Trade in Tropical Products with colonies, as ‘Flow’
Primitive Accumulation of Capital : India, Britain and
the World Economy 1900-1935
UTSA PATNAIK
Jawaharlal Nehru University
Important Periods in India’s trade with Britain
• From 1600, the year the East India Co. was formed, up to the
1820s, India always had an export surplus vis à vis Britain. Up
to 1765 the trade brought in silver as payment. Local
producers of export goods were underpaid by the Company,
but exports were not unrequited.
• After 1765 when the Company obtained the Dewani or tax –
collecting right of Bengal, the export surplus of British India to
Britain was no longer paid for by the latter. The ‘payment’ to
Indian peasants and artisans for their export of textiles and
crops, came out of taxes collected by the Company from
these same peasants and artisans. At least a quarter and up to
one-third of total tax revenues were set aside in the Indian
budget for purchasing export goods.
Primitive accumulation takes place alongside normal
accumulation throughout the history of capitalism to the present
• ‘The capitalist system presupposes the complete separation of the
labourers from all property in the means by which they can realize their
labour. As soon as capitalist production is once on its own legs, it not only
maintains this separation but reproduces it on a continually extending
scale. The so-called primitive accumulation, therefore, is nothing else than
the historical process of divorcing the producer from the means of
production.” (Karl Marx Capital Vol.1 Part VII Chapter XXVI).
• Primitive accumulation is exemplified in the greatest land grab in history a few West European countries seized the vast land resources of preindustrial societies in the Americas, in southern Africa and in Australasia.
Small producers were not merely separated from their land, the majority
was physically eliminated through a combination of massacres and
disease, creating the ‘empty lands’ where Europeans emigrated in large
numbers.
Primitive Accumulation in the form of transferring products of
the land without payment, by taxing, or extracting rent from
colonized producers
• In tropical regions where this route was not feasible, the
products of the land – food crops and raw materials – were
transferred as the commodity equivalent of taxes on local
producers. Analytically this too represents ‘primitive
accumulation’. There is no recognition to this day of the
very large magnitude of this ‘flow primitive accumulation’
or the crucial part it played both in the first industrial
revolution and in the 19th-20th century capital exports
which developed N. America and other regions of recent
European settlement.
• Primitive accumulation may well have exceeded
quantitatively, ‘normal’ accumulation in many periods
indicating the essentially parasitic nature of the capitalist
system which continues to date.
Re-exports of Indian goods paid for Britain’s imports of
temperate land products
• As long as the E. I. Co. had the monopoly of trade with India, it
imported a much larger volume of colonial including Indian
products (manufactured textiles, primary goods) than the British
economy could absorb. A part of imports were retained within
Britain and the remainder was re-exported to pay for imports of
foodgrains, iron and strategic naval supplies mainly from the
European Continent. Cotton textiles from India were entirely reexported as 1700 and 1721 laws in Britain banned their
consumption
• Re-exports were very important and they boosted the purchasing
power of Britain’s domestic exports by 60 percent on average over
the 18th century. The estimates of Britain’s trade by Phyllis Deane
and W A Cole (1967) and other economic historians quoting them
are incorrect because they excluded re-exports and therefore a
large part of colonial trade.
Re-exports were the early form of multilateral trade when
colonial trade was monopolised by the chartered companies
• Re-exports (four-fifths were goods from the tropical colonies) were
excluded by Deane and Cole both from imports into Britain and
from exports from Britain. Only imports retained within Britain and
its domestic exports were considered. This is ‘special trade’ and is
not the accepted definition of trade namely ‘general trade’ which is
adopted in every macroeconomic textbook and by every world
body presenting trade figures (Unctad, World Bank, IMF).
• When we apply the accepted definition namely total exports plus
total imports , Britain’s X + M was £80 million by 1800 compared to
the figure of £50 million given by Deane and Cole. The trade /GDP
ratio was 54% in 1800 compared to 36% in their estimate. Kuznets
(1967) similarly gives misleading figures by quoting Deane and Cole
while not warning the reader that for other countries the general
trade definition is used making Britain non-comparable.
Share of Primary Products in World Trade,
selected periods 1876 to 1913
PERIOD
Volumes in current prices
Volumes in 1913 prices
1876-80
63.5
61.8
1886-90
62.3
62.3
1896-1900
64.3
67.7
1906-10
63.2
64
1913
62.5
62.5
Source: KUZNETS 1967
Two parts of India’s Trade
• India’s trade had two qualitatively distinct parts : first, its
trade directly with Britain; and second, its trade with the
rest of the world. Both arms of the trade were promoted by
Britain for distinct reasons and with different results.
• 1) Trade with Britain: in the course of the 1820s to the
1830s, India’s direct trade surplus with Britain turned into a
deficit as machine made yarn and cloth poured into the
compulsorily open Indian market.
• 2) India’s trade with the rest of the world remained in
substantial surplus, leading to an overall export surplus
which rose fast over the 19th century as primary exports
were promoted to the developing world. Unfortunately we
do not have the break-up of India’s trade into the two
parts, before 1900 in secondary sources.
Direct link between the budget and trade was the main
mechanism of ‘flow’ primitive accumulation from India
•
•
•
•
•
•
•
(S – I) = (G – T) + NX where
G = GA + GD and NX = NX1 + NX2 for the colony
GA is expenditure incurred Abroad, GD the expenditure Domestically . T is government
taxation revenues. NX is the total net exports of goods and services divided into two parts.
NX1 the positive balance of trade in goods and normal services with the world, and local
exporters are paid in rupees out of the budget, to the extent of GA.
Thus (T – GD) = GA = NX1 namely a direct link is established between the budget and trade,
with local payment for export surplus coming out of the budgetary revenues.
NX2 the politically administered invisible liabilities – the debits imposed by Britain on India.
NX2 is deliberately pitched equal to or somewhat higher than NX1 so as to appropriate in
toto all forex earnings from export surplus and enforce borrowing – so in a given year, the
current account is kept balanced or in small deficit.
Producers of export surplus were paid GA, while forex earnings were siphoned off and used
by Britain to settle its current account deficits with Europe, USA and recent settlement
regions. Thus export surplus represented the commodity equivalent of taxes on the people.
The budget was perpetually in surplus and exercised the deflationary impact required to
squeeze domestic incomes and release export goods at the expense of falling consumption.
India’s global earnings financed Britain’s deficits
• India’s rising exchange earnings from the rest of the world
were used systematically by Britain to pay for its own
growing deficits on current account with other countries.
Indian exports were promoted to China (opium, yarn) and
Japan, the European Continent, USA and Canada, and Latin
America.
• The last quarter of the 19th century and up to WW1 was
the period of high imperialism. The bulk of capital exports
from Britain, the leading global investor went to North
America, the European continent and to developing recent
settlement regions – South Africa, Australia, Argentina.
• Britain ran not only current account deficits but capital
account deficits with these regions , so running up large
balance of payments deficits .
India’s Trade Surplus, 1833-35 to 1917-18
( X -M ) 1833-35 to 1917-19 as three-year averages in current Rs.crore
100
90
80
70
60
50
40
30
20
10
0
X -M
Magnitude of colonial and especially India’s export surplus not
recognized in the literature despite availability of UN matrix of
world trade from 1942
• From at least 1900 to 1928 and possibly from a decade earlier,
India ran the second largest export surplus in the world, second
only to the USA. Export surplus earnings grew at over 7% annually.
Britain’s ability to appropriate these growing earnings enabled it
not only to run very large and increasing current account deficits
with North America, Europe and recent settlement regions, but
simultaneously to export capital to these same regions thus running
up increasing BOP deficits. There were no offsetting surpluses
earned from normal trade with other regions – only the
appropriation of the colonies’ exchange earnings kept the system
afloat and stabilised the gold exchange standard.
• The global decline in primary price from 1926 followed by further
price collapse from 1931 reduced India’s exchange earnings
drastically and was the major reason for Britain’s inability to
continue to lend, to keep its markets open, and its being forced off
gold in 1931. This cause of Britain’s demise is generally ignored.
‘Balancing role’ of India’s earnings
• ‘The key to Britain’s whole payments pattern lay in India,
financing as she probably did more than two-fifths of Britain’s
total deficits’ (referring to eve of WWI)
• ‘ It was mainly through India that the British balance of
payments found the flexibility essential to a great capital
exporting power’
• ‘The importance of India’s trade to the pattern of world trade
balances can hardly be exaggerated’
•
(S.B. Saul Studies in British Overseas Trade 1960: 58,88)
• ‘….India’s foreign trade was so structured that it realized a
large deficit with Britain and a large surplus with the rest of
the world’
(M. de Cecco 1984, 71 )
But India did not have a large deficit with Britain in any
year, if normal trade items are considered
• 1910: India’s deficit with Britain on merchandise and gold: £19
million. Credit claimed : £60 million, namely entire Indian global
export surplus earnings that year.
• WWI : Extra wartime exchange earnings taken as ‘gift’ from India to
Britain : £100 million over and above usual transfers.
• 1928: India’s deficit with Britain on merchandise and gold :
• £38 million. Credit claimed : £ 126 million, namely entire global
export surplus earnings.
• The large extra claims by Britain on India were annual politically
imposed invisible liabilities, or tribute, under very many heads –
not just the well-known Home Charges’. These heads have not
been fully investigated and documented so far. These claims were
pitched somewhat higher than annual exchange surplus earnings,
obliging India to borrow.
India’s total merchandise trade surpluses and Invisibles deficits
1922-3 to 1938-9
Merchandise balance and All Invisibles incl. non-commercial transactions balance 1922-3 to 1938-9
200
150
100
50
0
1922-3 1923-4 1924-5 1925-6 1926-7 1927-8 1928-9 1929-0 1930-1 1931-2 1932-3 1933-4 1934-5 1935-6 1936-7 1937-8 1938-9
-50
-100
-150
TOTAL MERCH
ALL INVISIBLES
Rising Export surplus was never permitted to translate into
current account surplus, owing to the imposition of
administered liabilities to siphon off all forex earnings
• For example over 1922-3 to 1938-9, India’s aggregate
commodity surplus (merchandise plus gold) was exceeded by
administered Invisibles liabilities, to the extent of about 2
percent of the surplus, representing long-term borrowing
(data below from A K Banerji). This was then paid for through
distress gold outflow to Britain during the Depression years.
•
•
•
•
•
Values in Rs. crore: ( 1 crore = 10 million)
Merchandise + gold surplus
15,02.764
Total of invisible liabilities
-15,32.630
Borrowing necessitated
29.866
Gold outflow 1931 to 1937
29.656
£ billion
1.002
1.022
0.020
0.020
Financial Mechanism of Transfer (‘Flow’ Primitive
Accumulation)
• The bulk of India’s global exports were paid for by foreigners in their own
currencies to the required amount by purchasing sterling Bills issued in
London by the Secretary of State for India in Council. The bills were
termed Council Bills and were encashable in India only in rupees. Thus net
exchange earnings were not permitted to flow back to India.
• The bills were sent (by post or telegraph) by foreign importers to the
Indian exporters who cashed them through exchange banks for rupees.
These rupee sums came in turn from the Treasury, out of the funds
earmarked in the Indian budget under the general head of ‘expenditures
incurred abroad’ GA , and also in part from currency reserves.
• Thus the direct linking of the fiscal and trade systems continued.
Budgetary spending against net exports ranged from 25 to 30 percent of
the total revenues up to the Depression and exercised a strong
deflationary impact. Growing export surplus meant higher GA/T share
and a lower share of budgetary spending under other normal heads,
GD/T. So internal money supply did not rise in proportion to trade growth.
Trade Surplus and Trade Deficit countries, 1928 (million USD)
from League of Nations 1942 study on matrix of world trade
India’s Trade Balance with the World 1900 to 1926 in
million current US Dollars, three year averages
•
•
•
•
•
•
Period
1900-01
1902-04
1905-07
1908-10
1911-13
X
367.5
467.7
547.3
584.3
765.3
M
313
349.3
449.7
456.3
590.7
BALANCE
54.5
118.4
97
128
174.7
• 1924-26
1238
909
329
• Source: International Trade Statistics 1900 -1960 United Nations 1962
Tables XXIV, XXV
INDIA'S MERCHANDISE TRADE BALANCE WITH THE
WORLD 1900 TO 1926
350
300
250
200
150
100
50
0
1900-01 1902-04 1905-07 1908-10 1911-13 1914-19 1924-26
Million US Dollar
Ratio of India’s global exchange earnings to Britain’s deficits
1
Indian
Sub-Con
2
UK
Trade
3
Share
Of
Trade
Balance
Balance
With
excl.
World
Percent
1 in 2
UK
1900
151
-873
17.3
1913
414
-1034
40
1928
497
-1876
26.5
1935
96
-1347
7.1
1938
133
-1459
9.1
Ratio of India’s global exchange earnings to Britain’s deficits
1
Indian
Sub-Con
2
UK
Trade
3
Share
Of
Trade
Balance
Balance
With
excl.
World
Percent
1 in 2
UK
1900
151
-873
17.3
1913
414
-1034
40
1928
497
-1876
26.5
1935
96
-1347
7.1
1938
133
-1459
9.1
INDIA'S MERCHANDISE TRADE BALANCEWITH
THE WORLD 1924 TO 1938
350
300
Million US Dollar
250
200
150
100
50
0
1924-26
1927-29
1930-32
1933-35
1936-38
India’s Trade Balance with the World 1926 to 1938 in
current million US Dollars
Year
EXPORTS
IMPORTS
BALANCE
1924-26
1238
909
329
1927-29
1182
993
189
1930-32
558
485
73
1933-35
567
469
98
1936-38
669
590
79
Merchandise balance and Gold balance 1922-3 to 1938-9 (Banerji)
200
150
100
50
0
1922-3 1923-4 1924-5 1925-6 1926-7 1927-8 1928-9 1929-0 1930-1 1931-2 1932-3 1933-4 1934-5 1935-6 1936-7 1937-8 1938-9
-50
-100
-150
Merch X - M
GOLD X - M