Book IV, Chapter VII, 14

Although Europeans hold many substantial settlements on the African coast and in the East Indies, they have not yet founded in either region colonies as numerous and prosperous as those on the islands and mainland of America. Yet Africa, like several countries included under the general name East Indies, is inhabited by nations Europeans call barbarous. Those nations, however, were by no means as weak and defenseless as the unfortunate and helpless Americans; and, in keeping with the natural fertility of the lands they occupied, they were far more numerous. The nations considered most barbarous in Africa and the East Indies were shepherds—even the Hottentots. But the inhabitants of every part of America except Mexico and Peru were merely hunters; and the numbers of shepherds and hunters that equally fertile tracts of the same size can support differ greatly. In Africa and the East Indies, then, it was harder to displace the inhabitants and spread European plantations across most of their land. Moreover, as already noted, the character of exclusive companies is hostile to the growth of new colonies, and has probably been the main cause of their limited progress in the East Indies. The Portuguese traded with both Africa and the East Indies without exclusive companies. Though superstition and every kind of bad government have greatly weakened their settlements at Congo, Angola, and Benguela on the African coast, and at Goa in the East Indies, these settlements still bear some resemblance to the American colonies and are inhabited in part by Portuguese families established there for several generations. The Dutch settlements at the Cape of Good Hope and Batavia are now the largest colonies Europeans have founded in either Africa or the East Indies, and both enjoy exceptionally favorable positions. The Cape of Good Hope was inhabited by a people almost as unfamiliar with European ways and just as unable to defend themselves as the inhabitants of America. It is also, so to speak, the halfway house between Europe and the East Indies, where almost every European ship stops on both its outward and homeward voyages. Supplying these ships with fresh provisions of every kind, with fruit and sometimes wine, alone provides a very large market for the colonies’ surplus produce. What the Cape of Good Hope is to the passage between Europe and every part of the East Indies, Batavia is to the passage among the chief countries of the East Indies. It lies on the busiest route from Indostan to China and Japan, nearly midway along it. Almost every ship sailing between Europe and China also calls at Batavia. Beyond this, it is the center and principal market of the East Indies’ so-called country trade, conducted not only by Europeans but also by native Indians. Ships manned by people from China and Japan, Tonquin, Malacca, Cochin-China, and the island of Celebes are often seen in its harbor. These advantageous locations have enabled both colonies to overcome all the obstacles that the oppressive character of an exclusive company may at times have placed in the way of their growth. They have enabled Batavia to overcome the further disadvantage of what may be the most unhealthy climate in the world.

The English and Dutch companies, though they have founded no major colonies apart from the two just mentioned, have both made substantial conquests in the East Indies. Yet the way both govern their new subjects displays the natural character of an exclusive company with particular clarity. In the spice islands, the Dutch are said to burn whatever spices a fertile season yields beyond the quantity they expect to sell in Europe at a profit they consider sufficient. On islands where they have no settlements, they pay a premium to people who gather the young blossoms and green leaves of the clove and nutmeg trees growing wild there; this savage policy is said to have almost completely exterminated those trees. Even on islands where they do have settlements, they have, it is said, greatly reduced their number. They fear that if their own islands produced much more than their market required, the inhabitants might find a way to send some of the crop to other nations. The best way to protect their monopoly, they imagine, is to ensure that no more grows than they themselves bring to market. By various forms of oppression they have reduced the population of several of the Moluccas to nearly the number needed to supply their insignificant garrisons and the ships that occasionally come for spices with fresh food and other necessities of life. Under Portuguese rule, however, those islands are said to have been reasonably well populated. The English company has not yet had time to establish in Bengal a system so thoroughly destructive. Its scheme of government has, nevertheless, tended in precisely the same direction. I have reliable assurance that it has not been unusual for the chief—that is, the first clerk of a factory—to order a peasant to plow up a fertile field of poppies and sow rice or another grain instead. The pretext was to prevent a shortage of food; the real purpose was to allow the chief to sell a large stock of opium he happened to have on hand at a higher price. At other times the order has been reversed: a fertile field of rice or another grain has been plowed up to plant poppies when the chief anticipated an extraordinary profit from opium. On several occasions the company’s servants have tried to secure for themselves monopolies over some of the most important branches of both the foreign and the inland trade of the country. Had they been allowed to continue, sooner or later they would inevitably have tried to restrict production of the articles they had monopolized, not merely to the quantity they could themselves purchase, but to the quantity they expected to sell at a profit they deemed sufficient. Over a century or two, the English company’s policy would probably, in this way, have proved as destructive as the Dutch company’s.

Nothing could be more directly opposed to the true interest of these companies as rulers of the countries they have conquered than this destructive policy. In almost every country the sovereign’s revenue comes from that of the people. The larger the people’s revenue, and therefore the larger the annual produce of their land and labor, the more they can pay the sovereign. It is thus in the sovereign’s interest to increase that annual produce as much as possible. This is especially true for a sovereign whose revenue, like the sovereign of Bengal’s, comes chiefly from rent on land. That rent must vary with both the quantity and the value of the produce, and both depend on the breadth of the market. The quantity produced will always correspond, more or less closely, to the consumption of those who can afford to pay for it; and the price they pay will reflect the intensity of their competition. It is therefore in such a sovereign’s interest to open the widest possible market for his country’s produce and allow the fullest freedom of commerce, so as to increase as much as possible both the number of buyers and their competition. For this reason he should abolish not only every monopoly but every restriction on moving domestic produce from one part of the country to another, exporting it abroad, or importing goods of any kind for which it might be exchanged. In this way he is most likely to increase both the quantity and the value of that produce, and thus his own share of it—his revenue.

Yet a company of merchants seems unable to think of itself as a sovereign even once it has become one. It still considers trade—buying in order to sell again—its principal business. With a strange absurdity, it treats the role of sovereign as a mere appendage to that of merchant, something to be subordinated to commerce, enabling the company to buy more cheaply in India and thus sell more profitably in Europe. To this end companies try to exclude as many competitors as possible from the markets of the countries they govern. Consequently they reduce at least some of those countries’ surplus produce to barely enough to meet their own demand, or to the amount they can expect to sell in Europe at what they consider a reasonable profit. Their mercantile habits thus draw them, almost inevitably and perhaps without their realizing it, to prefer on ordinary occasions the small, fleeting profit of a monopolist to the great, enduring revenue of a sovereign. These habits would gradually lead them to treat the countries they govern much as the Dutch treat the Moluccas. In its capacity as sovereign, the East India company benefits when European goods brought to its Indian dominions are sold there as cheaply as possible, and when Indian goods taken from there fetch as high a price there as possible. As a merchant, it benefits from precisely the opposite. As sovereign, its interest is exactly the interest of the country it governs. As merchant, its interest is directly opposed to that country’s.

If the nature of such a government is thus fundamentally, and perhaps incurably, defective even in its direction from Europe, its administration in India is more defective still. That administration must consist of a council of merchants: a highly respectable profession, no doubt, but one that nowhere in the world carries the kind of authority that naturally inspires awe among the people and wins their willing obedience without force. Such a council can command obedience only through the military force accompanying it; its government must therefore be military and despotic. Its proper business, meanwhile, is commerce: selling for its masters the European goods consigned to it and buying Indian goods in return for the European market. It must sell the former as dearly as possible and buy the latter as cheaply as possible, and so exclude as many rivals as it can from the particular market in which it keeps shop. In matters concerning the company’s trade, then, the character of its administration matches that of its directors. It tends to subordinate government to monopoly and thus to stunt the natural growth of at least some parts of the country’s surplus produce, limiting it to barely enough to satisfy the company’s demand.

Moreover, every member of the administration trades to some degree on his own account, and forbidding the practice is futile. Nothing could be more foolish than expecting a clerk in a great countinghouse, ten thousand miles away and almost wholly out of sight, to give up every kind of private business simply on his masters’ orders, abandon forever all hope of making a fortune when the means are in his hands, and content himself with the moderate salary they allow him. Those salaries, modest though they are, can seldom be increased, since they are commonly as high as the real profits of the company’s trade will bear. In these circumstances, forbidding the company’s servants to trade privately can do little beyond enabling senior servants, under the pretense of enforcing their masters’ orders, to oppress junior ones who have incurred their displeasure. The servants naturally seek the same monopoly for their private trade as for the company’s public trade. If allowed to act as they please, they will establish this monopoly openly and directly by simply forbidding everyone else to trade in the articles they choose to handle. This may be the best and least oppressive way of establishing it. But if orders from Europe prohibit them from doing so, they will nevertheless seek to establish the same kind of monopoly secretly and indirectly, in a way far more destructive to the country. They will wield all the authority of government and corrupt the administration of justice to harass and ruin anyone who competes with them in any branch of commerce they choose to pursue through agents, whether hidden or merely not publicly acknowledged. The servants’ private trade naturally extends to a far wider range of goods than the company’s public trade. The company’s trade goes no further than Europe and covers only part of the country’s foreign trade. The servants’ private trade can cover every branch of its inland and foreign commerce. The company’s monopoly can stunt only the natural growth of the portion of surplus produce that, under free trade, would be exported to Europe. The servants’ monopoly tends to stunt the natural growth of every portion of produce in which they choose to deal, whether intended for domestic consumption or export. It thus degrades cultivation across the whole country and reduces its population. Whenever the servants of the company choose to trade in any kind of produce, even the necessities of life, their monopoly tends to restrict its quantity to what they can afford to buy and expect to sell at a profit that satisfies them.

The servants’ circumstances also make them more inclined than their masters to defend their own interest against that of the country they govern with ruthless severity. The country belongs to their masters, who cannot help having some concern for the welfare of their property; it does not belong to the servants. Their masters’ true interest, if they could understand it, coincides with the country’s; [The interest of every proprietor of India stock, however, is by no means the same as that of the country whose government his vote gives him some influence over.—See book v, chap. 1, part ii.] it is chiefly ignorance and the narrowness of mercantile prejudice that lead them to oppress it. The servants’ true interest, by contrast, by no means coincides with the country’s, and even perfect understanding would not necessarily end their oppression. Accordingly, regulations sent out from Europe, though often feeble, have generally been well intentioned. Those devised by the servants in India have sometimes shown greater intelligence, and perhaps less goodwill. It is a remarkable government in which every member of the administration wants to leave the country, and thus be finished with governing it, as soon as possible. Once he has departed with his entire fortune, it makes no difference to his interests if an earthquake swallows the whole country the following day.

Nothing I have said, however, is intended to cast an offensive aspersion on the general character of the East India company’s servants, much less on any particular person. I criticize the system of government and the position in which they are placed, not the character of those who have served under it. They acted as their circumstances naturally led them to act; and those who have denounced them most loudly would probably have done no better. In war and negotiation, the councils of Madras and Calcutta have on several occasions displayed resolve and decisive wisdom worthy of the Roman senate in the republic’s finest days. Yet the members of those councils had been trained for professions very different from war and politics. Their circumstances alone, without education, experience, or even an example to follow, seem to have brought forth at once the great qualities required of them and inspired abilities and virtues they themselves could scarcely have known they possessed. If those circumstances have sometimes moved them to acts of magnanimity no one could reasonably have expected, we should not be surprised that at other times they have prompted deeds of a rather different kind.

Such exclusive companies, therefore, are nuisances in every respect: always more or less troublesome to the countries in which they are established, and ruinous to those unfortunate enough to come under their rule.

Europeans have many substantial settlements on the coast of Africa and in the East Indies. But in neither place have they established colonies as numerous and prosperous as those in the islands and on the continent of America. Africa, like several countries grouped under the name of the East Indies, is inhabited by peoples considered uncivilized. Yet these peoples were far from being as weak and defenseless as the miserable and helpless Americans. Their numbers were also much greater, in proportion to the natural fertility of the lands they inhabited. Even the peoples considered most barbarous in Africa or the East Indies were herders; that included the Hottentots. But everywhere in America except Mexico and Peru, the native peoples were only hunters. An equally fertile area can support far more herders than hunters. So it was harder in Africa and the East Indies to drive out the inhabitants and spread European plantations across most of their land. As noted already, exclusive companies are also ill suited to building new colonies. They have probably been the main reason for the limited growth of colonies in the East Indies. The Portuguese traded with both Africa and the East Indies without exclusive companies. Their settlements at Congo, Angola, and Benguela on the African coast, and at Goa in the East Indies, have suffered greatly from superstition and every kind of bad government. Yet they somewhat resemble the colonies in America, and some of their inhabitants are Portuguese families established there for several generations. The Dutch settlements at the Cape of Good Hope and Batavia are now the largest European colonies in Africa or the East Indies. Both have especially favorable locations. The Cape of Good Hope was inhabited by a people almost as uncivilized, and just as unable to defend themselves, as the natives of America. It is also a halfway stop between Europe and the East Indies. Nearly every European ship stops there on its outward and return journeys. Supplying these ships with fresh provisions of every kind, fruit, and sometimes wine provides a very large market for the colonies' surplus produce. Batavia plays the same role among the main countries of the East Indies that the Cape plays between Europe and every part of the East Indies. It lies on the busiest route from Indostan to China and Japan, roughly halfway along it. Almost all ships traveling between Europe and China also call at Batavia. In addition, it is the center and chief marketplace of what is called the country trade of the East Indies. This includes trade conducted by Europeans and by native Indians. Ships sailed by inhabitants of China, Japan, Tonquin, Malacca, Cochin-China, and the island of Celebes are often seen in its harbor. These excellent locations have allowed both colonies to overcome any barriers to their growth that an exclusive company's oppressive character may have put in their way. Batavia has also overcome the added disadvantage of perhaps the most unhealthy climate in the world.

Although the English and Dutch companies have founded no sizable colonies apart from those two, both have made major conquests in the East Indies. Their way of ruling their new subjects shows the character of an exclusive company especially clearly. In the spice islands, the Dutch reportedly burn whatever spices a fertile season yields beyond what they expect to sell in Europe at a profit they consider sufficient. On islands where they have no settlements, they pay people to gather the young blossoms and green leaves of the clove and nutmeg trees that grow naturally there. This cruel policy has reportedly almost wiped out the trees. Even on islands where they do have settlements, they have reportedly greatly reduced their numbers. The Dutch suspect that, if even their own islands produced much more than their market required, the natives might manage to sell some to other nations. They believe the best way to protect their monopoly is to allow no more to grow than they themselves take to market. Through various forms of oppression, they have reduced the population of several of the Moluccas almost to the number needed to provide fresh provisions and other necessities to their small garrisons and to ships that occasionally arrive for spices. Yet those islands were reportedly fairly well populated even under Portuguese rule. The English company has not yet had time to put such a thoroughly destructive system in place in Bengal. Its plan of government, though, points in exactly the same direction. I have reliable assurance that a chief, meaning the head clerk of a trading station, has often ordered a peasant to plow up a fertile field of poppies and plant rice or another grain. The stated reason was to prevent a shortage of food. The real reason was to let the chief sell a large stock of opium he happened to hold at a better price. On other occasions the order has been reversed. A fertile field of rice or other grain has been plowed up for poppies when the chief expected unusually high profits from opium. Company servants have repeatedly tried to monopolize important branches of both foreign and inland trade for their own benefit. If allowed to continue, they would inevitably have tried, sooner or later, to limit the production of goods they monopolized. They would limit it not only to the amount they could buy, but to the amount they expected to sell at a profit they considered sufficient. In a century or two, the English company's policy would probably have become as completely destructive as the Dutch policy.

Yet nothing could be more clearly against these companies' real interests as sovereigns of the countries they have conquered than this destructive plan. In nearly every country, the ruler's revenue comes from the people's revenue. The more income the people earn, and thus the more their land and labor produce each year, the more they can pay the ruler. The ruler therefore benefits from increasing that yearly produce as much as possible. This is especially true of a ruler whose revenue comes mainly from rent on land, as in Bengal. That rent must depend on the amount and value of what the land produces, and both depend on the size of the market. The amount produced will more or less match what paying customers can consume. The price they pay will depend on how fiercely they compete to buy it. Such a ruler therefore benefits from opening up the widest possible market for the country's produce. The ruler should allow complete freedom of commerce to bring in the greatest possible number of competing buyers. For this reason the ruler should abolish not just monopolies, but every restriction on carrying domestic produce from one part of the country to another, exporting it abroad, or importing any goods for which it can be exchanged. That is the best way to increase both the amount and value of the produce, and thus the ruler's share of it and revenue.

But it seems a company of merchants cannot think of itself as a sovereign, even after becoming one. The company still sees trade—buying in order to resell—as its main business. Absurdly, it treats being sovereign as merely an addition to being a merchant, a role that should serve its trade. It uses its rule to buy more cheaply in India and sell at a greater profit in Europe. For that purpose it tries to keep as many competitors as possible out of the markets it governs. It thereby cuts at least some of those countries' surplus produce down to what barely meets the company's demand, or to what it expects to sell in Europe at a profit it considers reasonable. Its habits as a merchant thus lead it almost inevitably, perhaps without realizing it, to prefer the small, short-lived profit of a monopolist to the large, lasting revenue of a sovereign. In time, those habits would lead it to treat the countries it governs much as the Dutch treat the Moluccas. As sovereigns, the East India company benefits when European goods taken to its Indian dominions sell there as cheaply as possible, and when Indian goods taken from those dominions bring the highest possible price there. As merchants, it benefits from the opposite. As sovereigns, its interests exactly match those of the country it governs. As merchants, its interests directly conflict with them.

If a company's government is fundamentally, and perhaps incurably, flawed even in its direction from Europe, its administration in India is still more flawed. That administration must be a council of merchants. Merchants are certainly highly respectable, but nowhere does that profession give them the kind of authority that inspires respect and willing obedience without force. Such a council can secure obedience only through the soldiers who accompany it. Its government is therefore necessarily military and despotic. Yet the council's real business is trade. Its job is to sell European goods consigned to it on its masters' account, and in return buy Indian goods for the European market. It must sell the first for as much as possible and buy the second for as little as possible. So it must exclude as many rivals as it can from the market where it does business. In its conduct of company trade, then, the administration has the same character as the directors. It makes government serve the monopoly. As a result it restricts the natural growth of at least some of the country's surplus produce to what barely meets the company's demand.

Moreover, every member of the administration trades to some degree on his own account, and forbidding this is futile. It would be utterly foolish to expect a clerk in a large trading office, ten thousand miles away and almost completely out of his masters' sight, to stop doing all business on his own account merely because they order him to. He would have to abandon forever every hope of making the fortune he has the means to make, and accept the moderate salary his masters pay him. Even those salaries can rarely rise: they are generally as high as the company's actual trade profits can support. Under these conditions, banning the servants' private trade can have scarcely any result except to let senior servants oppress juniors they dislike, under the pretense of enforcing their masters' orders. The servants naturally try to establish the same monopoly for their own private trade as for the company's public trade. If allowed to do as they please, they will establish it openly and directly, simply forbidding everyone else to trade in the goods they choose. This may actually be the least oppressive way to establish it. But if orders from Europe forbid that approach, they will still try to establish the same kind of monopoly secretly and indirectly, in a way far more destructive to the country. They will use all the power of government and distort the administration of justice to harass and ruin anyone who competes with the commerce they carry on through agents, whether hidden or merely not publicly acknowledged. The servants' private trade will naturally cover a much wider range of goods than the company's public trade. The company's trade goes no further than Europe and covers only part of the country's foreign trade. The servants' private trade can cover every branch of its inland and foreign trade. The company's monopoly can only restrict the natural growth of the surplus produce that would have gone to Europe under free trade. The servants' monopoly restricts the growth of whatever produce they choose to trade in, whether meant for local consumption or for export. It therefore lowers cultivation throughout the country and reduces its population. Whenever the servants choose to deal in any kind of produce, even life's necessities, their monopoly tends to limit its quantity to what they can afford to buy and expect to resell at a profit that satisfies them.

Their position also makes the servants more inclined than their masters to defend their own interests against the country's with harsh severity. Their masters own the country, so they cannot avoid caring somewhat about its interests. The servants do not own it. Their masters' real interests, if they understood them, match those of the country. [But the interests of individual owners of India stock are by no means identical to those of the country whose government their votes give them some influence over.—See book v, chap. 1, part ii.] When they oppress it, the chief causes are ignorance and narrow-minded prejudices about trade. But the servants' real interests do not match the country's, and perfect knowledge would not necessarily end their oppression. Accordingly, the rules sent from Europe have often been weak, but most have been well meant. Rules made by servants in India have sometimes shown more intelligence, and perhaps less good intention. It is an extraordinary government in which every administrator wants to leave the country, and with it his government duties, as soon as he can. Once he has left and taken all his wealth with him, he has no personal stake in the country's fate, even if an earthquake swallows it whole the next day.

Nothing I have said is meant to cast a hateful accusation on the servants of the East India company in general, much less on any individual. I criticize the system of government and the position it puts them in, not the character of those who have served in it. They did what their circumstances naturally led them to do. Their loudest critics probably would not have behaved any better. In war and diplomacy, the councils of Madras and Calcutta have on several occasions acted with the resolve and sound, decisive judgment that would have honored the Roman senate in the republic's best days. Yet their members were trained for professions quite unlike war or politics. Their situation alone, without training, experience, or even an example to follow, seems to have brought out in them at once the great qualities it demanded. It gave them abilities and virtues they could hardly have known they possessed. If it sometimes inspired unexpectedly generous and courageous actions, we should not be surprised if it also led them at other times to actions of a very different kind.

Exclusive companies, then, are harmful in every respect. They always cause some inconvenience to the countries where they are established and destroy the countries unlucky enough to come under their rule.