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Money and Empire

By Harold James
Although British imperialists often told themselves that by taking over the public administration of China and the Indian subcontinent, they would bring those civilizations into the modern age, the reality was altogether different. Two histories of Pax Britannica make clear that economic exploitation was always the top priority.
English grandee of the East India Company riding in an Indian procession, 1825-1830. (Photo by Ann Ronan Pictures/Print Collector/Getty Images)

Centuries are usually analyzed with reference to the great powers that dominated them. The nineteenth century was the era of Pax Britannica, although most people now realize that the “pax” in that case was not particularly peaceful. The twentieth century became the American Century, as heralded in Henry Luce’s February 1941 editorial in Life magazine. And the current century, one often hears, will belong to China (and, perhaps, to India).

How did this kind of thinking start, given that no one would characterize the fourteenth or fifteenth centuries this way? The rise of military superpowers provides part of the answer, but economic and financial domination explains much more.

Nowadays, a key feature of the national narratives in China and India is an effort to explain why they did not reach their current levels of regional or global influence much earlier. After all, both have long had spectacular accumulations of wealth and large populations. The problem is that both relied on institutionally flawed and militarily vulnerable imperial systems. Their national stories are thus about imperial hubris, but also about how commercial and economic calculations tore the old empires apart. That is why the Chinese still lament what they call the “century of humiliation.”

What went wrong? Two books, each rather different in style, hold powerful answers to that question. In The Anarchy, Scottish historian William Dalrymple has produced a vigorous and striking narrative of how the British East India Company (EIC) came to dominate and “pillage” the declining Mughal Empire. And his book follows University of Cambridge historian Hans van de Ven’s account of a parallel story in China. In Breaking With the Past, van de Ven explains how one foreign-run customs service sought to modernize China in the fin de siècle era of the late Qing Dynasty, when the European great powers (followed by Japan, then the United States) first intervened in Chinese affairs.

A PREDATORY AMBITION
Dalrymple’s book opens with the founding of the EIC in 1600, during the reign of Queen Elizabeth I, but its primary focus is on the dramatic period between the 1757 Battle of Plassey and the fall of Delhi in 1803. The Company’s initial military confrontation in India came as a complete surprise. A small group comprising 800 European soldiers, 2,000 south Indian sepoys, and eight cannons confronted the Nawab of Bengal Siraj ud-Daula’s army of 50,000 men, which was accompanied by 53 cannons manned by French military engineers.


In his report of the incident, the EIC’s commander, the supremely self-confident Robert Clive, seemed to echo Shakespeare’s Henry V after the Battle of Agincourt, writing, “It is computed there were kill’d of the enemy about 500, Our loss amounted to just 22 killed, and fifty wounded.” A year later, he went further: “I can assert with some degree of confidence that this rich and flourishing kingdom may be totally subdued by so small a force as 2,000 Europeans.” It was, as he put it, “a Revolution scarcely to be parallel’d in History.”

Of course, one obvious explanation for the outcome at Plassey is that it was a fluke. The heavy monsoon rain had soaked Siraj’s unprotected artillery and munitions, whereas Clive’s soldiers had covered their equipment with tarpaulins. Interestingly, at the end of Dalrymple’s account, the Battle of Delhi also seems to have been anticipated by a natural intervention that one could interpret as supernatural: a major earthquake shook the Qutb Minar, the symbol of the establishment of Islamic rule in India, leaving the towering minaret severely damaged.

But the deeper story concerns the financial intrigue that brought the EIC and its ethos to India in the first place. The key to the creation of British India lay with the Marwari Oswal Jains, financiers whom the Mughal emperor had awarded the title of Jagat Seths – “Bankers of the World.” As of the mid-eighteenth century, the Seths were estimated to be richer than all the London financiers on Lombard Street put together. In the run-up to Plassey, they had brokered a deal, whereby Siraj’s discontented Arab general, Mir Jafar Ali Khan, would betray him in exchange for an enormous sum of money, a large swath of land in Calcutta, and duty-free trading with the English. As a French observer concluded of the Seths’ role: “Without them the English would have never carried out what they have. The cause of the English had become that of the Seths.”

After his victory, Clive decided that he and his men should position themselves as Indian princes. “We should become Nabobs ourselves in Fact if not in Name, and perhaps totally without disguise,” he wrote. “If riches and stability are the objects of the Company, then this is the method, perhaps the only method we now have for attaining and securing them.”

The money flowing through the EIC changed direction after Plassey. Before, Britain (and Europe) had been exporting precious metals to India in exchange for (mostly) luxury goods; but thenceforth, the EIC would be extracting money from the region. In 1770-71 alone, at the height of the Great Bengal Famine, the Company transferred some £1,086,255 to London, a sum that Dalrymple reckons to be the equivalent of more than £100 million ($130 million) today. Here, The Anarchy offers graphic accounts of the looting. After the death of Sultan Tipu, the British captured and pillaged his unimaginably ornate palace at Srirangapatnam, even chopping up the magnificent gold throne into little pieces for shipment back to England.

THE COMMONWEALTH OF GREED
Dalrymple’s book also offers a sympathetic depiction of Indian elites’ vain and costly struggle to stand up to the EIC. There is an admiring portrait of the Mughal emperor Shah Alam II, who almost succeeded in rebuilding the empire. Ultimately, though, he was defeated, tortured, and blinded by Ghulam Qadir, the son of a former enemy whom Shah Alam had once treated with great compassion and humanity. Dalrymple’s description of this episode – including the rape of Shah Alam’s children and grandchildren – is sheer graphic terror (the blinding alone takes up almost a page of text).

After the fall of Delhi, the EIC held on to India, and purported to create a more stable polity than the “great anarchy” that had preceded it. But that anarchy, of course, had largely resulted from the Company’s own exploitation of the opportunities presented by poor and corrupt domestic governance. In concluding the book, Dalrymple provides a brief epilogue, in which he suggests that the EIC’s story has a modern application to frail states “where corporations are insufficiently or ineffectually regulated.”

The implication is that Western imperialism and corporate capitalism developed as twins. But Dalrymple pushes too far in the direction of contemporary sensitivities about corporations. The early modern corporation – of which the Dutch East India Company was probably a more prominent example in the seventeenth century – was a unique and peculiar entity, vested by the mother country with the power to raise armies and even conduct fiscal policy. As such, it might be more edifying to think about how past political institutions in crisis have adopted external models, and what price they paid for doing so.

There is a reason why Adam Smith devoted a large part of TheWealth of Nations to inveighing against the perverse incentives established within eighteenth-century corporations – especially the EIC. Likewise, in denouncing the Company at the impeachment of Governor General Warren Hastings, Edmund Burke offered a famous analysis of the ills of disembodied and consequently irresponsible capitalism:

“The Company in India does not exist as a Nation. Nobody can go there that does not go in its Service. Therefore the English Nation in India is nothing but a seminary for the succession of Officers. They are a Nation of placemen. They are a Republic, a Commonwealth without a people.”

Are these strictures relevant today, now that political dysfunctionality in Europe has created the conditions for European businesses and institutions possibly to become the pawns of the Chinese tech giant Huawei or the Indian conglomerate Tata Group?

TAXED TO DEATH
In van de Ven’s Breaking with the Past, the prime mover is the Chinese Maritime Customs Service (CMCS), an institution that operated in China under foreign leadership – specifically, three successive British inspector generals and all non-Chinese senior staff – for almost a century. The story begins in 1854, when the Shanghai Custom House was handed over to foreign (that is, British, French, and American) supervision. But the real policy experiment began in 1861 with the “Xinyou coup.”


After the death of the Xianfeng emperor and the storming of Beijing by British and French forces, a five-year-old boy became emperor. But the 26-year-old empress dowager, Cixi, together with the former emperor’s 28-year-old brother, Aisin-Gioro Isin (Prince Gong), seized power with the stated intention of modernizing China. As part of their reforms, they decided to consolidate the administrative experiment that had begun in 1854 by putting all customs houses under the central control of a foreign inspector general.

The first man to hold this position, Horatio Lay, took a combative approach, and tried to institute a Western navy to combat “piracy.” Naturally, this operation would be funded with Chinese customs duties. “We must never forget,” he observed, “that we have to control as well as guide the Chinese government.” He didn’t last long. His successor, Robert Hart, was more diplomatic in working with the Qing modernizers, and proved effective in establishing a modern and efficient civil service. In a highly sympathetic account of Hart’s career, van de Ven describes this model as a product of its time:

“The middle decades of the [nineteenth] century saw huge wars in the United States, in Europe, and in Asia, out of which grew the European national mass armies staffed by effective bureaucracies recruited on the basis of merit without regard for wealth, status, or seniority.”

But, of course, there was an obvious difference between the evolution of these institutions in China and the West: the CMSC’s fundamentally foreign character meant that it could not really become the basis of a modern Chinese nation-state. As a result, there was persistent ambiguity about whether British-led institutionalization and professionalization would help China or sow the seeds of future conflicts and dysfunction. Equally important was the question of whether it was really wise to rely on customs duties as a major source of revenue, and to set their levels according to external fiscal priorities. In any case, the CMCS would be at the center of China’s encounter with globalization throughout the nineteenth century.

INDEMNITY IMPERIALISM
In the twentieth century, under the long-lived CMCS inspector-general Francis Aglen, foreign interventions multiplied, and China started to break apart. Moreover, this was an era of financialization, which meant that the goal of the customs service would change. Customs revenues, administered by a bureaucracy that was considered efficient and trustworthy precisely because it was “non-national,” became the basis for substantial borrowing in Western capital markets.

With bonds being serviced from the revenues of the customs duties, the new arrangement looked exactly like the system that had been imposed on Egypt by the Ottoman Empire’s notorious Public Debt Administration (dette ottomane). In that case, though, there was also a large foreign-controlled bureaucracy overseeing fiscal administration; it was, in a sense, a precursor to the twentieth-century creditor-controlled operations run through the League of Nations after World War I.

Relying on foreign capital markets was alien to the Chinese, who were already hostile to the domestic funding operations that had allowed Britain to become a major financial power in the eighteenth century. In the Analects, Confucius makes clear that “the Ruler does not compete for profits with the people.” But under the new regime, foreign powers had imposed large-scale financial penalties as a condition of earlier military victories. It was a repeat of the giant looting exercise that the EIC had commenced after Plassey.

Among other financial exactions, there was the indemnity to Japan after the First Sino-Japanese War (1894-95), as well as the indemnity following the Boxer War (1899-1901), when foreign armies seized Beijing. In both cases, customs revenues became the basis for paying annuities to the eight foreign powers that had invaded China. Moreover, as a result of these financial settlements, the CMCS assumed an interest in preserving the Qing Dynasty.

For his part, Hart, in his letters, had anticipated that “China will be a big power at some future day,” and he hoped that “the China of the future might have something to thank us for and not avenge.” But after the 1911 Xinhai Revolution and Hart’s death that same year, Aglen took over as inspector-general, and then became the vice chair of the National Loans Bureau in 1913. He turned out to be a much more interventionist and confrontational figure than Hart had been. Owing to his deep admiration for military values, he could no longer see any room for Hart’s relatively benign paternalism. And after WWI, he concluded that “the foreign prestige bubble has been completely pricked,” by which he meant that the Chinese no longer felt as though they had anything to learn from foreigners.

DENOUEMENT AND DESTRUCTION
A third major figure in van de Ven’s account (which is far too dense to have been written for a broad readership) is Frederick Maze. The world was very different by the time Maze took over the customs union in 1929, at the beginning of the Great Depression. China was being torn apart, first by internal wars, and then by the Japanese after 1931. Britain, meanwhile, no longer cared as much about China, and had adopted a mostly hostile stance toward Chiang Kai-shek and the Chinese Nationalists.

Against this backdrop, Maze tried to use the history of the CMCS to make the case that the institution had been a crucial nation-building tool that had facilitated the development of Chinese foreign trade and economic growth. But in a world beset by currency wars and trade conflicts, China joined most other countries in raising tariffs, and the result was an epidemic of smuggling. Ultimately, the era of high tariffs destroyed the legitimacy of the Chinese state, and set the stage for the Japanese invasion.

Under these conditions, Maze came up with a convenient argument to justify the CMCS’s routine abandonment of its enforcement duties: force majeure. The commissioners in port cities, he concluded, were “compelled to bend” to “avoid a deadlock and undesirable friction.” Or, as a popular Chinese saying at the time put it: “meiyou banfa” (“nothing can be done”). By 1941, Maze would be lamenting that, “My present position (in some respects precarious) is largely due to the fact that I have reasserted, as it were, and followed Hart’s proposition that we are here to supplement, not supplant authority.”

After the Communist Revolution in the late 1940s, foreign officials in China fled, and the remaining Chinese officials were “reeducated” or persecuted. Soon thereafter, three famous Chinese historians used the CMCS’s extensive archive to create a record of the damage that foreign imperialism had done to China. But all three scholars were later condemned during the Cultural Revolution, on charges that they had secretly tried to promote capitalism by documenting how China had benefited from the customs system.

With such a granular focus on the customs service and its British managers, van de Ven’s treatment of the central Chinese figures in the story is sparser than Dalrymple’s description of India’s past rulers. Still, the reader does learn about key figures such as Li Hongzhang, a Chinese leader during the “National Strengthening” period (1861-95) who wanted to work closely with Germany and then with Russia, and who saw himself as the Chinese Bismarck. Looking back, it is now clear that Li represented a very different idea of how China might have been modernized.

What role did the competition of the foreign powers play in the end? The 50 years between Plassey and the fall of Delhi in Dalrymple’s account coincided with the half-century of intense struggle between Britain and France for control of India. The population of the region gained little from this period. By contrast, the CMCS played a much more positive role in China’s development when there was still a basis for cooperation between the foreign powers. But when cooperation broke down, the harm caused external influences became plain to see. Their purpose, clearly, was to seize Chinese resources.

Thinking that a foreign model can provide a simple answer to complex governance questions has repeatedly proven to be a mistake. For centuries, such thinking has led to disaster, fueled nationalist sentiment, and ensured that countries like India and China will always be deeply uncomfortable abiding by the conventions of someone else’s world order.

(William Dalrymple,, The Anarchy: The East India Company, Corporate Violence, and the Pillage of an Empire, New York and London: Bloomsbury, 2019 and Hans van de Ven, Breaking with the Past: The Maritime Customs Service and the Global Origins of Modernity in China, Columbia University Press, 2014.)

Harold James is Professor of History and International Affairs at Princeton University and a senior fellow at the Center for International Governance Innovation. A specialist on German economic history and on globalization, he is a co-author of the new book The Euro and The Battle of Ideas, and the author of The Creation and Destruction of Value: The Globalization Cycle, Krupp: A History of the Legendary German Firm, and Making the European Monetary Union.

Published Date: Friday, February 14th, 2020 | 08:18 AM

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