The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor

by David S. Landes

  This vent had traditionally been directed toward regional buyers in Indonesia and Southeast Asia, who exchanged spices and other local goods for Indian cloth. Like the Dutch, the English continued this pattern, for they had little of their own to sell and cottons thus furnished vital means of payment. (England’s woolens had little appeal in climates where the problem was to stay cool rather than keep warm.) But the EIC’s momentous innovation lay in introducing these cottons to Europe. In 1619-21 the VOC was shipping some 12,000 pieces of calico to the Netherlands; the EIC was up to 221,500 pieces by 1625. Then, after a slow period of digestion and retrenchment, the trade took off toward the end of the century: some 200,000 pieces a year in the late 1660s; 578,000 in the 1670s; 707,000 in the 1680s. The Dutch followed suit, but remained at half or less of English levels.7

  Indian cottons transformed the dress of Europe and its overseas offshoots. Lighter and cheaper than woolens, more decorative (by dyeing or printing), easier to clean and change, cotton was made for a new wide world. Even in cold climes, the suitability of cotton for underwear transformed the standards of cleanliness, comfort, and health. In the American plantations, it answered perfectly; as some Jamaica traders put it (1704): “…the said island being situated in a hot climate, much of the clothing of the inhabitants is stained callicoes, which being light and cheap and capable of often washing contributes very much to the keeping them clean and in health.”8 Here was a commodity of such broad and elastic demand that it could drive an industrial revolution.

  So the English bought cotton piece goods and to a lesser extent raw silk (from Bengal), indigo, and saltpeter;* also pepper, while conceding the costlier, rarer spices to the Dutch. But pepper, once the lodestone of European exploration and expansion, was in decline. New areas of cultivation had opened up; supply exceeded demand. The price of pepper sank so far that this once noble spice had to earn its way to Europe as ballast on certain routes.**

  India led to China. When Europeans entered the Indian Ocean, they found a flourishing network of trade linking Asia from east to west, from China, Japan, and the Philippines to the caravan stations and ports of the Levant and East Africa. The intruders forced their way in. In the eighteenth century, European appetite for Chinese goods grew rapidly: porcelains, which Europe did not learn to manufacture until the 1720s; raw silk; and tea, an addictive substance complementary to West Indian sugar.

  These purchases posed a payments problem. The Europeans would have liked to pay with their own manufactures, but the Chinese wanted almost nothing they made (clocks and watches were a great exception). So the Europeans paid in bullion and specie, but that only shifted the problem: what could they sell for Spanish silver, Japanese or Brazilian gold? Not easy.

  The answer, of course, was to find something the Chinese wanted. This turned out to be opium, grown in Bengal and market-making as well as habit-forming. Here the British had a big advantage over the Dutch. In principle the traders of both nations had the right to compete for this commodity, but the British used their growing political power in the region to squeeze the Dutch out—a major blow.

  The English, then, after starting with the Dutch, now moved well beyond them. More, they found themselves well placed to penetrate and pillage a far richer place than Indonesia. India, next to China, was the most populous country in Asia. We have no censuses, but one estimate gives the figure of 100 million for the late sixteenth century, and this may well be low.9 India possessed large fertile territories, notably the great river valleys of the northern plains—the Indus, Ganges, Brahmaputra—and was far from densely settled. One Indian scholar describes it as land-abundant and assumes that in the seventeenth century, it was still able to confine agriculture to the most productive areas; also to profit from pasture and waste to keep large numbers of livestock.10 (On the other hand, India got far less from its cattle than it might have, even less than nothing, because of religious taboos.) India also—far more than Indonesia—had a large and skilled industrial workforce, whose products circulated throughout the region. As a result, the Indian economy yielded a substantial surplus that supported rulers and courts of legendary opulence:

  The annual revenues of the Mogul emperor Aurangzeb (1658-1701) are said to have amounted to $450,000,000, more than ten times those of [his contemporary] Louis XIV. According to an estimate of 1638, the Mogul court of India is supposed to have accumulated a treasure equivalent to one and one-half billion dollars.11

  India’s reputation for wealth in palaces and temples attracted one invader after another—in particular, Turkic nomads, horse-mounted warriors, who rode from the plains of central Asia to plunder the sedentary societies on their periphery. The last of these Turkic rulers of India were Moghuls (Mughals), the dynasty of Babar (1483-1530), a descendant of the terrifying Timur (Tamerlane), driver of human cattle, heaper of skulls. It was Babar’s grandson Akbar (reigned 1556-1605) and great-grandson Jahangir (reigned 1605-27) whom the English found on the throne when they first came to India.

  The Moghuls were Sunni Muslims, different then from their neighbors to the west in Shiite Persia. They generally tolerated and even depended on the Hindu majority, but gave northern India a Muslim cast that marked it off from the south. The Moghuls, of course, held the land as a despotic occupier and commanded no loyalty. Their rule was repeatedly challenged by the indigenous Hindu states and subverted by rebellions and palace conspiracies. Brothers killed brothers; children, fathers; fathers, children. In a world of competing claims to legitimacy, one could trust strangers little, though more than relatives.12

  The tyranny of these Muslim rulers—no better or worse than that of Hindu despots—was aggravated by the measures taken to prevent sedition. This is a classic problem of autocracies: how to prevent lieutenants from taking root and creating rival centers of power. In medieval Europe, the grant of landed fiefs was originally personal, not heritable, but over time local lords tended to stay put and pass domains down to their heirs, bonding with the landed elites of the area and creating the fragmented authority we know as feudalism. In Moghul India, as in other Turkic states, agents of the ruler were moved about. This limited local power, but also destroyed the official’s commitment to his territory. His aim became to make and take as much as possible as fast as possible, spending little on social capital.13 All take and no give. In those regions dependent on irrigation, this neglect of communal equipment could be disastrous, as the annals of Indian famines testify.

  For similar reasons, the peasant (and indeed all subjects) had no reason to improve the land, holding it as he did at the pleasure of the ruler. There is in this country, wrote Francois Bernier, a French physician who spent a dozen years in India in the seventeenth century, no mien et tien (no mine and yours), that is, no right or sense of properly. No one, he wrote, dares to show his wealth, for fear of extortion or seizure. No one cares to improve ways or tools of production. Hence, wrote Bernier, the appalling contrast between the opulent few and the impoverished many; the decrepitude of the houses; the humiliation of the mass; the absence of incentives to learning and self-improvement.

  Hence also severe constraints on credit and on the commercial possibilities that credit makes possible. Much has been made of the beehive of trade in the Indian ocean when the Europeans arrived;14 also of the wealth of the sarafs, who lent at high rates to peasants and merchants alike. But high rates mean high risk. What security could the borrower offer? How much can a lender afford to lend when the need to hide assets severely reduces information?15 India’s commercial activity languished well below its potential.

  How, then, did some Indian traders, bankers, and lenders manage to get rich? The answer is, they laid golden eggs. They paid and bribed, hoarded and shared; and when they died, the family hid as much wealth as it could. Here are the observations of an Englishman in 1689:

  Their [merchants’] Wealth consists only in Cash and Jewels, the distinction of personal and real Estate is not heard in India and that they preserve as close and private
as they can, lest the Moghul’s Exchequer shou’d be made their Treasury. This curbs them in their Expences, and awes them to great secresie in their Commerce….16

  Tension thus abided throughout—for rulers between seizing and nursing, for subjects between hiding and enjoying. But in the last analysis, the despot and his agents controlled. Here the European visitors held an enormous advantage. They could not be maltreated in this manner, and they could even take native businessmen and workers under their protection. In the long run, this constituted an appropriation of sovereignty. Some might say a usurpation, but in despotisms all transfers of power are usurpations.

  And what of the ryots and untouchables, the lowest of the low? They fell back on patience, stubbornness, resilience—the resources of an oppressed population. They also fled their abusers more often than one would expect in a society of communitarian villages and uncertain improvement. In medieval Europe, exit or the threat of exit deterred abuse, especially in urbanized and frontier areas. Exit paid. In India, flight probably exchanged one unhappiness for another; even so, it could encourage moderation, for no predator likes to lose his prey.

  That still left a fortune for the taking—one scholar estimates India’s surplus at half the agricultural product. This “bundle” was bound to turn the East India Company toward political as against commercial activity, for more money could be had by taking than by earning. Endemic conflict and violence, moreover, incited (compelled) the company to look to its defenses by mobilizing military power, and power encouraged intervention in local disputes.

  Sage advice from London could not deter the EIC’s men in the field from taking this slippery slope. The proconsuls had the Dutch example in Indonesia to instruct and justify them, and they won the argument. London came around. In 1689, when the company’s activities in India had been reorganized under three “presidencies,” the London directors passed a resolution that redefined the company’s mission in the Dutch image:

  The increase of our revenue is the subject of our care, as much as our trade; ’tis that must maintain our force when twenty accidents may interrupt our trade; ’tis that must make us a nation in India; without that we are but a great number of interlopers, united by His Majesty’s royal charter, fit only to trade where nobody of power thinks it their interest to prevent us….

  This broader purpose did not aim at monopoly as in Indonesia. The EIC was ready to let others into the Indian market—except perhaps the French, who chose to challenge them politically. Still, the EIC’s power and privilege gave it a decisive advantage in an ostensibly level field. Employees of the company were quick to seize the opportunity, not only trading on their own account but lending their name and virtual authority to native servants and business associates ready to pay for the favor.

  In a world of Muslim pride and xenophobia, this British assertion brought humiliation high and low, for the turnpike man at the customs station as much as for the prince in his palace. These infidel pretensions undermined the dignity and legitimacy of the viceroyal authorities and led to war between the Nawab of Bengal and the company; and war will always provide grounds for grievance and hate. So here: the young prince Suraj-ud-Dowlah (Sirajuddaullah) decided to teach the British a lesson and in 1756 took Calcutta against the merest shadow of resistance. He then perpetrated “that great crime, memorable for its singular atrocity, memorable for the tremendous retribution by which it was followed.”17 This was the massacre of the “Black Hole,” a chamber 18 by 15 feet with only two small, barred windows. Into this box the nawab’s men jammed one hundred forty-six prisoners on a steamy-stifling June night—civilians as well as soldiers, including a few women. Pleas and protests went up, but the nawab had retired to sleep and could not to be disturbed. The cries ebbed. In the morning only twenty-three prisoners were still alive.

  The crime demanded reprisal, and local representatives of John Company were only too pleased to have a go at it.18 As soon as a fleet could be armed, it sailed up from Madras with a small detachment of British and sepoy troops under the command of Robert Clive, a young civil servant of the company, a desk man with a genius for war. Because of adverse winds, the ships took some two months to sail up the Bay of Bengal and enter the Hugli River. There the British easily recaptured Calcutta, imposed a huge indemnity on ud-Dowlah, and compelled restoration of all company privileges. For the nawab, an expensive night’s sleep.

  But that was not the end of the story. The war in Europe between Britain and France had its echo in Bengal, where the nawab courted the French for the best of reasons—revenge and the opportunity to escape from his engagements. Another Moghul miscalculation. Apprised of these maneuvers, the British under Clive attacked and captured the French trading station at Chandernagore (Chandarnagar), a festering sore of commercial competition. The nawab took badly to this: Who were these British merchants to engage in war against other merchants within his dominions? Besides, like Pharaoh, he had repented himself of his weakness and felt he could do better a second time; after all, his army far outnumbered British forces.

  This time the British decided to be rid of ud-Dowlah. Seeking allies among disaffected members of the Indian court—“How glorious it would be for the Company to have a Nabob devoted to them!”—they found Mir Jafar, the nawab’s uncle by marriage and a commander of his armed forces.19 Local officials and traders were there to be bought and sold, crossed and double-crossed. Using a shrewd Hindu merchant named Omichund (Umichand or Amin Chand) as intermediary, the British bought Mir Jafar’s treason with the promise to name him nawab. Mir Jafar in turn committed himself to pay an elephantine fortune for his elevation.

  In the end, on 23 June 1757, the issue came down to a battle, at Plassey (Placis, Palasi), a village ninety miles north of Calcutta—British and allies on one side, nawab and minions on the other. The British won, and winning, changed Indian history. The bards of imperial greatness sing of Robert Clive, accountant-turned-commander. They tell of generalship and treason and small but decisive precautions—like covering the guns in a monsoon rain. The anti-imperialist iconoclasts dismiss narrative, play down heroism (everyone is brave), and deplore the readiness of local officials and magnates to be bought, their want of loyalty.20

  But, of course, that is the Achilles heel of aristocratic empires like the Moghul and its parts: What loyalty? The nawab began the battle with fifty thousand troops, against three thousand for the British. Of the fifty thousand, only twelve thousand actually fought for him, and these withdrew so quickly that they suffered only five hundred casualties. British losses numbered four Europeans and fourteen sepoys. And this was one of history’s decisive battles.21

  After victory came the counting. The sums eventually arrived at were 10 million rupees ( = £1.4 m. at an exchange of 7.14285 rupees to the pound) to the company as compensation for losses; indemnities and bribes for the resident merchants of Calcutta (5 m. rupees for the British; 2 m. for the Armenians; 1 m. for the Indians); 5 million rupees for the British naval squadron and army detachment; plus large personal fees to members of the company council, of the order of over a quarter-million rupees each.

  The whole amounted to 2,340,000, five times the loot captured on the Madre de Deus—a sum that would amount nowadays to more than $1 billion.* Mir Jafar hardly cared. The money would not come from his pocket. Even so, the Bengali treasury could not satisfy these extravagant demands. In the end, about half the sum was paid, in specie and jewels. The rest was rescheduled, then rescheduled again; and with each postponement, the company received compensation in the form of privileges, territory, and revenues. The EIC Council members, however, got their money in full—a lesson in priorities.**

  Attached to these extortions was a quiet codicil, granting the company zamindari rights over a large tract of land around Calcutta. This land paid a quit-rent to the nawab of some 23,000 but yielded a gross rental of 53,000—a net gift, then, of some 30,000. And as Calcutta grew, so did the value of land around it, so that by the end of a decade, rentals r
ose to 146,000. Meanwhile the nawab had turned his right to the quit-rent over to Clive, since named governor of the company’s settlements in Bengal: the employee was now his employer’s landlord. Clive also received a jagir, a feudal right of command over some six thousand foot and five thousand horse in the army of the Moghul emperor. The confusion of political and commercial within the company was duplicated in the identity of its agents.

  In India, then, as in Indonesia, power was money, and money was power. India’s surplus, once creamed off by the Moghul state and its feudal dependencies, now shifted to the East India Company and its officers and agents. Merchants and civil servants welcomed their inadequate salaries as a pretext for private enterprise and public venality. Young, ambitious men paid money for appointment to company service. Members of Parliament and people of influence sought jobs for friends and relations and paid for them in their own way. The India House was a “lottery-office, which invited every body to take a chance and held out ducal fortunes…for the lucky few.”22 Luck, obviously, was only part of the story.

  To be sure, India was a disease-ridden place. Many of these new rich never made it back to England. Even healthy and competent survivors had problems cashing in their assets; the dead had to rely on agents with their own interests to nourish and often no one to answer to. The crumbs that fell in this way from the Indian table fattened a small army of dealers, lawyers, scrivenors, jewelers, bill brokers, smugglers, confidence men, and profiteers.

  Lord Clive (he had received an Irish peerage and hoped soon for an English title) had a bigger problem than most; he had so much more to take back. He sent 180,000 in bills of exchange on the VOC in Amsterdam, which then had to be discounted and used to buy sterling remittances. More than 40,000 went through the English East India Company, and considerable though unknown amounts through private merchants. He also invested hugely in jewels—25,000 in diamonds bought in Madras alone—and carried these back for resale in England. “We may safely affirm,” wrote Macaulay, “that no Englishman who started with nothing has ever, in any line of life, created such a fortune at the early age of thirty-four.”23