Note the words within the article: the company was chartered to trade, not rule,
This short article encompasses perfectly the the raison d’être and activities of Sir Henry Lawrence’s employers, East India Company. I have mentioned that Sir Henry Lawrence was nothing more than a tax extorter; read the highlighted paragraphs below in further depth to understand the matter. Remember too Lawrence’s own words ‘In November of that year, 1846, Maharaja Goolab Sing offered me a lack of rupees for the asylum. I told him that if he still wished to give the money after an interval of a twelvemonth, to inform me by letter, and I would ask for Government sanction. Two or three times within the year the offer was repeated, and eventually I asked and obtained sanction. The money was at once funded, and still remains so. It is our only capital.’‘
Note from Jitu Savani: Mercantilism is a belief in the benefits of profitable trading. The economic theory that trade generates wealth and is stimulated by the accumulation of profitable balances, which a government should encourage by means of protectionism.
Autarky is self sufficiency
Bad Economics And Bank Bailouts Were The Norm Long Before TARP: A Retrospective On The East India Company
By Timothy Reuter
The East India Company is Room 101 (101 refers to a fictional room where all unwanted items are deposited never to be seen again) for everyone’s economic anxieties. It was the omnipotent multinational corporation that liberals fear, amoral profit driven machine that conservatives scorn, and crony capitalist creation that libertarians bemoan.
It was equal parts business, war machine, monopoly, and colonizer. The company traded and taxed, persuaded and extorted, enriched and looted. How it survived a quarter millennium (1600-1858) to become, in Edmund Burke’s immortal words, “a state in the disguise of a merchant” says much about bad economics and government policy.
This government created monopoly grew out of a faulty economic theory, mercantilism. This idea had two foundational premises: economic activity is zero-sum and wealth equates to how much bullion a country possesses. Accordingly, European governments enacted trade restrictions and controls to achieve positive balances of trade by completely dominating domestic and colonial markets. Tariffs, corporate favoritism, and autarky are all mercantilist policies.
But its biggest legacy is bloodshed. Belief in economic gain as occurring at someone’s expense encouraged the annihilation of competitors. France and Britain, assisted by their joint-stock companies, regularly fought for economic supremacy abroad throughout the 18th Century. The assumption of wealth as fixed incentivized the proactive use of force, whether against other Europeans or natives, to obtain riches.
Indeed, the axiom that individuals respond to incentives requires fleshing out a corollary: perverse inducements also matter. The East India Company waged war because victory carried rewards. Company officers received annuities and kickbacks from allied princes or puppets installed on the thrones of previously incompliant rulers . Consequently, men of modest backgrounds, Robert Clive notably, returned home very wealthy. Enlisted men also had cause to fight, the allure of enrichment from military prize money or looting.
(Note from Jitu: LAWRENCE IT WAS, WHO ‘SOLD’ KASHMIR TO GOOLAB SINGH FOR 75 LACK NANUKSHAHEE RUPEES, so what this paragraph confirms is that ‘Company officers received annuities and kickbacks from allied princes or puppets installed on the thrones of previously incompliant rulers. Regardless of the purpose to which this money was put, it is, to all intents and purposes a kickback.)
But graft, prize money, and loot did not cover military expenditures, as wars grew larger and costlier. So the company took the next logical step, tax. At the barrel of a gun, both prince and peasant filled company coffers with tax revenues. Taxation slowed the export of bullion abroad, a major plus in mercantilist thought, and kept the balance sheets in the black. This money also lubricated a lobbying effort to protect the company’s monopoly. A mid-century loan of £1 million to finance British debt was worth paying to keep competitors out the subcontinent.
But success through belligerence is a shaky proposition. And after the Seven Years War (1756-1763), a series of inconclusive conflicts drained the coffers. The 1770 famine in Bengal (Eastern India), which killed ten million people, made financial problems dire. The stock price cratered as investors pulled their money out, and by 1772 the company was insolvent, facing dissolution, and begging Parliament for relief.
The famine brought public anxieties about corruption and despotism in India beneath Britain’s flag to a boil. Lord Rockingham, leader of the opposition Whig Party, lit into the company for its “rapine and oppression” in Bengal. Indeed, the decision to raise taxes during the famine reeked of tyranny. Moreover, earlier mandates to plant certain crops and regulations against hoarding turned a crisis into a catastrophe.
Company lobbyists responded with an imperialist version of too big to fail. Bankruptcy meant terminating hard won British preeminence in the subcontinent. Despite the difficulty of France overcoming the Royal Navy’s dominance at sea to reclaim Indian possessions, the argument stuck. The Regulating Act of 1773 provided a £1.5 million loan and capped dividends. It also banned employees from accepting bribes and kickbacks, and appointed a Governor General of Bengal to enforce the regulations.
The problem was Parliament chose a compromise, regulating rather than liquidating the company or leaving it alone, which proved unenforceable. How could politicians in London, let alone one man in Calcutta, compel a vast corporate machine to comply with government regulations?
Fifteen more years of corruption and war answered that question. After passing additional legislation in 1784, Parliament lost its patience and took serious action. It impeached Warren Hastings, the appointed Governor General from 1773. And none other than the father of conservatism, Edmund Burke, served as chief prosecutor. His grandstanding on February 13, 1788 would make any Congressmen blush, and is worth quoting at some length.
“Mr. Hastings’s government was one whole system of oppression, of robbery of individuals, of spoliation of the public, and of suppression of the whole system of the English government, in order to vest in the worst of the natives all the power that could possibly exist in any government; in order to defeat the ends which all governments ought, in common, to have in view…
I impeach Warren Hastings of high crimes and misdemeanours…in the name of the Commons of Great Britain, whose national character he has dishonored. I impeach him in the name of the people of India, whose laws, rights, and liberties he has subverted…whose property he has destroyed, whose country he has laid waste and desolate. I impeach him in the name and by virtue of those eternal laws of justice which he has violated.”
After this thunderous opening, the trial dragged on for years and descended to bizarre depths. Burke prosecuted a civil servant appointed to overhaul a government created monopoly six thousand miles from oversight. The monopoly defended itself on the grounds of property rights, or “sacred charter.” The government responded that the company was chartered to trade, not rule, despite failing to enforce this until 1773. And to cap it off, Parliament renewed the company’s charter for another twenty years in 1793 and acquitted Hastings two years later. The result, predictably, was more of the same.
Continued wars in the19th Century, namely the conquest of the Northwest Territories and Punjab, again strained finances and setup further intervention from Parliament. In 1813 the company lost its monopoly over everything except tea and trade with China, and ceased all commercial function 1833. Only the administrative machinery, the foundation of crown rule, saved it from dissolution until the Mutiny of 1857. A century after Clive’s triumph at the Battle of Plassey inaugurated British ascendance, the East India Company fell and mercantilism passed away.
Or did it? Observers of the TARP theatrics will notice parallels. Wall Street banks, like the East India Company, nearly paid for their mistakes with bankruptcy. But thanks to a powerful lobbying effort, each wrangled a bailout by prophesizing doom: the collapse of the world economy or the end of British dominance in India. (Note from Jitu: The Troubled Asset Relief Programme (TARP) was a US Government programme that purchased assets from financial institutions to address the 2007-2008 financial crisis).
The behaviour of government in both cases was appalling. Parliament tried to exercise oversight without direct control, only to end up venting its anger about continuing company misbehaviour by impeaching its chief regulator. Likewise, Congressmen grandstanded about imposing reforms on banks in exchange for TARP money. Consequently, the banks got their bailout, Congressmen received publicity and congratulations for rescuing the economy and passing Dodd-Frank, and taxpayers got handed the bill.
Both the East India Company and TARP were flagrant examples of corporate collusion with government. Concerned persons rightly fear such behavior. However, the best prevention is greater economic freedom rather than state control. The government cannot create wealth anymore than business can, or should, rule. Central planners and social engineers cannot, and will never, create more prosperity than free individuals.
Tim Reuter writes on books for Forbes.com, and is a frequent contributor to RealClearSports.