Splendid Exchange, A

by Bernstein, William L

  The most fateful event on this voyage, however, was Jardine’s introduction to a flamboyant and ambitious Parsi merchant, Jamsetjee Jeejeebhoy, who even by the standards of the time exuded an extraordinary exoticism. Although the Parsis were an ethnically Indian sect and lived in the Bombay area, they practiced an offshoot of Persian Zoroastrianism. Given their Persian-Indian roots, it is not surprising that they were deeply involved in the ancient Indian Ocean emporium trade. They were familiar with China, to which they had for centuries shipped both raw and finished cotton, myrrh, ivory, shark’s fins, and a myriad of other goods, earning a reputation as the “Jews of India.”2 (This term overlooked the fact that real Jews had lived on the subcontinent for millennia, perhaps as early as Solomon’s reign.)

  Born to a poor but priestly family in 1783, Jeejeebhoy was apprenticed to his uncle, a bottle wallah (that is, a bottle seller). The young man soon became bored with the profession his family had chosen for him and within a year shipped out to China, the first of several sojourns there in the subsequent decade. Like Jardine, he lost his cargo and purse to the Brunswick’s captors, but over the next four decades these two brothers in commerce would amass fortunes and knighthoods—Jeejeebhoy’s being the first ever awarded an Indian—in the morally ambiguous world of maritime commerce between India and China, the so-called “country trade.”3

  If Jardine epitomized the new breed of English merchant in Canton, then Commissioner Lin Tse-hsü personified the Chinese society and culture that greeted the ambitious Scot in Canton. Hailing from a long line of scholars and statesmen, Lin followed the traditional Mandarin meritocratic pathway of academic immersion—success in rigorous qualifying examinations followed by advancement through the government bureaucracy. He served successively as secretary to the governor of coastal Fukien province, compiler at the provincial academy, chief provincial examiner, circuit judge, salt controller, judicial commissioner, financial commissioner, director of river conservation, provincial governor, and provincial governor-general, before finally being appointed to the coveted position of imperial commissioner in 1838. Along the way, he advised the emperor on opium policy, and as imperial commissioner he would face off against the English in a momentous struggle that sours East-West relations to this day.4

  The trading world in which Jardine, Jeejeebhoy, and Lin operated ran according to long-established rules and customs. In 1650, the Manchu Ching, the last Chinese dynasty, conquered Beijing and dethroned the Mings. A dozen years later began the sixty-year reign—from 1662 to 1722—of Emperor K’ang-hsi, the Asian counterpart of Louis XIV. Initially, K’ang-hsi reversed Ming isolationism and opened the country to foreign merchants, but he soon pulled back and established a restrictive set of diplomatic and trading rules that became known as the “Canton System,” named after the southern city to which Western merchants were confined.5 That Canton was nearly as far from the center of power in Beijing as it could be and still have a deepwater port was no accident.

  The main European player in this time-honored system that greeted young Jardine on his first visit to Canton was, of course, his employer, the EIC (or, as it had become known by that time, the “Honourable Company”). For more than a century, its monopoly on traffic with the Orient had been threatened by “interlopers,” who were increasingly its former employees.

  As the eighteenth century drew to a close, a new and more potent domestic enemy appeared to bedevil the Honourable Company—Adam Smith and his disciples, who practiced the new science of “political economy.” Their credibility derived from their not having a dog in the age-old fight between monopolists and free-traders. However persuasive were Thomas Mun and Josiah Child, they had been, after all, Company directors who benefited from its monopoly on Eastern trade, and, at the same time, were hurt by the protectionism of the domestic textile manufacturers.6 Now, respected scholars with no financial interest in the outcome of the debate were making powerful arguments in favor of free trade.

  Smith’s compelling analysis of the EIC would ultimately deal the death blow to its Eastern monopoly. The Company was not only the world’s largest commercial enterprise but also a crown monopoly, and it is not surprising that Smith had a great deal to say about its operations.

  Smith’s analysis of Company policy in India, as well as its China trade, cannot be understood without some knowledge of Indian history. In 1757, a brash young colonel of the EIC, Robert Clive, defeated the Mogul Nawab of Bengal and his French allies at the battle of Plassey (about a hundred miles north of present-day Calcutta). He thus acquired for the EIC its first significant territorial holdings on the subcontinent—roughly, present-day Bangladesh and adjoining eastern India, about the size of New Mexico. More important, Clive also inherited the old Mogul diwani—the ruler’s right to tax—which in that day meant receiving, in lieu of money, a portion of the land’s produce, particularly cotton.7 The undermanned Company now directly ruled a small portion of the Indian landmass, and it wisely left the Mogul institutional structure intact. One of the EIC’s edicts reflected the looseness of its control at the local level: “There should be no restriction whatever upon the Princes taking as many women, either wives or concubines, as they may think proper. They cannot employ their money in a more harmless way.”8

  Smith, writing less than two decades after the battle of Plassey, described the Bengal as a declining society whose benighted citizens were doomed to “starve, or be driven to seek a subsistence either by begging, or by the perpetration of the greatest enormities.”9 He laid the blame for this sad state of affairs squarely in the lap of the Honourable Company. The job of government, Smith asserted, was to look after its people and to ensure that a multitude of enterprises would compete with each other for business and investment capital, precisely what a monopoly wishes to avoid. To let a monopoly run a government was thus a prescription for disaster, as occurred when the Company restricted the rice trade in the Bengal and precipitated a famine that killed one-sixth of the population.10

  As revered as Smith is today, in his own time he was just one man of ideas among many, with little direct influence over policy. The victory of free trade in England during the nineteenth century would be won not by economists but by their disciples, the hard-nosed captains of the Industrial Revolution, Manchester’s factory owners, who had a vested interest in open international markets for their inexpensive wares.

  The first skirmish came with the Charter Act of 1793, in which Parliament grudgingly allowed private traders a piddling annual allowance of three thousand tons (about fifteen shiploads) to be divided among them. Napoleon’s “Continental System,” which forbade his allies to trade with England, was met with the equally infamous British “orders in council” of 1807 and 1809, which forced all traffic heading to Europe to call first in Britain. This set off the War of 1812, which disrupted the flow of American cotton to England. Now suddenly dependent on higher-priced cotton from the EIC’s Indian monopoly, the Lancashire mill owners were infuriated. Parliament repealed the orders in June 1812, too late to stop the war with the Americans, and in July 1813 voted to end the EIC’s monopoly in India. Since the Canton trade was at that time important to neither the private traders nor the Lancashiremen, the Company retained its China monopoly, and the Canton System remained viable for another twenty years.11

  The Canton System limited European merchants to dealing only with a few officially sanctioned Chinese trading companies, or hongs, and allowed a tiny colony for foreigners, just a few hundred yards square. Further, the merchants could not reside there permanently, but only during the several months between the summer monsoon, which blew them in, and the winter monsoon, which blew them out.

  The Pearl River estuary provided the geographic stage for the great drama that would blight East-West relations. A sailor approaching Canton first saw a group of islands guarding a bay approximately twenty miles wide at its entrance. At its western end lay the small peninsula of Macao, the Portuguese trading post, and at its eastern end, the islands
of Lantau and Hong Kong, with its magnificent harbor. The bay stretches north for forty miles, and roughly in its middle lies mountainous Lintin Island, an ideal locale for smuggling.

  At the north end of the bay is the entrance to the Pearl River, called the Bogue, where the emperor had positioned an impressive array of artillery, designed to prevent enemy ships and pirates from proceeding upriver to Canton. There was just one problem with the configuration of these guns—they were permanently attached to the ground on fixed mounts. In other words, they could not actually be aimed. As one historian put it, “They were more like fireworks than pieces of ordnance,” a deficiency that would become painfully obvious during the coming Opium Wars.12 The river then curves another forty miles to the north, then west, toward Canton. Along its course lay numerous low islands, the most important of which was Whampoa, just east of Canton, where the Canton System required foreign ships to anchor and transfer their cargoes to small junks.

  Pearl River Estuary

  The barriers between East and West in China were not merely geographic. Technically, China did not engage in trade at all; rather, it accepted tribute to the emperor, who then reciprocated with gifts to the foreign supplicants. In practice, however, the tribute-for-gift exchange looked remarkably like the normal trade in the other Asian emporia. China spectacularly mistook England for an ordinary vassal state like Siam, an error that was to cost it dearly.

  The trading and diplomatic misunderstandings could be simultaneously tragic and comic. In 1793, when George III sent Lord George Macartney to Beijing as ambassador, the Chinese affixed to his riverboat a sign that proclaimed, “Tribute from the Red Barbarians.” Contrary to popular legend, Macartney did agree to kowtow (a complex maneuver consisting of bowing once, kneeling once, and touching the forehead to the floor nine times), but only on the condition that the emperor’s courtiers do the same before a portrait of the British monarch, which Macartney had thoughtfully provided for the occasion. The horrified Chinese politely refused, so no kowtows took place that day on either side.13

  Although some Europeans became fluent in the Chinese dialects, the Chinese almost never became fluent in any European language. For example, Commissioner Lin hired the best translators he could find; later examination of their work showed it to be at the level of pidgin. More fundamentally, a chasm of culture and class separated China and Britain; by the eighteenth century, English traders occupied the higher rungs of British society, whereas in China, merchants had been despised as scum for millennia.14

  At first, the Canton System suited the EIC well. The hongs had a monopoly on the trade from the Chinese side, and the Company, having effectively frozen both the Portuguese and the Dutch out of China during the preceding century, controlled all trade from the European side. Consequently, the hongs and the EIC monopoly fit together like a jigsaw puzzle.

  Under the surface, all was not well. First, the EIC could finance its operations with the abundance of capital available in London, whereas China was a subsistence-level society with only the most rudimentary financial markets, scant capital, and sky-high interest rates. This greatly weakened the EIC’s hong partners.

  The high interest rates were a two-edged sword. On the one hand, they afforded the Company, and subsequent private English traders, enormous profits through borrowing at low rates in England and lending at astronomical rates in China. But it did the EIC no good to have chronically insolvent trading partners who were in constant need of rescue. Even today, international commerce is a highly uncertain enterprise, and merchants frequently have to bear losses. Adequate credit is to trade what altitude is to aircraft; without it, the odds of coming to grief over perilous commercial terrain are great. All merchant enterprises sooner or later lose cargoes or encounter soft markets. Without ample capital reserves and the ability to borrow at low rates of interest, bankruptcy is inevitable. Stretching the analogy a bit, if the hong system was an aircraft unable to attain a safe altitude, it also operated on only one engine. The Chinese had no functioning insurance markets; when fire swept Canton in 1822, most of the local traders were wiped out.15

  By the mid-eighteenth century, an even more serious problem arose: the English had developed an increasing thirst for tea, but the Chinese desired relatively little from England. In the words of the nineteenth-century British trade commissioner for China, Robert Hart:

  [The] Chinese have the best food in the world, rice; the best drink, tea; and the best clothing, cotton, silk, fur. Possessing these staples and their innumerable native adjuncts, they do not need to buy a penny’s worth elsewhere.16

  The revenues from copper and mechanical novelties—the only things China wanted from the West—did not pay for even a small fraction of tea purchases. If the English wanted tea, they would have to pay in silver. Eighteenth-century records of the EIC show that about 90 percent of the value of England’s exports to China was in the form of bullion.17 In 1751, for example, four British vessels arrived in China bearing £10,842 in trade goods and £119,000 in silver.18

  Although the Chinese did not value English merchandise, they did crave Indian cotton, a commodity the EIC now possessed in abundance from the old Mughal diwani won at Plassey. Though China had grown cotton for millennia, before 1800 domestic production had been inadequate, and the Chinese had to import both raw bales and calicoes from India. A triangular system, similar to that in the Atlantic, began to flourish: British manufactured goods to India, Indian cotton to China, and Chinese tea back to England. Increasingly, England also began to export cotton from the new Lancashire factories to China and India.

  By the 1820s China’s demand for Indian cotton slacked off, because of hard economic times and increased domestic planting. The English, once again reduced to exchanging their precious silver for tea, turned their eyes to another diwani crop, opium, whose prime Indian fields lay in the territories surrounding Patna and Varanasi won by Clive in 1757.

  For several thousand years, humans have dried the juice of the common poppy, Papaver somniferum, into opium. As with many modern crops, the poppy is a cultivar, that is, a cultivated variety that does not grow easily in the wild, which suggests that agricultural societies take their drugs as seriously as their food.

  Humans probably first extracted opium for consumption in southern Europe, and the Greeks and Romans used it extensively. Arab traders transplanted the poppy to the more hospitable soils and climates of Persia and India, and then to China, where its use is recorded as early as the eighth century after Christ.19

  For almost all of recorded history, no particular opprobrium was attached to consuming opium as a painkiller, relaxant, work aid, and social lubricant. The Dutch in Indonesia were the first to smoke opium, in the early 1600s, when they began adding a few grains to a recent New World import, tobacco. The Chinese probably acquired the practice from the Dutch base in Formosa, whence the opium pipe rapidly spread to the mainland.20 As early as 1512, Pires observed opium commerce in Malacca, centuries before the British and Dutch became involved in the trade. This indicates that the drug was a high-volume item in Indian Ocean emporium commerce well before the English came to dominate it.21

  Nineteenth-century Europeans swallowed enormous amounts of opium, whereas the Chinese smoked theirs. Since inhaled opium is more addictive than opium taken orally, it was considered much more dangerous in China than in the nations of the West. In England, horticultural organizations awarded prizes for particularly potent domestically grown poppies (although most opium used in Britain came from Turkey), and opium was consumed guiltlessly by both high and low, most famously by Samuel Taylor Coleridge (“Kubla Khan”), Thomas de Quincey (Confessions of an Opium Eater), and Arthur Conan Doyle’s Sherlock Holmes. The drug could be purchased freely in England until the Pharmacy Act of 1868; other Western nations did not restrict its use until around 1900.

  At the time the EIC acquired the Bengal, the Portuguese had been shipping opium from Goa to Canton for some time. Chinese authorities first outlawed its use in
1729, and their reasons for doing so were far from clear.22 By the end of the eighteenth century, the EIC could not be seen as directly involved in bringing opium into China, which would incur the wrath of the emperor. In response, the Honourable Company, in the words of the historian Michael Greenberg, “perfected the technique for growing opium in India and disowning it in China.”23

  It did so by establishing strict oversight of production and maintaining both monopoly pricing and quality control at the Indian end of the supply chain. The Company’s Patna and Varanasi trademarks (named after the northern Indian cities housing its main opium agencies) came to signify excellence to Chinese users, and opium boxes bearing them commanded a premium.

  The EIC sold its high-end branded product to private traders such as Jardine, who shipped it to the mountainous Pearl River estuary island of Lintin, where they based themselves on easily defended floating hulks just off its shore (as opposed to Canton’s downriver wharf at Whampoa, where legitimate cargo was unloaded). Local smugglers brought the contraband upriver and slipped it past Canton’s customs inspectors. The smugglers paid Chinese silver to the English private traders, who then exchanged it at Company offices for silver bills drawable by them on Company accounts in Calcutta and London. The EIC, in turn, used the silver obtained from the private traders to pay for tea.24

  The popular image of an entire Chinese population and its economy ravaged by opium is a misconception. In the first place, the drug was quite expensive and largely the province of the mandarin and merchant elite classes. Second, like alcohol, it was catastrophically addictive in only a small proportion of its users. Even the infamous opium dens did not live up to their seedy reputation, as a disappointed Somerset Maugham discovered: