Capital and Imperialism: Theory, History, and the Present

by Utsa Patnaik

7. D. Kumar, ed., The Cambridge Economic History of India, Vol. II.

  8. See E. J. Hobsbawm, Industry and Empire: From 1750 to the Present Day (Harmondsworth: Penguin, 1972); David Landes, The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1850 to the Present (Cambridge: Cambridge University Press, 1969); P. Deane and W. A. Cole, British Economic Growth 1688–1959: Trends and Structure (Cambridge: Cambridge University Press,1969); and B. R. Tomlinson, The New Cambridge Economic History of India: The Economy of Modern India 1860–1970 (Cambridge: Cambridge University Press, 1993).

  9. See Friedrich List, The National System of Political Economy, translated by G. A. Matile (Philadelphia: Lippincott & Co., 1856); R. C. Dutt, The Economic History of India, Vol. I (Delhi: South Asia Books, 1990); Mantoux, The Industrial Revolution; and Baran, The Political Economy of Growth.

  10. Mantoux, The Industrial Revolution, p. 256.

  11. Ralph Davis, The Industrial Revolution and British Overseas Trade (Leicester: Leicester University Press, 1979); Utsa Patnaik, “India’s Global Trade and Britain’s International Dominance,” in S. Sen and M. C. Marcuzzo, eds., The Changing Face of Imperialism (Delhi: Routledge, 2018).

  12. Phyllis Deane, The First Industrial Revolution (Cambridge: Cambridge University Press, 1965).

  13. Deane and Cole, British Economic Growth.

  14. See Table B.2 in U. Patnaik, “New Estimates of Eighteenth Century British Trade and Their Relation to Transfers from Tropical Colonies,” in K. N. Panikkar, T. J. Byres, and U. Patnaik, eds., The Making of History: Essays Presented to Irfan Habib (Delhi: Tulika Press, 2000).

  15. Simon Kuznets, “Foreign Trade: Long-term Trends,” Economic Development and Cultural Change, Vol. 15, No. 2, Part 2 (January1967).

  16. Though he put “special trade” against the Deane and Cole figures, he did not explain what “special trade” meant.

  17. U. Patnaik, “Misleading Trade Estimates in Historical and Economic Writings,” in P. Patnaik, ed., Excursus in History: Essays on Some Ideas of Irfan Habib (Delhi: Tulika Books,2011).

  18. E. Backhouse and J. O. P. Bland, Annals and Memoirs of the Court of Peking (Boston: Houghton Mifflin, 1914), 322–331.

  19. Ricardo’s theory serves a very useful apologetic function for advanced countries by obfuscating the reality of possible adverse welfare outcome for the less developed country obliged to trade for extra-economic reasons. I. Kravis, in his “Availability and Other Influences on the Commodities Composition of Trade,” Journal of Political Economy Vol. LXIV (April 1956), had provided an alternative theory to comparative advantage, but he did not critique Ricardo’s theory adequately.

  20. Samuelson’s “linear programming” interpretation of Ricardo, in which with free trade the vector of world output (namely for all the trading countries together) increases, is obviously not valid in a situation where (taking just two countries) one country cannot produce one good at all. If the production of this good in the other country is constrained by the non-augmentability of fully used-up land area, then the total “world” output of this good will remain unchanged after trade, while that of the other will contract; this was the case with colonial trade. Paul A. Samuelson, “A Modern Treatment of the Ricardian Economy: I. The Pricing of Goods and of Labor and Land Services,” The Quarterly Journal of Economics, 73/1 (February 1959), 1–35. See U. Patnaik, “Ricardo’s Fallacy,” in K. S. Jomo, ed., The Pioneers of Development Economics (Delhi: Tulika Books, 2005) for a critique.

  21. Estimated by U. Patnaik in “The Free Lunch,” using data in B. R. Mitchell and Phyllis Deane, Abstract of British Historical Statistics (Cambridge: Cambridge University Press, 1962).

  22. Maddison, The World Economy.

  23. See Utsa Patnaik, “The Free Lunch.”

  24. Davis, The Industrial Revolution and British Overseas Trade, 1979.

  25. Calculated from Davis, The Industrial Revolution and British Overseas Trade, Statistical Appendix. See Utsa Patnaik, “India’s Global Trade and Britain’s International Dominance,” in Sunanda Sen and Maria Cristina Marcuzzo, eds., The Changing Face of Imperialism (Delhi: Routledge, 2018).

  26. A. H. Imlah, Economic Elements in the Pax Britannica: Studies in British Foreign Trade in the Nineteenth Century (Cambridge: Harvard University Press, 1958).

  27. See Utsa Patnaik, “The Free Lunch.”

  28. Imports are taken here at f.o.b. values, namely values at port of origin, thus attributing freight, insurance, and commission as incomes to Britain. This figure is therefore lower than that mentioned in an earlier estimate.

  29. While our procedure for calculating the present value of the “drain” D for say a five-year period should ideally have been D = [d1(1+r)T-1+d2(1+r)T-2+…d5(1+r)T-5], where T is the date to which the sum is being calculated, we use the shortcut of taking D as [(d1+d2+…d5)](1+r)T-3, since year 3 is the mid-point of the period.

  30. Quoted in R. C. Dutt, Economic History of India, Vol.1, 285. At Martin’s 12 percent interest rate, the drain from 1765 to 1836 alone, by 1947 would amount to £5200 trillion (compare with 1947 GDP of the UK of £10.5 billion).

  31. Quoted in R. C. Dutt, Economic History of India, Vol.1, 285.

  32. Up to 1874, the exchange rate was close to £ 1 = Rs.10, so the figures in the first column in Rs. crores give the value in £ million. For the second column £1= Rs.15 will give a rough idea of the sterling equivalent.

  33. Irfan Habib, Essays in Indian History (Delhi: Tulika Books,1995).

  34. Reverse Councils were bills payable in sterling against rupees tendered for imports in India, but other than two years after the First World War, since India always posted export surplus, the net flow was of Council Bills.

  35. M. de Cecco, The International Gold Standard: Money and Empire (New York: St. Martin’s Press, 1984).

  36. S. Panandikar, Some Economic Cosnequences of the War for India (Bombay, 1921), 203.

  37. A. I. Levkovsky, Capitalism in India: Basic Trends in Its Development (Delhi: People’s Publishing House,1966), pp. 96–97, quoting S. Panandikar, Some Economic Consequences of the War for India.

  38. Dutt, Economic History of India Vol.II, 154–155.

  39. Some writers have ignored the specificity of the macroeconomics of a colonized economy subject to such a drain, and therefore they were misled into applying standard reasoning to it. K. N. Chaudhury, “Foreign Trade and the Balance of Payments 1757–1947” in D. Kumar ed., Cambridge Economic History of India, for instance, says that India’s export surplus should have given rise to foreign trade multiplier effects. In fact, however, since the export surplus was matched by a budgetary surplus (with the drain items being shown in both cases to balance the accounts), and the overwhelming bulk of the tax burden fell on the working people, especially the peasantry, whose savings propensity was negligible, the aggregate demand in the colony, even on Keynesian reasoning, would not increase with the size of the drain. In addition, since exports were of products that were grown on the limited tropical landmass, products whose particular output rather than the level of aggregate demand determined overall employment and output in the economy, the export surplus would have a deflationary effect. See P. Patnaik, “On the Macroeconomics of a Colonial Economy,” in P. Patnaik, ed., Excursus in History (Delhi: Tulika Books, 2011) for a critique.

  40. Bhattacharya, The Financial Foundations of the British Raj.

  10 FURTHER ON COLONIAL TRANSFERS

  1. John Kenneth Galbraith, A View from the Stands: Of People, Politics, Military Power, and the Arts (New York: Houghton Mifflin, 1986), 315–16.

  2. Quoted in A. Chandavarkar, Keynes and India (London: Palgrave Macmillan, 1989), p. 57.

  3. Note that the value of Council bills represented India’s balance of commodity trade, comprising the (positive) balance of merchandise trade plus the (negative) balance of commodity gold. Financial gold flows belonged to the capital account.

  4. S. Bhattacharya, The Financial Foundations of the British Raj, 260–61,
303–20).

  5. Utsa Patnaik, “The Free Lunch,” Appendix.

  6. From Pandit, India’s Balance of Indebtedness; and, A. K. Banerjee, India’s Balance of Payments.

  7. See Pandit, India’s Balance of Indebtedness, and A. K. Banerjee, India’s Balance of Payments.

  8. Folke Hilgerdt, “The Case for Multilateral Trade”; S. B. Saul, Studies in British Overseas Trade 1870–1914.

  9. S. B. Saul, Studies in British Overseas Trade 1870–1914.

  10. Saul, Studies in British Overseas Trade 1870–1914, 56.

  11. Saul, Studies in British Overseas Trade 1870–1914, 58, Table XX.

  12. Saul, Studies in British Overseas Trade 1870–1914, 62.

  13. The regulation with respect to Council Bills had to be modified to allow their issue to exceed actual annual expenditure by Britain, which could no longer absorb such fast-rising sums under normal heads of current spending. Whether the absorption took the form of using India’s gold earnings to add to Britain’s reserves requires investigation.

  14. Saul, Studies in British Overseas Trade 1870–1914, 62.

  15. Saul, Studies in British Overseas Trade 1870–1914, 203.

  16. Hilgerdt, “The Case for Multilateral Trade.”

  17. Saul, Studies in British Overseas Trade 1870–1914.

  18. Balances in millions of dollars, calculated from adjusted frontier (imports valued c.i.f., exports f.o.b.). Both import and export balances are shown; the smaller of the two figures in each square represents the export balance of the group from which the arrows emerge, and the larger figure the import balance of the group to which the arrows point. The difference between the amounts in question is due largely to the inclusion in imports of transport costs between the frontiers of the exporting and importing countries.

  The figure for the import balance of the “Regions of Recent Settlement in the Temperate Belts” from the United States should be 690 instead of 670 as indicated in the figure.

  The United Kingdom, the United States, and Germany are shown separately; the other countries were grouped in three categories: the Tropics (including Central Africa, the tropical agricultural and the mineral producing countries of Latin America, and tropical Asia), the “Regions of recent settlement in the temperate belts” (including the British dominions of South Africa, Canada, Oceania, and Argentina, Uruguay, and Paraguay), and “Europe” with the exception of the United Kingdom and Germany. See League of Nations (1942), table 20–23, table 44, and Annex III for details on the classification and country data.

  19. United Nations, International Trade Statistics 1900–1960 on International Merchandise Trade Statistics, 1962; available at www./unsd/trade/imts/ Historical data 1900-1960:pdf.

  20. A. I. Levkovsky, Capitalism in India: Basic Trends in its Development (Delhi: Peoples Publishing House, 1972).

  21. Charles Kindleberger, The World in Depression 1928–1938 (Harmonds-worth: Pelican, 1987).

  22. S. G. Triantis, Cyclical Changes in the Trade Balances of Countries Exporting Primary Products 1927–1933 (Toronto: University of Toronto Press, 1967).

  23. B. R. Mitchell and Phyllis Deane, Abstract of British Historical Statistics.

  24. S. Sivasubramonian, The National Income of India.

  11 THE UNRAVELING OF THE COLONIAL ARRANGEMENT

  1. Nicholas Kaldor has a model of the world economy where the rate of growth of one part of the world, the so-called “manufacturing sector,” is tethered to the rate of growth of the other part, the so-called “primary producing sector.” Nicholas Kaldor, “What Is Wrong with Economic Theory?” in Nicholas Kaldor, Further Essays in Economic Theory (Cambridge: Cambridge University Press, 1978).

  2. Amiya Kumar Bagchi, Private Investment in India 1900–1939 (Cambridge: Cambridge University Press, 1972).

  3. W. J. Macpherson, “Investment in Indian Railways 1845–1875,” Economic History Review 8, no. 2 (1955).

  4. Paul A. Baran, The Political Economy of Growth (New York: Monthly Review Press, 1957).

  5. There is an enormous literature on Britain’s return to gold. D. E. Moggridge, The Return to Gold, 1925 (Cambridge: Cambridge University Press, 1969), is a very useful reference.

  6. The real wage argument can be set out as follows. The price-level p is given by

  where a is the physical amount of imported input per unit of output, m its dollar price and e the exchange rate (pound-sterlings per dollar); w is the money wage rate; l the labor coefficient and π the markup margin. Suppose at the initial exchange rate, there is a balance of payments deficit for the United Kingdom, and that a reduction in p in terms of dollars by 5 percent, in the absence of any retaliation, will bring about payments equilibrium. With floating exchange rates, since sterling must depreciate, e/p must rise, for which, with given π, w/p must fall. With fixed exchange rate, the same would hold for any e greater than the initial rate, that is, at any parity with a lower value of sterling than the initial rate. But with fixed parity at an overvalued sterling, that is, with an e that is, say, 5 percent lower than the initial rate, p, if it is to fall in dollar terms by 5 percent, must be lowered by 10 percent in sterling terms. Since the first term (ame) would have gotten lowered by only 5 percent (owing to over-valuation), w must fall by more than 10 percent for this to happen, that is, w/p must fall. Real wages would thus have to fall no matter what policy was pursued. But even if they do, retaliation would negate the effects of the policy.

  7. John Maynard Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1936), 381–82.

  8. Britain’s situation in this respect was different from that of today’s United States, which can oblige countries to hold dollars, because Britain, though the leading capitalist economy of that time, was not the military leader of the capitalist world. On the contrary, it was locked in intense inter-imperialist rivalry with other capitalist powers.

  12 A PERSPECTIVE ON THE GREAT DEPRESSION

  1. J. A. Schumpeter, Business Cycles, 2 vols. (New York: McGraw-Hill, 1939).

  2. See Paul A. Baran and Paul M. Sweezy, Monopoly Capital (New York: Monthly Review Press, 1966), in which they refer to this exchange.

  3. Oskar Lange, Review of Business Cycles, by J. A. Schumpeter, Review of Economic Statistics 23, no. 9 (1941).

  4. Michał Kalecki, Selected Essays on the Dynamics of the Capitalist Economy 1933–1971 (Cambridge: Cambridge University Press, 1971).

  5. Charles Kindleberger, The World in Depression, 1929–1939 (Berkeley: University of California Press, 1973).

  6. Kindleberger, pp. 289–91.

  7. Richard F. Kahn, “The Relation of Home Investment to Unemployment,” Economic Journal 41, no. 162 (June 1931).

  8. Kalecki, “Political Aspects of Full Employment” (1943), in Michal Kalecki, Selected Essays on the Dynamics of the Capitalist Economy 1933–1971.

  13 PUBLIC POLICY AND THE GREAT FAMINE IN BENGAL, 1943–44

  1. John Maynard Keynes, A Treatise on Money (1930), in Collected Writings, vol. 5, Elizabeth Johnson and Donald Moggridge, eds. (Cambridge: Cambridge University Press, 1979), and How to Pay for the War (New York: Harcourt, Brace,1940).

  2. John Maynard Keynes, Indian Currency and Finance (London: Macmillan, 1913).

  3. Keynes, A Treatise on Money, in Collected Writings, vol. 5, 152–53; emphasis added.

  4. Keynes, A Treatise on Money, in Collected Writings, vol. 5, 153.

  5. Keynes, A Treatise on Money, in Collected Writings, vol. 5, 153, 154.

  6. Keynes, A Treatise on Money, in Collected Writings, vol. 5, 155; emphasis added.

  7. Keynes, A Treatise on Money, in Collected Writings, vol. 5, 155; emphasis added.

  8. Keynes, How to Pay for the War.

  9. Quoted in Chnadavarkar, Keynes and India, 119.

  10. Up to 1941–42, Total Government Outlay is the sum of Expenditure plus the absolute value of Total deficit as indicated. From 1942–43, Total Govt. Outlay is found to exceed this sum slightly, as there was rupee borrowi
ng by government not shown in the RBI’s table. The rupee-sterling exchange rate was approximately Rs.13.6 = £ 1. In the Cambridge Economic History of India, vol. 2, ed. Dharma Kumar and Meghnad Desai (Cambridge: Cambridge University Press, 1984), some data were reproduced (943, Table 12.11) from the same Table 15 of the RBI Report for 1946–47, but the figures in cols. 1, 3, and 4 were excluded. No idea of the actual increase in central government revenues and expenditure, or of total outlays and total deficit, can be obtained from the CEHI.

  11. India’s national income estimates from S. Sivasubramonian (2000), adjusted for British India coverage by the authors.

  12. Amartya Sen, Poverty and Famines: An Essay on Entitlement and Deprivation (Oxford: Clarendon, 1981), 56.

  13. Bhowani Sen, Rural Bengal in Ruins (Peoples Publishing House, 1945) quoted in Rajani Palme Dutt, India Today (Delhi: Peoples Publishing House, 1947), 263; Report on Currency and Finance 1945–46 (Bombay: Reserve Bank of India, 1946); Sen, Poverty and famines, 54.

  14. P. S. Lokanathan, India’s Post-war Reconstruction and Its International Aspects (Delhi: Indian Council of World Affairs,1946), 42.

  15. Sen, Poverty and Famines.

  16. P. C. Mahalanobis, R.K Mukherjee and A.Ghosh, A Sample Survey of After-effects of the Bengal Famine of 1943 (Calcutta: Statistical Publishing Society, 1946).

  17. Sen, Poverty and Famines, 75.

  18. See Utsa Patnaik, “Food Availability and Famine: A Longer View,” Journal of Peasant Studies, Vol.19, Issue 1 (1991), reprinted in Utsa Patnaik, The Long Transition (Delhi: Tulika Books, 1999); and Anand Chandavarkar, Keynes and India: A Study in Economics and Biography (Houndsmills: Macmillan, 1989).

  19. We thank Arundhati Chowdhury for making available the digitized RBI reports.

  20. S. Sivasubramonian, The National Income of India in the Twentieth Century.

  21. Utsa Patnaik, “Food Availability and Famine.”

  22. George Blyn, Agricultural Trends in India 1891–1947: Output, Availability and Productivity (Philadelphia: University of Pennsylvania Press, 1966), Table 5.3, 102.

  23. Lokanathan, India’s Post-war Reconstruction, p. 49.