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# Capitalism-and-Its-Critics-A-History-From-the

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The decline of the Mughal dynasty into internal feuding gave the company a chance to improve its position and seize power.11 At the Battle of Plassey in 1757, two years before Bolts arrived in Bengal, the British forces, under the leadership of Robert Clive, a bookkeeper turned soldier who had joined the Company as a nineteen-year-old, defeated the forces of the nawab of Bengal, the provincial governor under the Mughal Monarchy. This victory enabled the company to drive out its French and Dutch rivals and trade in goods from which it had previously been excluded, such as salt. In 1765, after another big military victory, Clive persuaded Shah Allam II, the Delhi-based Mughal monarch, who was still the nominal ruler of Bengal, to grant the Company the diwani—the authority to set and collect taxes on his behalf in the states of Bengal, Bihar, and Orissa. This bestowal represented an extraordinary advance for the British. Under the Treaty of Allahabad, the Company was obliged to send the Mughal monarch a fixed sum of money every year. Clive was confident it could set the tax rates high enough to guarantee itself a hefty financial surplus.12

Clive left in place the formal trappings of Mughal rule in Bengal, installing a new and more pliant nawab. But real power now resided at the company’s factory in Kolkata, which the British called Calcutta. In creating what was effectively a corporate state Clive and his colleagues transitioned from traditional merchant capitalism to full-scale corporate plunder. As a trading concern, the Company had shipped large quantities of silver bullion from London to India on a regular basis to pay for the goods it bought there. After obtaining the diwani, the company used Indian money to pay for the Indian goods it purchased. It was able to “carry out the whole trade of India for three years without sending out one ounce of bullion,” one of Clive’s associates later recalled.13

★ ★ ★

When William Bolts got to Bengal, he wasn’t yet twenty-five, and his salary was modest. The attraction of a job with the Company had little to do with the formal pay. The real lure was the opportunity for Company men to trade commodities inside India on their own account, a practice the

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Company had long endorsed. These lucrative trades enabled many of its employees to build up a personal fortune, or “competence,” which they eventually took back to England.14 The richest of them became known in Britain as nabobs, which was probably an anglicization of the Hindi word nawab, which referred to a governor.

As a Dutch native, Bolts was an atypical Company employee, but he had an aptitude for languages that served him well. After arriving in Calcutta, he learned to speak Bengali. Although he was a fairly low-level employee, he quickly teamed up with two more senior colleagues, William Hay and John Johnstone, to form a private trading company that dealt in many different goods, including diamonds, saltpeter—the raw material for dynamite—cotton, and opium. After the Battle of Plassey, the British traders largely ignored the old Mughal rules. Operating through Indian intermediaries known as banyans and gomasthas, they moved into new geographic regions and exploited the Company’s role as the de facto government to force local producers to accept lower prices, which increased their profits when they resold the goods on the open market. Another lucrative line of business they entered was “tax-farming,” which involved teaming up with local tax collectors, or zamindars, to skim off some of the levies that Indian farmers paid.15

Many of the Company’s employees exploited this permissive environment. The abuses became so onerous and objectionable to the residents of Bengal that even the new nawab, Mir Qasim, whom the company had installed as a puppet ruler, complained. “Setting up their colours, and showing Company passes, [company employees] use their utmost endeavours to oppress the peasant farmers, merchants and other people of the country,” Qasim wrote in a 1762 letter to Henry Vansittart, who was the Company’s top official in Bengal from 1760 to 1764. “They forcibly take away the goods and commodities of the merchants for a fourth part of their value; and by way of violence and oppression they oblige the farmers to give five rupees for goods that are worth but one.”16

In 1765 Clive returned to India from England as Vansittart’s replacement. He had a brief to crack down on corruption, which was starting to become notorious in London. In The Anarchy, a sweeping 2019 history of the Company and its plunder, the author William Dalrymple points out that this was a case of appointing a poacher as a gamekeeper.

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After his victory at Plassey, Clive had gifted himself from the Moghul treasury roughly £234,000 (equivalent to more than £25 million in today’s money). The nawab had also given Clive a landed estate, a jagir, that had an annual rental value of nearly £30,000. Insisting that these payments were legitimate rewards for his services to the company, Clive declared himself outraged at the finagling and self-dealing that greeted him on his return to Calcutta. In a letter to one his fellow directors, he wrote: “I shall only say that such a scene of anarchy, confusion, bribery, corruption, and extortion was never seen or heard of in any country but Bengal; nor such and so many fortunes acquired in so unjust and rapacious a manner.”17

During the year 1756 alone, according to one estimate, the Company’s employees in India sent home to England about £80,000 from their trading gains. In the decade after Plassey, these annual remittances jumped more than sixfold, to about £500,00018 (in today’s money, more than £60 million). Clive forced Company employees to sign contracts saying they would no longer accept corrupt payments, or “gifts,” from local authorities. He cracked down on private trading by setting up a Company-run Society of Trade and granting it a monopoly on the internal trade of certain items, including salt, betel nuts, and tobacco.19

Clive also targeted individuals whom he regarded as particularly corrupt, including John Johnstone, Bolts’s trading partner. Clive confiscated Johnstone’s property in Bengal and asked the Company’s directors to prosecute him for illegal trading. The Company ordered Bolts to return to Calcutta from Benares, another city on the Ganges, where he had extensive private trading interests. After he failed to obey this edict, the Company suspended him. Rather than submitting to the new policies, Bolts resigned in November 1766 and continued trading as a private individual. The following year, his bosses ordered his deportation to England and, after he departed, imprisoned three of his gomasthas. The Company’s directors in London endorsed the decision to send Bolts home, saying it was justified by his “conspicuously oppressive” trading, his “repeated instances of disobedience to the orders of his superiors abroad—and above all by the basest ingratitude to the Company under whom he had acquired an ample fortune.” Before long Bolts would exact his revenge.20

After his return to London, he launched a public campaign against the Company and the senior executives whom he claimed had wronged him,

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Clive included, claiming that they were the real crooks. His old partner Johnstone joined him in his crusade, which they took to the Company’s headquarters on Leadenhall Street, to the press, and to the Houses of Parliament at Westminster, where two of Johnstone’s brothers were MPs. Other Company men who resented its crackdown on private trading, and who considered Clive a hypocrite, joined in the attack.21

★ ★ ★

If Bolts’s campaign against the Company had taken place in flush times, it might not have received much attention. Between 1769 and 1772, however, the Company suffered a series of financial calamities. After acquiring the diwani, it had raised its annual dividend to 12 percent, but the increase in revenues wasn’t as big as Clive and others had hoped, and the dividend payments drained the Company’s treasury. In May 1769 a Company ship arrived in London bearing news of renewed fighting in southern India, where, a couple of years earlier, Hyder Ali, the ruler of the Kingdom of Mysore, had reacted to British encroachments by attacking some of the company’s trading outposts. Investors panicked, and the Company’s stock plummeted. Many members of the British political establishment, including the writer Edmund Burke and his brother Richard, suffered big losses.22

Worse was to come. In the second half of 1769, a severe drought struck Bengal, and in 1770 a terrible famine began. The human cost was unfathomable: estimates of the death toll range from 1.2 million, an estimate cited by some modern historians, to 10 million, cited at the time by Warren Hastings, a senior Company official who would eventually become the first governor-general of Bengal.23 Controversy still surrounds the Company’s role in the famine. Obviously, it wasn’t responsible for the annual monsoon rains failing to arrive, but its response to the resultant crop failures was heartless in the extreme. “As soon as the dryness of the season foretold the approaching dearness of rice, our Gentlemen in the Company’s service were as early as possible in buying up all they could lay hold of,” an anonymous correspondent wrote in Gentleman’s Magazine, a London monthly.24 When the price of rice jumped forty-fold, one junior employee made £60,000 (£9 million in today’s money), according to one account.25

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Profiteering wasn’t the Company’s only crime. Even as the drought decimated the incomes of Indian farmers, it continued to levy land taxes and enforce payment, sometimes to the point of executing Indians who wouldn’t or couldn’t pay. “Platoons of sepoys”—Indian soldiers serving under the British—“were marched out into the countryside to enforce payment, where they erected gibbets in prominent places to hang those who resisted the tax collections,” Dalrymple wrote. “Even starving families were expected to pay up; there were no remissions authorized on humanitarian grounds.”26

Not all of these details became known in Britain, but some newspapers and magazines did print stories about starving Indians selling their children for food. Public opinion swung against the Company, and questions were raised in Parliament. Bolts saw his chance. In early 1772 he published a two-volume book about the Company’s role in India. Its title was anodyne —Considerations on India Affairs; Particularly Respecting the Present State of Bengal and Its Dependencies—but its contents were incendiary. After London Magazine, a publication closely connected to the Whig Party, published some extracts, they circulated widely at Westminster and in the City of London.

Bolts asserted that when Clive and other senior executives of the Company clamped down on private trades, they hadn’t been trying to eliminate corruption or protect the interest of Indians, but merely trying to enrich themselves. Clive alone had earned tens of thousands of pounds from the creation of the Society of Trade, Bolts claimed. Echoing the complaints of Mir Qasim, the puppet nawab, he also accused the Company of systematically exploiting Indian producers in the years since the Battle of Plassey. “The English, with their Banyans and black Gomastahs,” he wrote, “arbitrarily decide what quantities of each goods each manufacturer shall deliver, and the prices he shall receive for them.”27 Bolts even argued that the ravages of the Bengal famine could be traced in part to Clive’s campaign to suppress competition and create a lucrative monopoly for the Company and its most executives.

Much of Bolts’s account was self-serving. He claimed that the private trading activities that he and others were engaged in benefited the Indian population because they were based on free competition and fair prices. Given all the finagling Company employees were involved in, and the fortunes that many of them earned, it’s safe to discount these protestations of innocence. But Bolts’s broader account of how the Company exploited Indian producers had more substance. He singled out its treatment of Bengal’s cotton weavers, who had long taken pride in their independent status and relative prosperity. “The roguery practised in this department is beyond imagination, but all terminates in the defrauding of the poor weaver,” Bolts wrote, “for the prices which the Company’s gomastahs  … fix upon the goods are in all places at least fifteen per cent, and in some even forty per cent less than the goods so manufactured would sell for in the public Bazár, or market, upon a free sale.”28

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How had this situation come about? Bolts provided a clear answer: the Company had turned into an out-of-control corporate leviathan. The representatives of the Company had “become the Sovereign of a rich and potent kingdom, and their government in Bengal a military as well as [a] civil government.”29 Inevitably, Bolts went on, the “interests of the Company as sovereigns of Bengal and at the same time as monopolizers of all the trade and commerce of those countries, operate in direct opposition and are mutually destructive of each other.”30 As custodian of the most valuable territory in the British Empire, the Company had a responsibility to take care of it and its people, which would benefit Britain over the long term. But as a monopolistic business, the Company was incentivized to squeeze out as much profit as it could, regardless of the broader consequences. Its tactics since Plessey, Bolts wrote, amounted to “the idiotpractice of killing the prolific hen to get her golden eggs all at once.”31 The only real solution to this problem, he went on, was for the British Crown to assert sovereignty over Bengal and the other British strongholds and leave the Company to concentrate on its traditional trading business. It had become “an absolute necessity for the British legislature to separate the Merchant from the Sovereign for the preservation of both.”32

★ ★ ★

Bolts was pursuing a vendetta. He had been kicked out of India, some of his business partners had been arrested, and a few months before his book appeared, the British government, at the behest of the Company, had ordered him to pay a 30 percent tax on the profits he had garnered from his trading. (Unable to pay the bill, he was declared bankrupt in 1773.)33 Historians have cast doubt on some of Bolts’s assertions, including his claim that certain Indian winders of raw silk, who were known as nagaads, became so enraged at how the Company was treating them that they cut off their own thumbs to avoid being forced to work.34 Bolt’s allegation that the ravages of the famine could be traced to Clive’s campaign to suppress competition was outlandish. In a March 1772 parliamentary debate, Clive himself remarked: “How a monopoly of salt, betel nut and tobacco in the years 1765 and 1766 could occasion a want of rain and scarcity of rice [years later] is past my comprehension.”35

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Still, for all of Bolts’s unreliablity as a witness, many of the abuses that he identified were subsequently confirmed by other accounts, including an internal Company report that was prepared later in the 1770s for one of its top executives. In Bengal, the anonymous author of this report wrote, “the Company went to market as Sovereigns and Tyrants.” Rather than gaining the cooperation of local producers and paying them market prices, its local representatives “forced the manufacturers to Work for them and to work at an under price, at the same time that they prohibited private merchants from dealing” with them. In this manner, “a general Monopoly was at once rigorously established.”36

In modern terms, the Company report provided a textbook description of a particular type of monopoly known as a “monopsony”—a market in which a single large buyer can exploit its leverage over many small sellers who have no alternative to dealing with it. Once the Company had driven out its French and Dutch competitors, it had an enormous amount of market power, and as Bolts and the anonymous report noted, it didn’t hesitate to exploit this position.

And yet for all these advantages, the Company had managed to get itself into financial difficulty by paying such high dividends. In the summer of 1772, shortly after Bolts’s book was published, its directors, having seen the Indian business collapse during the famine, were forced to ask the British government for a bailout—a loan of at least a million pounds. The news that the mighty East India Company was virtually bankrupt prompted a financial panic in which a number of banks failed. And in a development that foreshadowed the Global Financial Crisis of 2007–2009, the news that it was asking Parliament for a rescue caused widespread outrage. In another precursor, the government of Lord North, the Tory grandee who would lead Britain through most of the American Revolutionary War, decided that the Company was too big and important to be allowed to fail. It accounted for roughly half of Britain’s foreign trade, and it was by far the country’s biggest taxpayer. Moreover, many members of Parliament were shareholders.

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Negotiations dragged on through the first half of 1773. Eventually the government agreed to extend the Company a loan of £1.4 million. Simultaneously, Parliament asserted some control over its operations. In the Regulating Act of 1783 and the East India Act of 1784, Parliament created the post of governor-general of Bengal, the occupant of which would supposedly exercise ultimate authority over the Company’s operations in Bengal, Madras, and Bombay. The legislation also created a new government-appointed executive council in Calcutta, and a Bengal Supreme Court, with four English judges, to resolve trading disputes.37

The government appointed Warren Hastings, an independent-minded Company veteran, as the first governor-general of Bengal. During his time in India, Hastings would overhaul the Company’s business affairs and build some essential public infrastructure, including granaries and a postal service. Despite these improvements, the reforms failed to resolve the fundamental conflicts of interest that Bolts had identified. And many of the Company’s onerous practices remained in place, including the hefty land taxes that impoverished many Indian farmers. In 1782 some farmers in Dinajpur and Rangpur, two areas that are now in Bangladesh, rose up in revolt. The following year there was another violent uprising in neighboring Awadh. A new drought in Bengal and further military conflicts in the South added to the Company’s difficulties. Despite having repaid its government loan, it found itself in renewed financial difficulties. In March 1783 its directors asked Parliament for another bailout, which caused more public outrage.

By this stage, Bolts had left England. After being declared bankrupt, he moved across the English Channel, where, with the backing of some Belgian financiers, he launched several new trading ventures to India and Africa. None of these schemes enjoyed enduring success, and by 1782 he was again bankrupt. Ever hopeful, he sought out more backers for a venture to ship goods from the northwestern coast of America to China and Japan.

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That plan didn’t work out either, and Bolts subsequently struggled to find financial backers. He spent some time in Portugal, where his business career had started. When he died in 1808 at the age of seventy, he was forgotten and reportedly living in a Paris poorhouse.38 But some of his criticisms of corporate capitalism would live on, even if they weren’t widely associated with him.

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“The mean rapacity, the monopolising spirit of merchants and manufacturers”

Adam Smith on Colonial Capitalism and Slavery

On June 27, 1772, David Hume, the great Scottish philosopher, penned a letter from his home in Edinburgh to his friend Adam Smith, a former professor of moral philosophy at Glasgow University, who he knew was working on a book about the economy. “We are here in a very melancholy Situation: Continual Bankruptcies, universal Loss of Credit, and endless Suspicions,” Hume wrote. “Do these Events any-wise affect your Theory? Or will it occasion the Revisal of any Chapters?”1 A couple of weeks earlier a Scottish financial house known as the Ayr Bank had collapsed, setting off a financial panic that rattled the money centers in Edinburgh, London, and Amsterdam.2 The financial troubles of the East India Company, and its request for a government bailout, were also in the news.

There is no record of what Smith replied to Hume. When he received the letter, he was living in his hometown of Kirkcaldy, Fife. Some years earlier, he had taken leave of his professorship for a better-paid post: tutoring the young Duke of Buccleuch. Approaching fifty, Smith had already published one highly acclaimed book, The Theory of Moral Sentiments, in which he examined the basis of morality. The new book he was working on addressed the question of why some countries got rich while others stayed poor. Despite his reputation as an absent-minded professor, Smith followed current events closely, and he was politically connected. During the previous decade, he had acted as an informal adviser to Charles Townshend, who had served as president of the Board of Trade and was then chancellor of the exchequer in the Whig government of William Pitt the Elder. It was Townshend who had imposed hefty import duties in the American colonies, including tariffs on tea that the East India Company transported from Asia, a policy that was causing great ruptures. Smith didn’t have anything to do with the tariffs, but he remained close to the Whigs.

2

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