with guns preventing the Indian from successfully complaining that he didn't get 100 lumps of silver and trying to sell directly to the foreigner.
But the Indian did get 100 lumps of silver.
23: Factually, it did work that way. The elaborations serve to conceal the ripoff from the Indian, resulting in a need for fewer guns; and more importantly, results in the accumulation of gold in London (and as I said, associated agglomeration of City services, a very big deal).
29: The ripoff, as I say, is that Indian rice is more highly priced in silver on the world market than it would be if the rupee was freely convertible. Whether that is a ripoff of the Indian or the foreigner or both is a tricky question. But it's not notably different from any other policy of managing exchange rates for the benefit of some people (like exporters from 2000s China) at the expense of others (Chinese consumers).
TBC, the central thrust of the article - Britain squeezed a huge amount of money out of India - is true. My objections to the OP link are (1) misunderstanding the mechanics, (2) treating old news as new, (3) spinning deeply ignorant counterfactuals, (4) assigning to Britain a moral viciousness which in fact was shared to some degree by (AFAIK) every polity they exploited. Concentrating wealth in the metropolis is what states do; the Indian states Britain conquered had glittering capitals bought with the sweat of peasants. This too
Britain's industrial rise didn't emerge sui generis from the steam engine and strong institutions
is ignorant. Britain's rise absolutely did result from strong institutions: the ones that built oceangoing warships and expeditionary armies and the financial systems to pay for them. And weakness in financial administration - taxation, plunder - btw was China's crippling weakness. Britain did the same things more effectively.
No, it's really, really easy to argue that the relationship between the British and India is different from the relationship between Chinese consumers and exporters.
32: The exporters have much better Party connections than most of the consumers.
32: One's a rapacious unaccountable government imposed by military force and maintained by brutal repression whose economic mismanagement led to famines in which millions died, and the other...
The same but with a poet arguing it's all necessary.
But fine, dictatorship is bad whether foreign or domestic. There a lot of ground left before you get to "it's a fraud cheerfully engaged in by every government in the world for quite a lot of modern history, and by many governments even today - including the government of India up to the 1990s."
Actually both had poets arguing it was all necessary
https://en.wikipedia.org/wiki/Thomas_Babington_Macaulay
https://en.wikipedia.org/wiki/Poetry_of_Mao_Zedong
Poet, dictator, swimmer of rivers. Triple threat.
The gold-exchange standard was, significantly, the subject of Keynes's first book, Indian Currency and Finance, published in 1913. In that study Keynes was mainly concerned with the technical question of how a small amount of gold could be made to perform the monetary labor of a large amount of gold. The essence of the gold-exchange standard was that goldbacked foreign currency, such as the British pound, could replace gold as the reserve against note issue. Thus, in the case of India, British gold was doubly and trebly leveraged. In the first place, the Bank of England held gold reserves and fiduciary reserves (that is, statements of government and other debts payable to itself) that covered its own note issue. In turn, Bank of England notes, or credit instruments deemed to be readily convertible into Bank of England notes, were held--in London--as the reserves against which rupee notes and token silver coins were issued in India. These rupees in turn formed the reserves of Indian banks, which lent money (and created deposit money) on this basis.I'd add there that creating money (in moderation) is good; inflation accompanies growth. Money shortage was another chronic problem in China, and American silver produced by Spanish conquests increased the whole world's money supply.
[...]
This difference between the amount of reserves held and the amount of banknotes (or deposits) created also constituted a form of seigniorage--free money for those who could make the arrangement work.27 Far greater than the direct profits that governments made out of this arrangement were the profits metropolitan banks could make by lending money (and creating deposit money) in newly incorporated monetary peripheries.
That's why getting Machu Picchu in Civ 5 gives you a big boost in revenue from trade.
San Luis Potosà might be the sequel, but it had a lot more ore. And needed fewer mules to get it to the sea.
That's why getting Machu Picchu in Civ 5 gives you a big boost in revenue from trade
It's also why Spain gets runaway inflation and a subsequent national disaster in EUIV if you're not careful.
Also $45 trillion? The total wealth of the entire UK today is only $15 trillion and half of that is land. That alone should have been a warning that something was wrong.
Because of a typo in the OP, you'd only notice that if you read the link.
44 Over about 170 years though doesn't seem outlandish to me. What was the market cap of the EIC in today's dollars? I saw some story a while back that the market cap of the VOC was close to 7.5 trillion USD.
I've been avoiding this topic elsewhere because it seems designed to be unproductive. The headline conclusion is obviously absurd, but it's hard to argue against it without sounding like you're defending colonialism. I have come to believe that nobody is actually interested in economics, except as a stand-in for a moral judgement. So most places on the Internet, the arguments always go the same way. Someone makes an over-the-top argument, and when you point out that argument is over-the-top, people invent a more-defensible argument and argue that instead.
The journalist misunderstands the basic fact about economic growth, which is that it is not driven by physical wealth, but by technology. That's why Britain is rich now, and not because of colonialism. That's why South Korea went from being one of the poorest countries in the world to one of the richest. That's why China, despite being run by a maniac for the early postwar period, is now significantly richer than India.
46: also similar to the total GDP of India since independence. She is arguing that Britain extracted more wealth from India than if they had enslaved the entire Indian population from 1947 to the present day. Clearly ludicrous.
I wonder how one would come up with an appropriate figure? It seems like using compound interest is a bit ridiculous, especially if its not offset by inflation or depreciation or whatever other mechanism you would use to compensate for the fact that value created in the distant past is not actually worth as much today as value created in the recent past.
The figure if $16.2 trillion, plus or minus $1.3 trillion.
I don't think defenders of the British Colonialism care about the facts per se.
I have come to believe that nobody is actually interested in economics, except as a stand-in for a moral judgement. So most places on the Internet, the arguments always go the same way. Someone makes an over-the-top argument, and when you point out that argument is over-the-top, people invent a more-defensible argument and argue that instead.
"Britain drained $45 Trillion from India -- and lied about it"
"That argument is over-the-top"
"What I meant to say is: British colonialism was bad"
Pretty damaging review of a recent book by Patnaik:
Further, they never acknowledge what I believe to be a more fundamental problem. There is no interest rate in the Patnaiks' model. The ability of currency to earn interest protects its value in the presence of inflation generated by supply shocks. It is not necessary for capitalism's stability that the price of tropical goods not rise.So apparently Patnaik two years ago was advancing a general model ("A Theory of Imperialism") which depended on there being no interest, and is this year advancing a claim depending on there being sustained high interest. I guess one could square that circle by positing a non-imperial alternate India with consistently high growth and interest, but, assuming ajay is right in 6, that would be a pretty heroic counterfactual, and anyway it appears Patnaik doesn't attempt it. The headline $45trn can't be taken seriously.
The modern capitalist world would not exist without colonialism and the drain. During Britain's industrial transition, 1780 to 1820, the drain from Asia and the West Indies combined was about 6 percent of Britain's GDP, nearly the same as its own savings rate [...] Even if a part of it had been credited to India, we could have imported modern technology and started industrializing long before Japan did under the Meiji restoration in the 1870s.Japan developed by importing Western technology, paid for indispensably with Western credit and exports to Western markets; technology, credit, and markets which by Patnaik's own account would not have existed without the colonization of India.
49: It's probably better to measure it as a flow, rather than a stock. So if the 6% of GDP per year figure in the blockquote (if it's accurate) is more informative than trying to compound.
assuming ajay is right in 6, that would be a pretty heroic counterfactual,
GDP growth in the UK during the Industrial Revolution wasn't actually that rapid by the standards of modern developing nations. Table 1 here: http://www.ehs.org.uk/dotAsset/15457c19-e7bd-4045-a056-30a3efac2d47.pdf gives from 0.7% to 2.5% over the period 1700-1860*. It wasn't a tremendous economic boom of the kind that Japan and Germany saw later or that China has seen over the last 20 years; it was what you'd expect of a modern developed nation, maybe a bit more. And British growth during the Industrial Revolution was pretty much the fastest growth that the world had ever seen at that point.
The idea that India could have achieved three times that level of growth with access to far less capital (because, ex hypothesi, Britain was drawing on its own capital resources plus the skim from the West Indies plus the skim from India, and India would have had only its own; she's not suggesting that an uncolonised India would have founded its own rapacious and exploitative colonial empire, though that does seem like a plausible prediction) is daft.
*Over the same period India's economy grew by between 0.2% and 1%, with growth accelerating later in the period (as British control over India extended, the Indian economy actually started to grow faster).
Those figures are annual GDP growth obvs.
Patnaik two years ago was advancing a general model ("A Theory of Imperialism") which depended on there being no interest, and is this year advancing a claim depending on there being sustained high interest
High rates of return on capital, not high interest. Interest rates can be very high even in times of little or no economic growth; they were about 12% in mediaeval England on average. Because the interest rate on a loan isn't just how much return the borrower expects to get from investing the loan, it's also to do with credit risk and availability of capital.
ajay, you seem weirdly well-informed on academic economic history. (I just spent a while looking over journal articles to see if your citations are standard, and they are.) Are you a time-traveling medieval banker?
55.2: I didn't read it, so I don't know what she is suggesting, but maybe the better alternate case is what kind of growth India could have had if it had non-colonized access to western markets and capital. Like Japan did.
58: No, but it's not a bad idea for a short story.
maybe the better alternate case is what kind of growth India could have had if it had non-colonized access to western markets and capital. Like Japan did.
But those markets and capital, by her argument, wouldn't have existed without colonialism. Japan could buy machinery from the US and Britain and Germany to get its own industrial revolution underway. But she's saying that without colonisation, the industrial revolution couldn't have happened in Britain. So there would be nowhere for the hypothetical uncolonised India to buy its machinery from. It would have to invent it all itself, and we know what sort of growth that gives you: at most, the growth that Britain had during its industrial revolution. And, of course, uncolonised India wouldn't have had a great wedge of stolen capital to fund its industrial revolution, so it would presumably (by her hypothesis) have industrialised even more slowly than that. It couldn't have attracted investment capital from the West because the West didn't have any.
60. Charlie Stross has already sort of been there, and it's not his best work.
I don't agree with that part of it. I think it makes great sense to think of colonialism as a huge theft from the colonies though.
Also of course, What is this India of which we speak? By the second decade of the 18th century Auranzib's empire had fallen apart, so who is going to lead this industrialisation? Rajputana? Bengal? The Mahrattas? Somebody completely different? How are international relations within the subcontinent going to affect that? Once you start down that road you're looking at a fairly complex AltHist, which might also be a good short story or so, but hardly the point.
63: This is an example of the temptation I have in mind. I assume we all agree on colonization as a moral question, but we can't work back to the economic consequences from that. If it was a net negative for Britain as well as India, that doesn't make it okay.
If you want to seriously account for the economic question, then you have to also account for the positive effects. For example, Donaldson's recent paper "Railways of the British Raj" showed that building railroads really did increase economic growth in India. So you can do a bunch of horrible cost-benefit calculations to come up with an answer, or you can just stick with the moraj judgement.
I don't think defenders of the British Colonialism care about the facts per se.
Thank you for your contribution.
That is a weird fucking typo. I blame neb.
Hey, if not for neb's guiding hand we would collectively have made 45 trillion typos by now.
nobody is actually interested in economics, except as a stand-in for a moral judgement
EVE Online possibly a counterexample?
I just read something recently that said that EVE Online is the only MMORG that takes economics seriously. Have you played it? Is that right?
They hired some Icelandic central bankers to run the in-game economy, which sounded better before 2008.
My understanding is that EVE does take the econ seriously. Before them, the best I can think of is the wonderful--no, really-- YoHoHo! Puzzle Pirates. It had an intricate economy with real supply and demand. The only problem was that people who didn't understand profitability measures could convert real cash to in-game cash and keep their shops afloat, effectively emulating infinite dumping potential. There was no way to run a profitable shop against that.