George Monbiot has, a couple of times, referred to the manner in which Britain stole $45 trillion from India.
One estimate suggests that, over the course of 200 years, the British extracted from India, at current prices, $45tn. They used this money to fund industrialisation at home and the colonisation of other nations, whose wealth was then looted in turn.
The full paper showing that isn’t easy to find. I eventually contacted the publisher of the academic tome it appears in and asked for a copy – I’m not willing to spend hundreds of $ (hey, academic book prices) tracking something like this down so I wasn’t going to buy one. It’s likely they did but Portuguese customs is a little odd. They informed me that there was a package I had to do customs clearance for. OK. So, who is it from, what is it, can you let me have a copy of the shipping invoice? Nope – I must already know who has sent me what. So, if I don;t already have a copy of the invoice then I can’t have one nor the package. So, back to the US it went.
Then I got sent a .pdf of the specific paper. What follows is notes on me reading of it – I’ve not started reading yet, so this will be a little disjointed. But by the end we should be able to see how the $45 trillion was constructed. Even, whether it’s the piffle I am predisposed to think it is.
The West European powers transferred economic surplus from
their colonies on a very large scale, and this substantially aided both
their domestic industrial transition from the eighteenth century and the
subsequent diffusion of capitalism to the regions of recent European
Well, that’s sorta arguable. In fact lots of folks do argue it. But leave it be. I’m much more interested in her calculation of the $45 trillion.
The literature on industrial transition in the core countries in the
eighteenth-nineteenth centuries ignores almost completely this existing
discussion on the drain of wealth, or transfers from the colonies.2 The
mainstream interpretation posits a purely internal dynamic for the rise of
capitalist industrialization, and some authors argue that the colonies were
a burden on the metropolis which would have been better off if they had
been ‘given away’.
Well, OK, as she herself says, the normal interpretation isn’t that the centre drained the wealth from the colonies at all. But that’s fine, if you’re going to offer a contrarian view you do have to be contrarian, after all.
The terms ‘drain from colonies’ and ‘transfers from colonies’ are used
Ah. That may or may not become a problem. A transfer from could be “we’ve just bought something so here’s the cash now where’s the thing?”. A drain presupposes that there is no thing in return. Saying that both are the same isn’t quite right, is it?
Let us consider the beginning of the transfer process. The East India
Company’s trade monopoly started from 1600; it had to pay for its import
surplus from Asia with silver, arousing the ire of the early mercantilists.
The Company acquired tax revenue-collecting rights in Bengal province
in 1765, and the substantive drain started precisely from that date. Some
form of drain was already taking place through underpayment for goods
by using coercion on petty producers, but this was nothing compared to
the bonanza after 1765, when free acquisition of export goods by using
local taxes started.
Ah. So, local taxes are raised. This is then used to buy goods for export. This is the drain. Hmm. We might run into accounting issues here as exports are usually accounted as an addition to gross domestic product, not a diminution of it.
But we’ve a further conceptual problem here. Which is the insistence that taxes not spent upon those they are collected from are a drain. Which gives us that bit of a problem. We’ve just had the suggestion that Bezos should pay $50 billion in tax and no, that would not be spent upon Bezos. Should we regard this as a drain? One that’s morally unacceptable that is? Or perhaps we might consider Mao’s taxation of Chinese farmers. The tax was in the form of actual food – in the middle of famine – and the food was then sent to, among others, East Germany. This a rain upon China?
Or perhaps today and now. Britons are taxed in order to provide foreign aid. Is this a drain upon Britons? The claim about India says that it is. So, all happy with agreeing that it is then?
Britain saw a steadily increasing and completely costless inflow of tax-financed commodities – textiles, rice, saltpetre, indigo, opium, raw cotton, jute – which far exceeded its own requirements, the excess being re-exported.
No, don;t think that’s really right. The consumers in Britain didn’t get their jute for free, nor did the Dundee factories get it for the cost of the freight only. Someone was still paying for these things. It’s possible that that money just went to John Company (except obviously not after 1856) but it seems unlikely.
Suppose that a peasant-cum-artisan producer in India paid Rs 100 tax to
the state, and sold 10 yards of cloth and 2 bags of rice worth in total Rs 50 to a
local trader. This sale would be a normal market transaction and not connected in
any way to his tax payment, since the trader would advance his own funds for the
purchase in the usual way, expecting to sell the cloth and rice, and recoup his
outlay with a profit. Now, suppose not a local trader but an agent of the Company
bought the 10 yards of cloth and 2 bags of rice for export from the
peasant-cum-artisan producer by ‘paying’ him Rs 50 of the same producer’s own
money, out of the Rs 100 tax taken from him.
This means that everyone who sells something to the UK government and is paid by UK taxation – say a nurse in the NHS – is not in fact being paid anything. This is not a valid view of the circle of taxation and state expenditure.
In effect he handed over these goods for export completely free to the Company, as the commodity
equivalent of Rs 50 tax, worth say £5 (at the current exchange rate of Rs 10 to £1).
Also, no. For John Company also provided governance to that part of India. Maybe not good governance – although compared to the immediately preceding Moghul probably rather good – but governance all the same. Famine relief public works and all the rest as well. Maybe not as much as was raised in taxation. Maybe it wasn’t a good deal. But the idea that government is free and that taxation is required to pay for it does seem more than a little extreme.
The transfer or drain consisted in the fact that export surplus was the
product equivalent of taxes paid in by colonized producers, so its external sale value
did not come back to these producers. The high propensity of foreign consumers to
consume tropical goods, which appeared as a merchandise import surplus, namely,
a trade deficit of Britain vis-a.vis India (up to the 1840s), did not create any external
payment liability for Britain, as its trade deficit with a sovereign partner, like say
France, did. Britain’s perpetual trade deficit with France had to be settled in the
normal way through outflow of specie (precious metals), or borrowing, or a
combination of the two, and this was true of its deficits with all other sovereign
regions. It was also true of its trade with India up to 1765 which involved silver
outflow. After that date, when local tax collection began, the situation changed
On Britain’s external account the cloth and rice import from India now
created zero payment liability since Indian producers had been ‘paid’ already out of
their own tax contribution – namely, not paid at all. This clever system of getting
goods free as the commodity equivalent of economic surplus, extracted as taxes,
was the essence of the drain, of transfer.
And that’s the mechanism posited. Which does, rather, miss the point that the governance provided did in fact cost something.
In fact, we can check that. From Hansard, just before the Mutiny:
INDIAN FINANCE— 1851–52.
Local Charges 1,936,362
Local Surplus … … £5,648,073
Local Charges 1,402,238
Local Surplus … … 4,268,477
Military Charges of Bengal and North-Western Provinces 5,442,230
Net Revenue of Bengal and North-Western Provinces … … … … £13,255,150
Charges of Bengal and North-Western Provinces … … … … 8,770,330
Surplus available for General Purposes of India … … …… … … £4,484,820
Revenue … … … … 3,704,048
Charges … … … … 3,204,273
Surplus available for General Purposes of India … … … … … … 499,775
Revenue … … … … 2,868,298
Charges … … … … 2,847,392
Surplus available for General Purposes of India … … …… … … 20,906
Total Revenues of the several Presidencies … … …… 19,827,496
Total Charges of the several Presidencies … … … … 14,822,495
Total Surplus of ditto … … … … …… 5,005,001
Interest on Indian Debt … … … … 1,967,359
Charges defrayed in England … … … … 2,506,377
Total Charges on Indian Revenues … … … … … … 4,473,736
Surplus of Income over Expenditure … … … … … … … … £531,265
We can reject that idea of “free” rather easily. There were costs associated with running the place, costs which came out of that local taxation. Sure, there’s a profit there and we could quibble that that’s what is meant. But in no manner can we claim that the tax revenue had no costs associated with it. Therefore the revenue wasn’t free and nor could the goods possibly be so.
This isn’t good economics I’m afraid:
This very important material reality of
asymmetric production capacities, that actually explains the historic drive by
European countries to colonially subjugate more productive tropical areas, was
not only ignored by David Ricardo, but this real reason was explicitly assumed
away by him.
Ricardo assumed in his two-country, two-goods model that ‘both
countries produce both goods’ – indeed his assumption was that ‘all countries
produce all goods’ – while arguing that specialization and exchange according
to comparative cost advantage led to mutual benefit.
The material fact was ignored that unit cost of production could not be de-fined for
tropical goods imported by cold temperate European countries, where the output of
such goods was, and always will be, zero. What is the ‘cost of production’ per
unit of coffee in Germany, or of cane sugar in England? Where a good cannot
even be produced, no cost of production exists. ‘Comparative cost’, to be
comparable at all, requires that we know for each trading country, the number of
units of good B producible by redirecting to it the labour released by reducing the
output of good A by one unit. Thus it is essential for the theory to hold that both
goods can actually be produced in both countries, but this was, and continues to
be, impossible for temperate countries with regard to tropical products.
As Adam Smith pointed out we can make wine in Scotland. Insane to do so but we can. And then three’s that bad economics, substitution. Cane sugar? What do you think sugar beet is but a temperate world substitute for a tropical world product? So that’s a bad fail there.
assumption that ‘both countries produce both goods’ is not true, the inference of
mutual benefit does not follow.
24 On the contrary, historical evidence shows that
the less powerful country obliged, .for non-economic reasons, to specialize in
export crops loses out through area diversion leading to falling domestic
foodgrains output, and as it is kept compulsorily open to imports of
manufactures, sees domestic deindustrialization. Modern economics textbooks
continue to carry Ricardo’s argument for free trade, ignoring the glaring fallacy
that makes the theory incorrect.
No love, it’s your argumentation that’s bad, not Ricardo.
Note this lovely reverse ferret:
By 1833 the East India Company’s already eroded trade monopoly finally ended
owing to demands from English manufacturers who, having displaced Indian
textiles from European markets, wanted free access to the Indian market. India’s
exports to Britain declined, imports grew fast, and, by about the late 1840s,
India’s trade with Britain showed a deficit as deindustrializing imports, mainly of
yarn and cloth, poured in. But Indian exports to the world continued to rise
and exceed the new deficit with Britain, so that an overall rising global export
surplus was always maintained (see Table 1 and Figure 1). The current value
annual merchandise export surplus rose from Rs 3.4 crore during 1833-35 to
Rs 87.2 crore by 1917-19, at a compound growth rate of 3.94 per cent. Owing
to rupee depreciation from the 1870s, in terms of sterling· the growth rate is
lower at 3.5 per cent. From 1833 onwards, British India’s exports to the world
were no longer routed exclusively through Britain’s ports but increasingly were
sent directly to foreign destinations, the most important being the European
Continent, China (the opium trade), later the Americas, and Japan.
The drain increased as internal revenue collections rose, but it was
now effected in a more roundabout manner than the earlier direct unrequited
merchandise export surplus to Britain, since the latter no longer existed as
English manufactures were dumped on India.
When Britain was sending stuff back to India in return this was still exploitation. Because the British manufactures, ripped untimely from the hands of their producers, were “dumped”. This is cakeism.
And here’s another lovely misunderstanding:
The solution that was worked out was, in principle, both simple and
effective: the Secretary of State for India in Council, based in London, would issue
rupee bills of exchange to foreign importers of Indian goods, against deposits
with him of gold, sterling and their own currencies
Yes, that’s how bills of exchange work. Hawala banking still does. We’re netting off flows of money by circulating the stuff in one place to pay bills in that one place, the same at the other end in the respective currencies. Only the net flow has to travel, not the gross. This is how dollar or euro clearing in London works today as well. It’s hardly a plot.
Because the entire net
earnings of gold and forex of Indian producers were appropriated by Britain, and
even their rupee equivalent was not paid to the producers in the normal way but
out of their own taxes, it was perfectly logical and entirely correct for Naoroji and
Dutt to call it ‘unrequited’ export surplus.3
This is also the way the entirety of British industry worked under post WWII exchange controls. And?
India’s Export Surplus earnings from the world were precisely what
Britain appropriated in toto, while the earners of this gold and forex continued
to be defrauded of their earnings by being reimbursed out of their own rupee
tax contributions … Table 2 shows the remarkable longterm near-equality
oflndia’s total export surplus (£617.6 million) and the sterling expenditures in
England on account of the sum of ‘drain’ items (£621 million) over the 65
Or, to read it another way, the cost of running India was the same as the profit to be made by running India.
The drain for the entire period comes to £9,184.41 billion, on a
highly underestimated basis since the interest rate applied is much lower
than the market rate
So it’s not $45 trillion at all but £9 billion in pre-1945 money. And that’s an overestimate as they’ve used a real interest rate of 5% when actually it was 2.6%. Real, not nominal, rates.
But here’s the basic trick being employed. The goods export surplus is the sign of the drain. No allowance whatsoever is made for any of the invisibles imports being of benefit to the Indian economy. So, all invisibles are accounted as merely being the rip off applied.
And that just ain’t true now, is it?