by Roopa Pai
Kings and queens began thinking out of the box, too. Towards the middle of the fifteenth century, Henry VII in England and King Ferdinand and Queen Isabella in Spain emerged as the builders of the first ‘nation-states’—kingdoms where the rulers (and not a random bunch of chieftains) held all the power, where all the people of the kingdom followed the same set of rules and laws and paid the same taxes, and where everyone felt they were part of one big (if not-always-happy) family.
The nation-state was a pretty neat idea. OR was it?
Well, it was certainly a better idea than what had gone before, but like every other idea, this one too had its good and not-so-good bits.
The good bits
♦With only one super boss (the king or queen), the day-to-day working of the kingdom became more organized.
♦With one set of laws for the entire kingdom, people felt that things were generally fairer than before. Earlier, if you were a peasant unlucky enough to have a bad landlord, you were destined to live a far more miserable life than someone with a kinder one, but now who your landlord was didn’t matter as much.
♦With soldiers from the super boss’ army guarding the borders of the kingdom, people felt safer. Now any wars that happened would happen with people outside the kingdom, not inside it.
♦Within the clearly-defined boundary of the kingdom, merchants and traders could travel freely, selling their wares, knowing they wouldn’t be stopped at a dozen borders and made to pay a dozen tolls as they went about their business. Plus, the same taxes applied everywhere, which made it easier for them to fix one single price for their goods throughout the kingdom.
♦Everyone felt like they belonged together, and were part of something glorious that was bigger than themselves—a country, a flag, a people!
The bad bits
♦Absolute power often went absolutely to the ruler’s head. Very often, with no one to challenge him, the ruler focused only on giving himself and his friends a good time, and didn’t give a fig for the people.
♦Obviously, the laws that the king made were cleverly designed to make him and his friends (the rich people) richer, which meant the poor became poorer. In the earlier model, if you had had a good landlord, you could have had a decent life, now, if you had a bad king, you had no hope at all.
♦As merchants prospered, they paid more taxes into the king’s treasury, and became more and more chummy with the king. The poor peasants, who toiled so hard each day in the fields to produce food to fill the merchants’ bellies, completely fell off the king’s radar. Soon, merchants became so powerful that the only laws that were being made were ones that helped their cause.
♦The not-so-nice part about everyone feeling like they were a band of brothers—‘All for one and one for all’ and such—was that, now, everyone else was ‘Them’, the outsider, the other, the enemy. Sure, it helped to unite the people of that nation-state, but it also helped them believe that anyone who did not belong to this ‘family’ deserved the worst kind of violence and exploitation. Not fun.
A SHORT BUT SPICY DETOUR
Figured out nation-states? Now let’s talk about spices. Spices? Yes, yes, this book is about Economics, not spices. But spices are the, erm, spice of life. And important to our Economics story, too. You will see why as we go along.
Right then. We are still in the fifteenth century, at a time when spices, especially pepper, were worth their weight in gold in Europe (Why? Because when you used a lot of it, it masked the smell and taste of rotting meat. This was before refrigerators were invented, remember! Ugh!).
In the beginning, it was fleets of Arabian dhows that carried spices from the east—the Maluku Islands in Indonesia, Sri Lanka, the Indian peninsula—to Europe, first by sea to Egypt, then up the Nile and the Mediterranean Sea to somewhere in today’s Syria, and finally by land to Constantinople (today’s Istanbul), the gateway to Europe. Few Europeans knew exactly where these spices came from—the Arabs guarded their secret closely—and that made them (the Europeans) desire these exotic thingummijigs even more.
The Arabs merrily fleeced the Europeans until 1453, when Constantinople was captured by the Ottoman Turks and the land route into Europe was shut off. Europe suffered and smarted without its beloved spices, until the rulers of Spain and Portugal decided it was time a different route to the east was found. The world was round, the open sea lapped at their coasts, and adventurous sailors with stars in their eyes were a dime a dozen. Equip them with ships and men, and surely they would find their way to those fabulous eastern lands where gold, it was whispered, was brought up to the surface by hard-working gold-digging ants?
So off they went, these doughty explorers. The first to go, in 1492 CE, was Christopher Columbus of Spain, who sailed forth with the blessings of the same King Ferdinand and Queen Isabella whom we talked about earlier. He went west, bumped into two huge continents no one knew existed, and brought back not spices but strange-looking vegetables that we know today as tomatoes and potatoes and chillies, and the divine Theobroma cacao, food of the gods, otherwise known as the cocoa bean, the progenitor of chocolate.
In 1497, the Portuguese seaman Vasco da Gama sensibly went south along the west coast of Africa, did a hairpin bend at the Cape of Good Hope, and eventually reached Mozambique, where Kutchi sailor (Kutch is a part of Gujarat today) Kanji Malam is believed to have shown him the way to the spice garden of the world, i.e., the Malabar coast.
A new gateway to the east was now open for Europe to pour through, and the world would never be the same again.
A REVOLUTIONARY NEW BUSINESS IDEA CALLED MERCANTILISM (A.K.A. ‘HOW TO GROW RICH THROUGH LOOT AND PLUNDER’)
We are now in the sixteenth century. Europe’s new nation-states, their powerful rulers, and their prosperous, influential merchants are doing very nicely, thank you. Now that routes to new faraway lands that are full of gold and silk and calico and spices and vulnerable, unsuspecting natives have been discovered, an audacious and disruptive new way to do business begins to take root.
The main points of this idea—Mercantilism—went something like this:
▶Woohoo! Some of us Europeans are super-powerful! Now to get super-rich!
▶You get super-rich by having lots of gold. Okay, silver’s not too bad, either.
▶There are tons of both in South and Central America
▶One way to lay our paws on that yummy bullion* is to sell stuff from our countries to the Americans and make them pay for it in gold and silver. Sure, we can mine our own gold, but that’s too much work, plus all the gold in our country is ours anyway. The point is to get other people’s gold.
▶We use American gold to pay for voyages to other foreign lands—India, China, the Near East, the Far East—and get their gold by selling them more of our stuff.
▶When we fill our ships with our stuff and take it to sell in foreign lands, we should be careful not to spend too much of our gold to buy their stuff; we should try and pay for it in some other way. There should always be more gold coming into the country than going out, because the only way to get richer is by making someone else poorer.
▶Foreigners in general are way less smart, way less cool, and way less important than us, but even they will smell a rat if we keep taking their gold without giving them any in return. The best way to deal with this is to conquer them. Then we can loot and plunder them and their land legally.
♦Afterthought 1: Oh, we can also make them our slaves—and pay them peanuts!
♦Afterthought 2: Oh, oh, we can also buy their raw materials—their cotton, metals, leather—for really, really cheap (hey, at least we’re not taking it for free!), then take it back to our own countries, turn them into finished goods (because we are so much better than them at manufacturing) and—get this!—sell it right back to them, and get more gold out of them!
♦Afterthought 3: While we are at it, we should whip our own countrymen into shape too. We should make them work like dogs in mines, in unsanitary little sweatshops,
on looms. We should pay them very little, give them no healthcare, and take their children out of school and put them to work. That way, we can produce even more finished goods to sell to those poor foreign suckers, and earn even more gold!
As ideas went, Mercantilism was a brilliant one for European rulers and their cronies—ministers, nobles, landowners, and merchants who traded with foreign lands—and it made Europe very, very rich.
Obviously, however, it was a terrible idea as far as the colonies (the poor foreign suckers conquered by Europe) were concerned. Why, even the non-merchants and non-nobles of Europe were not exactly loving it (refer Afterthought 3 to see why).
Clearly, the people who did not love the idea were in a huge majority compared to the ones that did. Which is why it is so surprising that mercantilism was considered the only way to do business for some 200 years, right until the end of the eighteenth century!
HERE IT COMES—THE E WORD!
As we have seen, way more people hated Mercantilism than loved it. But the reason it eventually fell by the wayside because, in the long run, it turned out to be a bad idea for everyone, even for the people who loved it. The guy who called out all its flaws and poked lots and lots of holes in it was a British academic and philosopher called Adam Smith. He didn’t stop there either; he went on to propose a new and different idea that was not only a much better way of doing business but also benefited many more people.
In 1776 CE, Adam Smith put his thoughts down in a fat book with a very long name that we needn’t concern ourselves with. All we need to know is its short name: The Wealth of Nations. It was the modern world’s very first book on—here it comes now, the word you’ve all so eagerly been waiting for—Economics*!
Smith firmly believed that Mercantilism was a completely flawed idea. If there had been an argument between the mercantilists and Smith, it might have gone something like this.
Mercantilists: We need to get more and more gold into the country, because the amount of gold in a country’s treasury is the only measure of how much wealth the country has.
Adam Smith: Hogwash! The true measure of a country’s wealth is its people, and the things they can grow or make or produce through their hard work. Just because you have more gold doesn’t mean you are richer. You’ve got to use the gold to produce something, or to get someone to produce something for you, or to take a holiday to the Cornish coast. Gold is only useful when it is, well, used!
Mercantilists: We should only sell our stuff to other people. We should not buy too much from them, especially if we know how to make it ourselves. Yes, even if their stuff is better or cheaper.
Adam Smith: Balderdash! It is only through selling AND buying that wealth is created. Look at all the civilisations that flourished before us—Egypt, Greece, Rome, Mesopotamia, China, India—they didn’t do business with the world using stupid ideas like these. They freely traded their stuff for other people’s stuff, and THAT’s how they grew rich, not by looting and plundering like you guys.
Mercantilists: There is only so much wealth in the world, so the only way we can get rich is by making someone else poor.
Adam Smith: Tommyrot! Wealth is not static, it can be created! Getting rich at someone else’s expense is not only immoral, it’s imbecilic! Both sellers and buyers can become rich if they trade sensibly with each other—it’s only when everyone benefits that trade even makes sense!
Yup, he used a lot of colourful words to call out the stupidity of the mercantilists, but Smith’s arguments were clearly sound. It explains why, a few years after The Wealth of Nations was published, England began to sidle slowly away from mercantilism towards Adam Smith’s brand-new idea for a very different way of doing business.
400 YEARS AGO, THE ANSWER TO THE QUESTION ‘WHICH IS THE WORLD’S RICHEST COUNTRY?’ WAS ‘INDIA!’
Yes! In the sixteenth century, when the Mughals ruled, India’s GDP (Gross Domestic Product, or the total value of the things manufactured and produced by India in a year) was estimated to be about a quarter of the entire world’s GDP! Or let’s put it this way: in the year 1600, the annual revenue of just Emperor Akbar’s treasury was £17.5 million* (even though large chunks of India weren’t part of his kingdom); 200 years later, the entire treasury of Great Britain could not match that—its annual revenue was only £16 million.
Wow. How did we get there? Well, through many, many centuries of ‘economic activities’—farming, herding, mining, manufacturing, spinning, weaving, metal-working, craft-skill-building and trading furiously and continuously with the world. And what happened to us after that, that we fell off the rich countries list so dramatically?
Here’s a brief history of the Economics of India, not only until the Europeans came in (when things were dandy), but also after they came in (and things went south).
When did the people of what we know today as India begin to indulge in ‘economic activities’? Who knows? All the information we have about economic activities only begins with the Indus Valley Civilisation, one of the oldest civilisations in the world.
2400 BCE: The Indus Valley people lived in cities built beside mighty rivers in today’s Pakistan and India (mainly Gujarat), and traded copper, different kinds of hardwoods, ivory, pearls, lapis lazuli and gold, mainly with the people of the other ancient civilisation of Mesopotamia.
In the sixth century BCE, over a thousand years after the people of the Indus Valley mysteriously disappeared, coins were minted in India for the first time. By this time, the port of Bharuch in Gujarat was well-known in Arabia and Egypt, and even as far afield as Europe. Traders from these places sailed to Bharuch not only to buy Indian goods, but also eager for luxury goods from the Far East. Because ships from the Far East docked at Bharuch too!
In the third century BCE, the Mauryan empire took over and united almost all of the land that we know today as India under one kingdom. It was then that the Indian economy really began to take off. Without having to worry about stuff like going through unfriendly kingdoms, different currencies, different weights and measures, and the headache of paying taxes at every border, traders roamed freely across the land with their goods, along well-guarded roads that the king had constructed expressly for this purpose.
Around the time when BCE was changing into CE, and Augustus Caesar ruled at the head of the Roman Empire, the south Indian peninsula became the hub of Indian overseas trade. With the open sea calling from three sides, and no shortage of expert sailors and shipbuilders in the Tamil kingdoms of the Pandyas and the Cheras, south Indian merchants carried on a flourishing trade with West Asia. After Augustus conquered Egypt and captured the Arabian sea trade in 30 BCE, these merchants began trading directly with the mighty Roman Empire itself! They traded mainly in pepper, cotton cloth, silk yarn, indigo and gems, in exchange for lots and lots of gold.
By the ninth century, the Chola dynasty, also of Tamil Nadu, had become the masters not only of most of southern India but parts of southeast Asia. Chola trade with the Srivijaya Empire of Sumatra and the T’ang dynasty of China—Chinese junks were a common sight at ports on the Malabar and Coramandel coasts—was as brisk and profitable as that with the Abbasid Caliphate of Baghdad. In fact, because of their location in the southern peninsula between the eastern and western seas, the Cholas helped to introduce China to the rest of the world as a trading partner.
In the fourteenth century, under the Vijayanagara Empire, trade by sea only got bigger and better. From its 300-odd ports on the coasts of the Arabian Sea and the Bay of Bengal, where traders of many nationalities had come to live and prosper, state-of-the-art ships laden with calico, muslin, metals, pepper, ginger, cardamom, cinnamon, pearls, and porcelain sailed out to Mecca and Aden, Burma and China (China was particularly eager for our ivory and rhino horn).
By the time the Mughals came to rule us in the sixteenth century, India was a flourishing world economy, the second largest in the world. The port of Surat, much patronised by the Mughals, was renowned across the world for its ex
ports of silk and diamonds, and considered one of the greatest trading cities of the world, on par with Venice and Beijing. In the year 1700, Emperor Aurangazeb reported an annual revenue of £100 million!
And then came the fall.
The Mughals themselves were responsible for the first phase of the fall. After Aurangzeb’s death in 1707, the empire was ruled by a series of weak emperors for a dozen years. By the time Muhammad Shah I came to the throne in 1719, the Mughals were very much in decline.
Muhammad Shah was a great patron of the arts but, sadly, an inefficient and neglectful administrator. The death blow to the Mughal Empire came in the form of an invasion by Nader Shah of Persia in 1739. The Battle of Karnal, fought between Shah and Shah, was won by the invading Shah in less than three hours! Riding triumphantly into Delhi, Nader Shah proceeded to sack and loot it with abandon. Neither the city, nor the Mughals, recovered from that onslaught.
But it was the second phase of the fall that really destroyed the Indian economy.
In 1757, a new and powerful force, very different from anything India had seen before, began to make its presence felt. It all started innocuously enough. In Calcutta, British traders of the East India Company (which had its own well-equipped, well-trained army), helped Mir Jafar, the rebel commander of Nawab Siraj-ud-daulah of Bengal, win a battle against his king. We now know this landmark battle as the Battle of Plassey. In return, the grateful Mir Jafar gave the traders a swathe of land to rule. This had never happened before—usually, the traders’ reward for helping someone win was money, or exclusive trading rights in the kingdom, or increased influence with the new king.