1757- East of the Cape of Good Hope

by Narendra Mehra

  India was the magnet for the world’s bullion and sinkhole of the world’s bullion supplies. She attracted bullion to its shores in exchange for food grains, silk and luxury goods. After the conquest of Peru and Mexico by Spain, there was a huge build up of gold holdings in Europe, which also wound up in India in exchange for India’s silks and other luxury goods. That bullion was minted into Indian coinage. The British political conquests not only checked the inflow of all that precious metal; the vast reserves of bullion in India were also totally denuded by the British, during its expansionary conquests which lasted until the year 1849, when the last of the Indian territories in Punjab State were annexed. During the two hundred years of their rule, the British stripped all that could be stripped in India including the dignity of the people and when they were finally forced to leave, India was a pauper broken state. The commercial and political hegemony of the British, with all the power that despotism brings, led to the total collapse of the old handicraft based economy and the start of the British predatory capitalism, which in today’s lingo is called the free market capitalism. That free market capitalism did not believe that earnings and savings created the wealth; rather it was done by taking the wealth of others. The British free market capitalism evolved in India, in the coastal regions of Bengal, Madras and Bombay, which were the locations of the three Presidencies of the British East India Company. Money and militarism went hand in hand. For that infant capitalism to survive, that symbiotic relationship between money and militarism was inseparable in India and except for minor changes at the fringes, that relationship still holds good for capitalism to survive.

  The invasion of India by the British for monetary gains was not only unjust and immoral but it started a new doctrine of Ethnic Violence in a foreign culture and the British pursued that doctrine throughout the nineteenth century and beyond. The unprecedented prosperity of Britain in the nineteenth century, what they called ‘the century of miracles’ is described in the next chapter, when the British took over the mines, minerals, the tropical plantations, the cheap colonial labor and the Indian army for expansion of the Empire. As a consequence, the thriving economy of India was totally destroyed and finally when they were forced out, Mahatma Gandhi said that ‘we have to wipe the tears from the face of every Indian’ and there were 350 million of those faces.

  Soon after the Plassey invasion, when the Indian bullion reached London, the British government started getting rid of the accumulated debt that it had borrowed to fund the Seven Year War with France. The easy money supply led to the reduction in interest rates and lower commodity prices. The corn prices, for example, fell to the lowest in the century. It was a magical moment for the British people, with just a sleigh of the hand, they could get rid of any debt, they could lend to others beyond the limits of financial prudence and they could start any public sector project without any participation from the government. The flow of money from India to Britain was a transforming moment in history both for Britain as well as for the world economy in general. On the other hand, the Indian people became a victim of history. The events as described are little known, as India became a closed society and all the egress and ingress was tactically controlled by the British. History is cyclical; it is a tiresome cliché, however the full story of the carnage of the Indian economy hopefully will emerge some day.

  The British Government in the initial phases of the Seven-Year War was forced to divert credit from commerce to government borrowings and there was a misshapen and complicated mass of government debt choking the commerce with no maturity date. That war unfortunately, was a war of survival for Britain, and the money was borrowed without any regard or consideration. With the sudden availability of Indian treasure, the idea and reality of the National Debt in their sub conscience mind came in to sharp focus and the British government got busy getting rid of the accumulated debts.

  The discount on Navy Bills, which had been eight percent in December 1762, fell to 3½ percent in following March and about three and a half million pounds of the undated paper was refunded in March 1763 at 4 percent stock at par. By that funding operation, the government was able to clear a great quantity of paper circulating on its securities and all that cash became available for private commerce. As more money from India started to pouring in, the economy of Britain, the money conditions became progressively easier, and by December 1764, Navy Bills worth more than half a million pounds were paid off altogether and another one million pounds of outstanding Navy Bills were refinanced at par at three percent. In the last four years of the American War, near about 1780, however, the government was unable to service or settle its debt, in spite of the relentless pressure to collect additional revenues in India and was forced to offer higher rates of interest, even after writing off some of the national debt. The result was that it attracted vast quantities of money in private hands, the hands that were involved with the trade of India, and thus slowed the refunding of about twenty million pounds of the floating debt and delayed the adjustment of the interest rates. By 1781, the pile of money pouring in from India was enough to refund all that undated debt. Also, huge funds became available with the Bank of England and its charter was therefore revised and the Bank of England became the banker’s bank and was able to declare that it could pay its notes on demand in gold.

  The shares of the East India Company, involved in gathering that revenue stream in Bengal, zoomed from £110 to £ 280. The huge private wealth thus created in the private hands, those two hundred fifty two covenanted employees of EIC, the shareholders of the East India Company and their relatives, shipping captains and their crew, the private merchant banker traders, gold diggers and freebooters all told about one hundred thousand people, was also put to use and they went on to develop the whole banking and borrowing system and the insurance industry in England. Those people came to India with empty valets and stuffed it with as much cash as they could rake in, as there was total anarchy and no one was in charge after the Bauxar defeat of the local Provincial Administration and the Central Mughal Administration was about a thousand miles away. The British took the money and fled.

  Figures in £ Sterling

  British East India Company

  The British East India Company was also able to redeem a substantial part of its own bonded debt with sudden access to unprecedented wealth. The huge wealth in private hands also produced a large body of investors who ploughed it into such massive projects such as railway, docks, canals and joint stock companies and that money also formed the basis of the Anglo-American trade. All that was accomplished without any investment of public money by the state. No other country in Europe came even close to matching it, because they did not have the loot of India.

  At that time the banks in England were not catering for working people, the minimum deposit at the time was five pounds, more than most people earned in a year. The banks were not commercial banks, as they did not lend money to businesses or issue bank notes, their deposit for the most part were invested with the Commissioners for the National Debt. As the money supply became widely available, the banking movement spread throughout the country and the contribution of the easy money supply to the banking industry became enormous, as their off-shoots, the penny savings banks, carried the tradition to all levels of the British economy.

  The money in private hands started the banking and borrowing industry. Lambdon & Co. was founded in 1788 at Newcastle-upon-Tyne. It was known as the ‘Nabob bank’ (the corrupt word for Nawab, the princely rulers in India were known as Nawabs). Another tea merchant, Jones Lloyd & Co. lent money to cotton manufacturers. The famous Baring Brothers & Company, who became a leading financial institution, was involved with the British East India Company for the European trade. In 1770, they established the Devonshire bank and soon thereafter, got into export/ import business on commission and the investment banking business. Sounds like a major financial institution. The truth is that the entire capital for the start of the merchant banking business wa
s less than £5,000 and their leap in the investment banking was no mystery when you factor in the loot of Bengal through the channels of the British East India Company. Baring Brothers & Co. just followed the money like most other people of influence in Britain did in those days and participated in the initial phases of the unregulated plunder of Bengal.

  Thomas Baring (1772-1848), the grandson of the founder, was stationed in Calcutta for about a decade in or around the period when Cornwallis was seizing land and properties of the natives for maximizing the collection of revenue through his method of permanent settlements. That notorious period, was also characterized by monopoly practices and the exclusive rights to internal trade for saltpeter, silk, opium, tobacco and salt and most local business were monopolized by the British East India Company. Baring Brothers shipped the looted goods to London on consignment or warehoused them on arrival in London and regulated the flow of materials to the market to artificially jack up the prices. Welcome to the free market economy. Baring Bros. offered credits to European and American importers of those goods and those credits replaced the export of bullion to India for their imports. They made bills on Barings, as the prime instruments in facilitating the movements of goods out of India. Those predatory practices left behind in India, countless victims of wage fraud, land fraud and commodity fraud with all the trappings of despotism. Thomas Barings stay in India was a very fortunate period for him personally, as even the Cupid helped him. He got married to the daughter of a British lawyer in Calcutta. It was remarkable and surprising that even their women risked dangers and hardships of the long sea journey in sail boats via the Cape of Good Hope for monetary attractions. India became a central focus of all of Britain’s financial activities.

  Baring Brothers & Co. served as the middleman or conduit or if you wish a medium for trading in the bills of exchange on London. Their main interest was in European trade and the European merchants had not yet become a part of the London money market. So, dealing in bills of exchange became a necessity, as it linked the merchants and the bankers together for trade, which enabled them to forego the necessity of shipping gold and silver for their inbound shipments from India. The American merchants purchased in London, bills on East India Company in Calcutta, Madras or Bombay and remitted those bills to those ports. The Letter of Credits issued by London merchant bankers were also used for their purchases of the Indian goods such as silk or cotton piece goods and those together paid for the outgoing shipments from India. The British collected the gold in London or equivalent goods from the American merchants such as cotton for their textile mills in Liverpool and the Indians got nothing for their labor and merchandise. The loot of India thus funded the wealth of Britain and the capital of Baring Bros. was also built from the loot of India for its vast banking operations.

  By 1825, the East India Company had overgrown its original mercantile role, as it was increasingly involved in militarism. The import of silk and cotton, however was still maintained at a high level of about two and a half million pounds by the British private traders and other merchants and the money drain from India continued unabated. They remitted Indian revenues directly to European ports in the form of merchandise and collected the funds in London. The altered nature of their imports from India were primarily the goods that they could not get elsewhere and comprised mostly cotton piece goods, raw silk, salt peter and indigo which still amounted to a huge sum of about eight million pounds per year

  They also funded the Anglo-American trade with the loot of India. The bills drawn on London for imported wines from France, coffee from Brazil, sugar from West Indies and silk from Hong Kong for export to America were also paid in India. It should be of no surprise to anyone as the British never really ever brought money from home to do any trading anywhere. Remember they traded opium for the Chinese tea, they used slaves as cash tokens and they borrowed money from the Indian dadni merchants for their ‘investments’ in Bengal. It was a standard operating procedure for the British, to manage somehow without money. The key word was managed. They were never allowed to take gold from England as that was the national wealth. On account of the availability of huge funds with the East India Company, the business dealings of the bankers and the merchants became closely interwoven. The Anglo-American trade played a key part in transferring the Indian capital to Britain, as the in depth knowledge of the Indian trade by Baring Bros. was used to their advantage in promoting and expanding the service to the American and the European markets. India became a ‘milch’ cow for the British pecuniary and financial interests.

  The foundation of Baring Bros. & Company located at 8, Bishops Gate Street London and its remarkable growth around the period 1777, was thus provided by the loot, plunder and the manufacturing economy of India. Baring Bros. continued to play the role of a leading intermediary between the British capitalists and the American importers through the medium of Bills of exchange drawn on London and this subject was best illustrated through the testimony of Joshua Bates, their partner.

  Joshua Bates (1788-1864) was an America and he was born near Boston. He rose in the ranks of the Baring organization through hard work and his knowledge of the American market. For many years, the American traders had difficult raising money for the import of goods from India because of the difficulty and cost of continuous exportation of silver to India, which encouraged the increasing use of the credit instruments. The British monopoly over the sea-lanes in the Atlantic was used to advantage to expand the service of Baring Bros. & Co. to the American market and the use of credit instruments. The British merchant bankers in London collected the credits and the bullion for the Indian goods. Baring Bros & Company handled the import of goods into Atlantic ports for the British merchants, not with their own money but with credits drawn on India. The drawing accounts ran into millions and the modern banking instruments, bills of exchange, credit instruments and the very commercial system was developed with the American necessity of credits and the British necessity of enriching themselves with the Indian loot and Britain thus ushered in for itself a century of miracles.

  In 1832, Joshua Bates testified that: “fully one half of the value carried by American vessels to China, for instance in the thirties consisted in bills on London. These bills went from Hong Kong to India in payment for opium, and came to London in payment for the export of Manchester goods to the Orient or as part of the loot of India, euphemistically called the ‘revenues of India. The disruption of the opium traffic from 1838 to 1842 was no small factor in the breakdown of the commercial system of which it was an important part.”

  In 1828, Bates was made a partner in the company. On account of his philanthropy, his portrait hangs at the Boston Public Library.

  The flood of money coming from India was used in many ways to generate more money. The Baring Bros. financed and underwrote the reparation loans for France after the Napoleon wars. Baring Bros. made their money from Indian and Chinese silk paid for by the looted bullion from India. Series of French reparation loans were floated; the initial loan of 100 million Francs or 40 million dollars was entirely subscribed in England. Other reparation loans for France for similar amounts were floated stretching to 1817. Baring Bros. marketed a loan of three hundred million pounds for Great Britain in 1814, finding customers in Amsterdam, St. Petersburg, Hamburg and Vienna, while the British per capita debt in 1789 stood at about a thousand Francs. Prussia too, after the Napoleon war, negotiated a loan of £5 million in 1818 through N.M. Rothschild; the first unguaranteed foreign loan to make its formal appearance in London. What a bonanza of money England suddenly had, to lend even beyond the limits of financial prudence.

  As the supply of capital from India increased, London became a leading money market in the world with all sorts of complex money mechanisms involving merchants, bankers, bill brokers, private bankers and all sorts of intermediaries. The famous Nathan Rothschild followed a similar organization to Baring Bros. and one can say that Francis Baron was comparable to Nathan Rothschid of 179
8. Rothschild’s banking empire grew from the nascent start in calico business in Manchester, England whereas the business of Baring Bros. started from Exeter, England where they were small immigrant traders from Germany, doing business in English woolens. Nathan Rothschild, with the help of his family, exported Indian textiles to Europe, became a large shareholder of East India stock and moved his business to London and with the calico profits; he set himself as a banker. Rothschild lent money for private mortgages and personal loans to even royal dukes.

  Simultaneously with the appearance of Baring Bros., other firms also started the business of dealing in bills of exchange. The most notable and known all over the world was the Scottish firm of John Coutts and Company. John Coutts was a guild member, a commission agent and a grain dealer. He was a merchant, a term derived from marchant in France like other Scottish words. It meant a tradesman or a retail shopkeeper and he dealt in retail trade of grain, in the manner of a country shopkeeper. John Coutts gradually became a negotiator of bills of exchange on London, Holland, France, and Italy with a capital of £4,000 and thus entered the field of banking. In 1749, he left for Italy where he died a year later. The firm thereafter moved to London and John Coutts’s fourth son Thomas Coutts (1735-1822) carried on with the family business. Those were sleepy days in Scotland and the country remained stagnant and unchanged. The annual revenue of Edinburgh in 1778 was about eight or ten thousand £ with a population of about less than one hundred thousand and there was nothing on the horizon which would change the life of those people and yet the life of those people changed dramatically and suddenly with the arrival of the loot of India. There were many British minorities, like Scots and Irish who went with the voyages to India and after the invasion of Plassey in 1757, the untrammeled scramble for wealth produced instantaneous millionaires. Thomas Coutts received the patronage of King George III and ultimately became a friend and advisor to the British Prime Minister, William Pitt, the man who was hailed in Britain as far sighted and cool headed, because he was able to plan and guide, as a last desperate measure, the attack on the Mughal Treasury at Murshidabad. Thomas Coutts at his death left behind about a million pound sterling to his widow Herriot Coutts, which was much more than the English monarch Queen Victoria had when she took the English throne.