CHAPTER 1
Politico-Economic Ramifications of Europeâs Intra-Asian Trade
The traditional view of the Indian Ocean and Asian trade during the sixteenth to the eighteenth centuries has been altered by recent studies. Fresh problems have been posited and new answers have been offered. What once appeared to be a series of isolated trading enclaves on the fringes of the vast land oriented continent of Asia is now recognized as a wide and intricate commercial network, pivoting mostly on the Indian subcontinent and sharing a large portion of the worldâs total trade. The economic history of the early modern period in Asia is much more than the operations and impact of a neat succession of Portuguese, Dutch, English and French commercial enterprises. Other European commercial ventures such as the Danish East India Company and the Ostend Company lost no time in entering the fray, with the objective of accruing large profits. Indigenous economies existed, with their own robust mercantile communities and long established practices, which continued to be integral to the Indian Ocean littoral. This phase can be understood as a time that witnessed the formation of a formal relationship between countries in the two continents, Europe and Asia. This was the first Age of Globalization, a world of exchange, resulting from what Fernand Braudel terms the âwheels of commerceâ.1
In Europe, a close inter-relationship existed between economic practice and political ideology in the early world systems that evolved. Commercial relations were such that protection and expansion were reflections of their logic. The European powersâ deeply ingrained mercantilist quest for a trading monopoly reached the Indian Ocean, with commercial ascendancy followed by political dominance. An economic relationship was the most important vehicle of contact between Europe and Asia. Played out on the stage of the Indian Ocean, this relationship would lead to many Asian regions becoming the victims of colonialism and imperialism. Related to Intra-Asian trade was the imposition of European hegemony in Asia.
In 1498 Vasco da Gama sailed from Portugal to India around the Cape of Good Hope and opened a new sea route to the East. The early phase of colonialism dawned in Asia when the Portuguese set up fortified settlements, and levied tribute on indigenous shipping. Mercantilism thus had firm roots in national defence and aggression, policies of the Portuguese in the sixteenth century being followed by other European maritime powers in the Indian Ocean in the seventeenth century. European trade in Asia was unequivocally monopolistic in nature, in contrast to the multiple networks of indigenous commerce that were prevalent in the Indian Ocean economy during the same time.
European commercial practices in the Indian Ocean network can be traced to the deeply ingrained ideology of mercantilism, which existed roughly between 1498 and 1776.2 The crucible of mercantilism was Europe. This term denotes the âstate makingâ activities that the European nations pursued, which were political and economic in nature. An important aspect of the mercantilist period was the fusion of the merchants and the state, a process which gave great power to the government and led to the creation of empire. The state framed policies that were conducive to the merchants, and the merchants in turn supplied financial resources for the state, mainly to improve their defences. Trade was carried out with the national interest in mind and thus required a licence from the government.3 Mercantilism in England was characterized by the state and the English East India Company.4 Andre Gunder Frank confirms that mercantile expansion was related to the consolidation of the national state and its power.5
In Europe, defensive mercantilism or economic nationalism became expansive and thus imperialistic.6 Mercantilism had become the major school of economic thought in many parts of Europe throughout the late Renaissance and the early modern period.7 Evidence of mercantilist practices appeared in early modern Venice, Genoa and Pisa regarding control of the Mediterranean trade in bullion. Mercantilism denoted a national economic policy aimed at accumulating monetary reserves by means of a positive balance of trade. It promoted government regulation of a nationâs economy for the purpose of augmenting state power at the expense of rival state powers. Historically, such policies frequently led to war and also motivated colonial expansion. The Guyanese historian, Walter Rodney, describes mercantilism as the period of the worldwide development of European commerce, which began in the fifteenth century with the voyages of Portuguese and Spanish explorers to Africa, Asia, and the New World system.8 John Kenneth Galbraith has held that merchant capitalism of mercantilism was anything but a system. According to him, it prevailed for about 300 years from the middle of the fifteenth century to the middle of the eighteenth century. He identifies the end of mercantilism as the period when the Industrial Revolution began and to the publishing of Adam Smithâs economic theory in 1776.9
Mercantilism, as the dominant economic ideology of all of Europe in the early modern period, was embraced by most states to a certain degree. Mercantilism was rooted in England10 and France, and it was in these states that mercantilist policies were most often enacted. England began the first large scale and integrative approach to mercantilism during the Elizabethan era (1558-1603). An early statement on the national balance of trade appeared in A Discourse of the Common Weal of this Realm of England, published in 1549, âWe must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them.â11 Queen Elizabeth I promoted the Trade and Navigation Acts in Parliament and issued orders to her navy for the protection and promotion of English shipping. The EIC was established by a royal charter on the last day of 1600, with a monopoly of trade with the East, and permission to export annually treasureâgold, silver and coinâup to the value of ÂŁ 30,000.12 This created a sense of financial anxiety in England, since export of gold and silver was held to be against a countryâs interest under the prevailing doctrine of mercantilism. An answer to the critics was provided by Thomas Mun, a director of the EIC. Munâs systematic explanation of the balance of trade, Englandâs Treasure by Forraign Trade, or the Ballance of our Forraign Trade is The Rule of Our Treasure (Plate 1), written in the 1620s and published in 1664, became the seventeenth century manifesto of mercantilism and economic development.13 Munâs ideas on mercantile policies, which influenced the dominant merchants in England, included the aim to reduce imports by refraining from excessive consumption of foreign wares, to trade in English ships for higher profits, to ensure import of corn, indigo, spices, raw silk and raw cotton so that they could be exported as required, and to reduce restrictions on trade and allowances.14 While arguing for free trade, Mun still supported the monopoly of the EIC over the Eastern trade as the only path to profit. This economic theory was further promoted and put into practice by Josiah Child, merchant-pamphleteer and governor of the EIC. He advocated the EICâs claims to political power, as well as to its right of restricting competition to its trade. In order to avoid Englandâs export of treasure, his proposal was to impose a heavy indemnity on the Mughal empire and carve out an âEnglish dominion in Indiaâ. This led to a disastrous âwarâ with the Mughals in 1686-90. Childâs principal work in defence of the EIC, A New Discourse of Trade, published in 1668, held the interest of economists for a long time.15 Henry Martynâs Considerations Upon the East India Trade, published anonymously in 1701, claimed that the East India trade could actually become an instrument of capital accumulation, which in its turn would stimulate industrial development and higher productivity. It represented the ideas of political economy that took shape in Britain in the eighteenth century.16 The importance of colonial plunder for the development of capitalism in Britain was underlined by Karl Marx in Capital, published in 1867.17
French mercantilism was articulated by theorists like Jean Boden, and most prominently by finance ministers, Jean-Baptiste Colbert and Jacques Necker.18 Dutch understanding of their commercial power in the seventeenth century has been understood by some historians to be somewhat unique.19 There was some truth to the assertion of their commercial rivals that Dutch policy was formulated according to the prudential criteria of an enlarged corporation rather than the ideology of a state.20 Mercantilism signified the preservation of conditions by which the Dutch Republicâs trade could flourish without hindrance and the perpetuation of economic supremacy. Immanuel Wallerstein has described this domination as also a form of global âhegemonyâ.21
In Europe, academic belief in aggressive mercantilism began to fade in the late eighteenth century, especially in Britain, in light of the arguments of Adam Smith and classical economists like David Hume, David Ricardo, Dudley North and John Locke. The main rebuttal of the argument of the mercantilists came from Adam Smith, who castigated the EIC as the repository of monopoly power and economic inefficiency. The publication of his major work, An Inquiry into the Nature and Causes of the Wealth of Nations,22 had a wide impact, and laissez-faire economics was embraced by the British empire which then used its power as the financial centre of the world to promote free trade across the globe for its own benefit. By the mid nineteenth century, the British empire moved away from mercantilism and trade restrictions, but only in ways suiting its commercial convenience.
Irfan Habib points out that while economists like Adam Smith adopted a critical attitude towards the policy of colonial acquisition, their theoretical premises could be extended to justify the policy of both tribute and colonial acquisitions.23 Raw materials and wage-goods would obviously lower costs of production. Such an advantage to the ruling country was allowed for by David Ricardo in the chapter on âColonial Tradeâ in On the Principles of Political Economy and Taxation, published in 1817.24 Colonial possessions would enlarge the market for the ruling countryâs products, for it could then manipulate tariffs in the acquired territory to its own advantage. Jeremy Bentham and the Utilitarians professed free trade principles, and yet expounded a policy of aggressive colonialism. James Mill, the leading Utilitarian spokesman related to India, told a Parliamentary committee in 1832 that the best course was âto make warâ on the Indian princely states and annex them. Richard Cobden, leader of the Radicals, though opposing war, kept in mind the interests of the Manchester (Lancashire) cotton mill owners. In 1857, Cobden stated, âIf you talk to our Lanc...