12/29/2008 Colonialism and the Rise of Capitalism

Colonialism and the Rise of Capitalism

Hamza Alavi

It is quite extra-ordinary to see how, over 45 years ago, leading ‘Western’ Marxists managed to get through
an entire debate on ‘The Transition From Feudalism to Capitalism’ (Hilton, 1976) without once mentioning
the colonial context of the rise of British industrial capitalism. As we shall try to demonstrate, the imperial
nexus played a crucial role in it. Capitalism was a global phenomenon from the outset, not only by way of
trade but also by way of extraction of resources from the colonies that underpinned capital accumulation in the
metropolis. So it continues today. That blind spot in Marxist historiography, which fails to locate the colonial
relationship at the centre of capitalist development in the metropolis is also responsible for a missing dimension
in Marxist political practice. The fate of the working class in the advanced capitalist countries is, more than
ever, linked inextricably with that of the working people of the so-called Third World. But Western labour
movements have done little to integrate their struggles with those of the workers of the Third World.

Colin Barker’s review article in the inaugural issue of Historical Materialism (1997), despite its brilliance
and comprehensiveness, is not free from that general oversight. Barker writes with clarity and what he has to
say stands very well on its own ground regardless of the merits or otherwise of Ellen Wood’s books that he
has reviewed. One would endorse most of what Barker has to say, subject to this one caveat about the
absence of the colonial dimension in his comprehensive statement. Wood’s own contribution to the inaugural
issue of Historical Materialism is, by contrast, very disappointing. I will take her article, however, as a useful
point of departure for a discussion of issues that need to be raised. Much of the problem with Wood’s article,
it must be said, stems from her methodological decision to take the concept of ‘the market’ as the organising
focus of her discussion, even when she criticises others for the way in which they have used it. As against
them, she argues that ‘the capitalist market (does not) represent an opportunity ¼ (but rather) an
imperative’. But nowhere does she explain what she means by the ‘imperative of the market’.

The market is, of course, an essential component of the mechanism of capitalism. But, except in pseudo-
Marxist works, such as those of Immanuel Wallerstein (1974), the market does not define the structure of
capitalism. What is specific and central to the capitalist mode of production (in agricultural capitalism as well
as industrial) is the separation of the producer from the means of production. As Marx himself put it, ‘This
separation of labour from the conditions of labour is the precondition of capitalist production.’ (Marx,
1969:78)

Wood is led away from that key definition in Marx’s thinking. Instead she mistakenly posits the existence of
‘two different narratives’ in Marx. The first of these she attributes to the German Ideology and The
Communist Manifesto. In that ‘conventional model’, (as she puts it), history is a succession of stages in the
division of labour, with a transhistorical (sic) process of technological progress and the leading role
assigned to burgher classes who seem to bring about capitalism just by being liberated from feudal chains’.
This rendering of Marx’s ideas is unrecognisable. (Wood, 1997: 10; emphasis added). The second ‘narrative’
in Marx, she writes, is to be found in the Grundrisse and Capital. That, she writes, ‘has more to do with
changing property relations’. We can take this notion of ‘changing property relations’ as a euphemism (that
obscures rather than clarifies) for the separation of the producer from the means of production. Further on
Wood writes: ‘What Marx is trying to explain is the accumulation of wealth’ (ibid:13) Wood must know that
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Wood writes: ‘What Marx is trying to explain is the accumulation of wealth’ (ibid:13) Wood must know that
there is a fundamental conceptual difference between the idea of accumulation of ‘wealth’ (which could
include such ‘wealth’ as palaces or jewels etc. which are unproductive) and that of the ‘accumulation of
capital’ that provides a basis of ever rising circuits of production. Accumulation of capital refers to the
conversion of surplus value into productive capital, which sets in train a process of reproduction on a
progressively increasing scale. It was the accumulation of capital that Marx’s work was all about. One should
not have to point out such elementary distinctions to someone whose work has been celebrated so generously
in Historical Materialism.

Nor can we say that Marx has two different ‘narratives’, as Wood puts it, namely in his early and later works.
That is an old misconception going back to the 1960s when ‘Early Marx’ was ‘discovered’. Marx is quite
consistent in his analysis of capitalism. As in his later works, his statements in the Manifesto too speak of the
separation of the producer from the means of production, that creates two antagonistic classes namely free
labour and the capitalist owner of the means of production. With the rise of capitalism, he points out, society
as a whole is split into two great classes directly facing each other: the bourgeoisie and the proletariat. It is no
different in Marx’s other early work that Wood mentions, namely The German Ideology. There also he
points out that ‘The bourgeoisie itself ¼ finally absorbs all earlier possessing classes (while it develops the
majority of the earlier non-possessing classes, and a part of the earlier possessing class, into a new class, the
proletariat). (Marx, 1960:48) These early works set out the same ideas that were developed as a central
theme in Marx’s later works. Whatever Althusserian Marxism, or in this case Wood, might have to say, there
is no epistemological break between the early and later Marx on this fundamental issue. There is a consistency
in the development of this idea.

In searching, with Wood, for a ‘cause’ of the origin of capitalism, we run the risk of a positivist conception of
‘causes’ of social change. It would be far more profitable to look at the historical process of the rise of
capitalism and the structural transformations that are inextricably linked with it. We can distinguish several
strands of that wide-ranging historical process. As far as the impact of capital on agriculture is concerned,
Wood fastens on only one of several aspects of capitalism and agriculture. She focuses on the work of Robert
Brenner, where he looks at the development of capitalist farming, employing free labour and investment of
capital. It is by no means clear that Brenner himself takes that development as the sole aspect of changes in
agriculture, as Wood seems to present the case. Against that heavy focus on agriculture we need also to
remind ourselves that it is in the rise of industrial capitalism that we find the main engine of capitalist
development.

Changes in agriculture complemented that. These were of three kinds, of which the above-mentioned is one.
In the context of the rise of industrial capitalism, in Britain and elsewhere, Marx himself emphasised rather
more another aspect of change in agriculture. That was the enclosure movement that Wood brushes aside,
carried away by her criticism of Anderson. Given the greater relative profitability of wool production at the
time, peasants were thrown off the land which was converted to grazing to raise sheep. Enclosures brought
about large-scale eviction of the peasantry from the land. That generated a vast reserve army of labour, the
dispossessed farm workers. Thereby they became available for employment as industrial labourers in the
rapid expansion of capitalist industrial production. The enclosure movement was therefore particularly
significant because of its role in making available a large reserve army of labour.

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We may at this point also take note of a third aspect of the impact of capital on peasant production, that
happens to be little known in the English speaking world. It is the subsumption of small peasant production
under capital without the separation of the producer from the means of production, which was a dominant
feature of the continental rural landscape. That was analysed by Kautsky in his work ‘The Agrarian
Question’. (Kautsky,1988). It is a very important work, which was highly praised by Lenin whereas its
reactionary author, Kautsky himself, disowned it not long after its publication. (cf. ‘The Introduction’ to the
English translation of Kautsky’s ‘The Agrarian Question’, Kautsky, 1988)

Modes of Production

The concept of mode of production is central to Marxist analysis. But Marx does not offer a concise and
precise definition of it. It is embedded in the analysis that he offers in Capital and he leaves it to us to extract
it. In recent years several Marxists have dealt with the concept. We do not have the space here to review and
comment on them. I will instead outline below the concepts of feudal and capitalist modes of production, as
we might derive them from Marx’s Capital and, additionally, propose a concept of a Colonial Mode of
Production that, I would suggest, is needed to capture the structural specificity of colonial capitalism. (Alavi:
1981). A mode of production, it must be emphasised, is determined simultaneously at several levels, as a
complex unity. There is all too often a tendency to reduce the complex and dialectical unity of the concept of
mode of production to a narrow definition of ‘relations of production’ that focuses on particular forms of
relationships between the labouring direct producer, and the class that exploits his/her labour power. The
concept of mode of production entails determinations as follows:

FMP CMP Col. MP

Unfree Labour, rendered not
necessarily in the form of
labour services but taking a
variety of possible forms.
Free Labour, (1) ‘free’ from - as in CMP -
possession of means of
production and also (2)
juridically free, to sell labour
power to the capitalist

Extra-economic coercion in Extraction of surplus value - as in CMP -

the extraction of the surplus through the economic
process of ‘free’ sale of
labour power

Fusion of economic and Formal separation of The creation of a colonial

political power at the point of
production, in a localised
structure of power. (The case
of the ‘Absolutist State’ is
discussed below).
economic and political power state, as instrument of
and the emergence of a metropolitan capital.
bourgeois state and its laws.

Mainly self-sufficient village/ Generalised Commodity Circuit of lopsided

manorial economy Production, with balanced Generalised Commodity
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supplemented by simple
commodity circulation and
petty commodity production;
portion of the surplus goes
into trade. Feudalism is
compatible with global
commerce. But there is no
Generalised Commodity
Production and labour itself is
not yet a commodity.
Colonialism and the Rise of Capitalism
production of capital goods
(Dept. I) and consumer
goods (Dept II), the two
sectors bearing a relationship
as discussed by Marx in
Capital Vol. II. Labour
power itself is a commodity,
freely traded in the labour
market.
Production is completed via
metropolis with production of
raw materials etc. for export;
manufactured goods,
including capital goods being
mainly imported. No
development of Dept I, i.e.
capital goods production).

Simple Reproduction – the Extended Reproduction of Extended Reproduction of

surplus is mainly consumed
by the exploiting classes, so
that the economy basically
reproduces itself at the
existing technological level
capital, with the surplus
contributing to capital
accumulation and rising
productivity.
Capital is realised via the
metropolis, colonial
exploitation contributing to
capital accumulation in the
metropolis.

In the debate on ‘The Transition from Feudalism to Capitalism’, referred to above, we see a general failure to
grasp the concept of ‘Mode of Production’ as a complex unity of determinations at the various levels as
shown above. The debate began with Sweezy’s review of Dobb’s ‘Studies in the Development of Capitalism’
(Dobb, 1954). Dobb defines feudalism, but partially, as the ‘obligation laid on the producer by force and
independently of his own volition, to fulfil certain economic demands of the overlord’. (Dobb, 1954: 35). He
thereby emphasises the first three of our structural conditions as set out above. Sweezy, on the other hand,
writes that under feudalism ‘markets are, for the most part local and that long distance trade, while not
necessarily absent, plays no determining role in the purposes and methods of production. The crucial feature
of feudalism is that it entails production for use.’ (Sweezy in Hill, 1971:35—emphasis in the original). Thus
Sweezy emphasises, again one-sidedly and in a distorted way, the fourth structural condition of the feudal
mode of production as we have outlined it above.

Under feudalism the direct producer (the peasant) is left with a bare subsistence share of commodities which
he consumes. But some of the surplus extracted by the landlord finds its way to the market, to raise money to
purchase a variety of (luxury) goods and services that he needs. Feudalism is therefore associated with a
considerable amount of trade, contrary to the arguments of Wallerstein, and others who equate trade with
capitalism. A telling argument against them is the rise of the so-called ‘Second Serfdom’ in Poland and
Eastern Europe that was triggered off precisely by the rise of the Baltic grain trade that made it profitable for
landlords to bring about legal enserfment of the peasantry in the course of the late 15th and early 16th
centuries. Poland became the granary of Europe but on the economic foundations of feudalism.

Capitalism and Trade

History does not come in neat bundles nor is it the case that a new mode of production eliminates the old one
instantly as it appears on the scene. Typically, a new mode of production already begins to develop within a
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society in which an old mode of production is dominant. Two modes of production ‘coexist’, in mutual
contradiction, for a time, until the forces associated with the new and rising mode of production complete the
destruction of the old. That was Lenin’s conclusion as he analysed the ‘The Development of Capitalism in
Russia. That process of interaction and struggle between class forces is obscured in what Wood describes as
one of the two ‘narratives’ in Marx’s work which, she says, ‘is very much like the conventional model (?)
where history is a succession of stages in the division of labour with a transhistorical (?) process of
technological progress …’. (Wood, 1997:10). She adds, uncertainly, that ‘In fact capitalism already exists in
feudalism, in a way.’ That is conceptual confusion. Capitalism does not exist within feudalism. It comes into
existence in opposition to it. What we have is a situation in which nascent and developing capitalism is present
in a social formation in which feudalism is dominant, the challenging forces of capitalism being antagonistic to
the dominant forces of feudalism.

Much confusion derives from inability to locate trade in different modes of production. Feudalism does not
rule out trade, even on a considerable scale. For those, like Wallerstein, who argue that the rise of commerce
is a solvent of feudalism, there can be no better refutation than the example of the ‘Second Serfdom’ in
Poland, as Engels called it. That came about at the beginning of the 16th century. The ‘Second Serfdom’ was
triggered off by the rise of the Baltic grain trade. To take advantage of rising grain prices brought about by the
great expansion in grain trade, the Polish nobility discontinued the system of cash rents. They decided to
extract the surplus in the form of labour services so that they could take over the surplus in the form of
produce and market it themselves. By the end of the 15th century and in the first two decades of the 16th
century the Polish State promulgated a series of laws that legally enserfed the peasantry. They were thus
subjected to the direct coercive power of the landlords. Far from dissolving feudalism the Baltic grain trade in
effect gave rise to feudal social relations of production in Poland. There was no Absolutist State there for both
the State, the peasantry and the merchant class were all weak as against the power of the nobles.

The rise of commerce does not therefore mean the dissolution of feudalism. Nor does the market define a
mode of production. Trade is ancillary to modes of production, feudal or capitalist. Marx writes ‘No matter
what the basis on which products are produced ¼ whether the basis of the primitive community, of slave
production, of small peasant and petty bourgeois, or the capitalist basis, the character of products as
commodities is not altered. ¼ Merchant’s capital promotes only the movement ¼ of these commodities,
which are the preconditions of its own existence.’ (Marx, 1971: Capital Vol. III, 325) But Marx also adds
that ‘The extent to which products enter trade and go through the merchants’ hands depends on the mode of
production and reaches its maximum in the ultimate development of capitalist production.’ (loc. cit.)

The Absolutist State

The idea that trade is virtually capitalism, has led to much confusion. Engels too, amongst others, was misled
by that. He took the view that the ‘Absolutist State’ in England, under the Tudor Monarchy, represented
some kind of a balance and ‘coexistence’ of contending modes of production. He confused the growth of
long distance trade with the rise of capitalism. Engels’ explanation of the absolutist state begins with the
proposition that the state ‘as a rule, is the state of the most powerful, economically dominant class, which,
through the medium of the state, becomes also the politically dominant class.’ But, then he adds, ‘By way of
exception, however, periods occur in which the warring classes balance each other so nearly that the state
power, as ostensible mediator, acquires, for the moment, a certain degree of independence of both. Such was
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power, as ostensible mediator, acquires, for the moment, a certain degree of independence of both. Such was
the absolute monarchy of the seventeenth and eighteenth centuries, which held the balance between the
nobility and the class of burghers ¼ ’ (Marx and Engels, 1983: 328). Engels’ notion of holding a balance
between antagonistic classes is unclear for there was no structural contradiction or antagonism between the
feudal lords and the merchants in the sense that the development of the one is premised on the dissolution of
the other. They were both located in the same (i.e. feudal) mode of production even if there were particular
issues on which their needs differed. It might be helpful if we look more closely at what actually happened.

The Tudor ‘Absolute State’ in England was founded after the decisive victory of Henry VII at Bosworth Field
in 1485, against the previously dominant feudal faction headed by King Richard III. Until that time, there was
no centralised and institutionalised English state. Rival warring factions of feudal barons, with retinues of
armed men, dominated the countryside. The king was the one who headed the dominant faction of rural
magnates who backed him with their private armies. If the king’s faction lost he was beheaded and a rival
contender to kingship was put in place. The landed magnates exercised arbitrary power over the lands that
they controlled. One of the consequences of that was that internal trade was hazardous, at the mercy of their
arbitrary demands as trade passed through territories they dominated. The success of Henry Tudor brought
about a fundamental change in this by creating a centralised structure of power that enabled him to rise above
all feudal factions so that he was not beholden to any one of them

This was at a time when there was a global expansion of commerce. The mercantile bourgeoisie was vastly
enriched. It was also beset with problems. The existing political system did not provide the conditions that
were needed for their full development. Internally, within England, they wanted conditions that would allow
unimpeded flow of trade. Externally, they needed a powerful naval force and a merchant navy that would
allow them to meet the challenges of their continental rivals. For the mercantile bourgeoisie it was imperative
that a form of state power be established that would limit the power of feudal magnates to their local arenas.
They also wanted the state to build up naval power needed for their predominance on the high seas. To
achieve that they financed Henry Tudor and his full time professional army for which the ill-organised levies
raised by the feudal magnates were no match.

The professional, permanent, army of Henry VII guaranteed his supremacy. After his decisive victory, he
proceeded to disband the private armies of the Baronial aristocracy, the powerful local magnates. Stripped of
their military power, the Barons were, however, given a compensatory niche in society and the state. They
became courtiers who decorated the court in London and peddled influence. Until the establishment of the
Tudor Absolutist State, for all practical purposes, the capital was where the king was at any particular time.
Now London was to be the capital as it had never been before. Thomas Cromwell and Cardinal Wolsey
played key roles in setting up a London based bureaucracy. The power of the baronial aristocracy was
localised and subdued.

The ‘King’s Highway’, that linked all parts of England, was made sacrosanct. It was protected from arbitrary
interference and exactions of the local lords. Trade was now safe and free from their depredations. England
was now a unified national market. As for the ambitions of the commercial bourgeoisie with regard to
overseas trade, large resources were invested in building Britain’s naval power until it stood supreme. In all
these ways, the English commercial bourgeoisie greatly improved its position.

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This was not yet a bourgeois revolution. The commercial bourgeoisie operated within the framework of a
feudal mode of production. The social relations of production were not altered by the emergence of the
Absolutist State. Trade, by itself, did not constitute a capitalist mode of production. The direct producer was
still unfree and subject to the local sovereignties of the rural magnates. What had changed was that the power
of the feudal lords was now confined mainly to the local arena. Landlords continued to exercise the power of
life and death over the peasantry. As Justices of the Peace they sat in judgement over the locals. Their local
power was even reinforced. As Christopher Hill pointed out, ‘when the government no longer feared the
political power of the aristocracy, it enforced the peers’ social privileges with savage penalties.’ (Hill, 1971:
48). According to him ‘The 16th century offered great opportunities to landowners and farmers’ and that
‘there was a massive redistribution of income in favour of the landed class ¼ ’ (ibid. 65) Rural production was
still based on unfree labour. The defining conditions of a feudal mode of production remained in place.

Commercial and landed magnates co-existed, each within their own domain of activity. The Absolutist State
catered for both of these powerful classes. That was possible because their interests were not structurally
antagonistic, in the sense that the development of the one was predicated on the dissolution of the other. That
was not the case. Production was still based on unfree labour and, in the main, it was the surplus extracted by
landlords that entered trade. Mercantilism was not yet capitalism.

The Colonial Dimension

The impact of capital on colonised societies did not generate, as Marx had expected, a capitalist mode of
production there. But neither did that leave the pre-capitalist structures in the colonies unchanged. The
structures of colonial social formations took a specific shape, as we shall see from the example of India. The
resulting structure was neither the unchanged pre-colonial one nor was it identical with that of metropolitan
capitalism. It is properly designated as, I have suggested, a colonial mode of production. (cf. Alavi 1980,
Alavi 1982 and Alavi 1989 for more details.)

The pillage and exploitation of the Americas and the West Indies, and that of Africa by virtue of the slave
trade, and, not least, the discovery by Europeans of the sea route to India and the Far East, led to a very
rapid growth in world trade by the sixteenth century. In this the crucial role of India and the Far East in
generating the dynamics of British industrial capitalism and underpinning capital accumulation in Britain, is
almost wholly overlooked. That role was vital. The multiplication of pre-capitalist long distance trade was the
context in which Britain impacted on India and elsewhere. In that a key role was played by great monopolistic
chartered trading corporations, that emerged in England in the 16th and 17th centuries, such as the Baltic
Company, the Levant Company etc. The greatest of these was the East India Company, which was to
conquer and rule over India. It received its Royal Charter in the year 1600.

India had a flourishing foreign trade, mainly in textiles, with the Far East, Africa and the Middle East through
which it connected with Europe, long before the advent of the Europeans in India. That trade was mostly in
fine cotton and silk textiles. It was carried in Indian as well as Arab ships—and camels and mules. Indian
rulers welcomed the advent of European trading nations, notably the East India Company, which added
greatly to that trade. Initially the relationship between them was that between equals. Mughal rulers and their
local governors gave needed facilities to the Company to allow it to set up ‘factories’ for the conduct of its
trade.
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trade. Colonialism and the Rise of Capitalism

Europe’s discovery of the sea route to India at the end of the 15th century inaugurated a new era for India’s
traditional exports of textiles. Ships could now carry vast quantities of goods to Europe far more cheaply than
overland routes. Indian textile exports to Britain and Europe grew by leaps and bounds during the 17th and
18th century. That was a time of prosperity for India, though much of the new wealth passed into the hands of
Indian ruling elites and contributed little either to capital accumulation or the general well being of the people.
By the same token India’s manufacture (to distinguish it, as Marx did, from British machinofacture after the
industrial revolution) in textile production, showed a remarkable vitality. It expanded rapidly to meet the
phenomenal rise in export demand put upon it by sudden expansion of overseas trade with Europe.

In his classic work on the ‘History of the Cotton Manufactures in Great Britain’ Baines (1966— first
published in 1835) makes the point that medieval Indian society had already developed manufacturing skills
equal to the best that Europe had to offer at the time. The East India Company handled a mounting volume of
Indian textile exports to Britain and Europe. In return, Europe had little to offer to India by way of exchange.
Hence in spite of Mercantilist ideology that militated against the export of bullion, 75% of the Indian trade was
paid for in gold and silver, which unfortunately had the effect of sterilising Indian gains from the trade, for
bullion did not provide productive capital. India built glorious monuments like the Taj Mahal but did not
embark on broad-based and cumulative economic growth.

It is important to recognise the global character of the colonial enterprise from the outset. The financing of
Indo-European trade with gold and silver and precious stones was made possible by another colonial link of
Europe namely the Iberian conquest and exploitation of Latin America that brought about a steady flow of
precious metals into Europe. That pattern of exports to Europe of Indian manufactures against payment in
precious metals was the reverse of the classical pattern of colonial trade, that was to be brought into being not
until the second half of the 19th century. For the time being India was an exporter of fine textiles examples of
which (such as fine Dacca muslin) are exhibited in the Victoria and Albert Museum in London. That was an
age of growing trade and prosperity, even though Indian profits from the trade were to be frozen into grand
monuments and the Indian custom to accumulate jewellery.

India and Britain: The First Phase

The first phase of the India’s relationship with Europe was one of mutual trade and prosperity. Until the East
India Company began to establish a monopoly for itself in Indian trade, pushing out European rivals, notably
the French, followed by conquest, that first phase from 1600 to 1757 was not really an unequal ‘colonial’
relationship. The East India Company had a large vested interest in promoting the export of cotton textiles and
silks from India which soon began to militate against British industrial interests. Political agitation in Britain
began to demand curtailment in the trading privileges of the East India Company and an end to imports of
Indian textiles.

The Indian society of the 17th century, except for its military and especially naval weakness, was fully equal,
in the arts of manufacture and agriculture and culture, to the Europeans at the time. Contrary to the stereotype
of the medieval Indian society as a stagnant rural backwater we find evidence of a high degree of urbanisation.
Habib speaks of ‘multitudes of artisans, peons and servants found in the towns … in 120 big cities and 3200

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townships (in the second half of the 16th century)’ He adds that ‘Agra and Fatehpur Sikri (twin cities) were
each held to be larger than London. Delhi was held to be as populous as Paris, then the biggest city in
Europe’. (Habib,1963: 75-76 )

A high proportion of the Indian urban population was employed in industrial crafts. The manufacturing industry
was geared not only to the luxury consumption of the aristocracy and the more modest needs of the
population in general but also a rapidly growing volume of exports. Naqvi points out that since the 17th
century there was a ‘wide growth of cities and towns as centres of cotton manufactures’. (Naqvi, 1968:142).
Indian medieval society, far from being stagnant and inert, as depicted in Western academic stereotypes, was
very responsive to the new stimulus of booming textile exports to Britain and Europe and also to China (to
finance purchases by the British of Chinese silks). China did not produce cotton textiles which being
absorbent, unlike linen, wool and silk, were greatly favoured. Despite the ingenuity of the Chinese in the arts
of manufacture and the fact that cotton could easily be grown in China, Baines found it curious that it ‘should
have remained without cotton manufactures until the end of the thirteenth century, when it had flourished
among their Indian neighbours for probably three thousand years.’

The rapid export-led growth of Indian textile production was brought about by new weavers entering the
trade rather than by changes in technology. New entrants needed funds for working capital and to buy the
necessary equipment. A system of cash advances, called dadni loans, developed whereby prospective buyers
of cloth would advance the money, in return for which, in a sellers market, the lender/buyer would pre-empt
delivery of the finished goods from the weaver. Some scholars have mistakenly taken that system of dadni
loans to be analogous to the English ‘putting out system’ which was a precursor of the industrial revolution in
England. (e.g. Habib, 1969:67-68). Habib and other Indian scholars have argued that India was itself on the
threshold of an industrial capitalist revolution that was thwarted by the impact of colonial rule. (cf. Bipan
Chandra et. al., 1969 and Habib, 1969) That seems to be a mistaken view.

There is an important difference between the Indian system of dadni loans and the English putting out system.
In the case of dadni loans, the weaver was given the loan by the prospective buyer of his product which
thereby bound him to deliver the finished goods to that buyer. But, given the money, the weaver was left to his
own devices to procure his raw materials and work on them. The buyer-moneylender, the dadni-merchant,
did not handle the raw materials or equipment and was not involved in the process of production in any way.
By contrast, in the ‘putting out system’ the entrepreneur took the raw materials round to the weavers, from
door to door, and collected the finished cloth. He soon realised that instead of going from door to door, he
could simplify his task by bringing all his weavers under one roof. That gave rise to the factory system which,
in turn, led to mechanisation and a transition to the Industrial Revolution. That dynamic was absent given the
financial organisation of production in India.

After its conquests in India, after 1757, the East India Company, operating through its agents called
goomasthas, transformed the system of dadni loans in a manner that was designed to subordinate the weaver
totally to the Company’s agents. Their object was to pre-empt the weaver’s services at low prices, as against
other competitors, including other European operators who were thus elbowed out. The Company developed
a practice of forcing advances on unwilling weavers. A historian writes that before domination by the
Company ‘They (the weavers) used to manufacture their goods freely and without oppression, restrictions,
limitations and prohibitions. There was no attempt to restrict their goods to the one market of the East India
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limitations and prohibitions. There was no attempt to restrict their goods to the one market of the East India
Company.’ (Sinha, 1961: 159). Then it all changed.

The Second Phase: Conquest, Plunder and Unrequited Exports

The second phase of India’s relationship with Britain and the East India Company, opened with the beginning
of the conquest of India in 1757. The main interest of the East India Company was still to maximise the export
of Indian textiles to Britain and Europe. To that was now added the direct extraction of surplus from the
Indian countryside in the form of land revenue and other taxes and impositions. Conquest and plunder joined
hands with trade. In the collection of land revenue, the paternalism of Indian feudalism was replaced with the
unmitigated avarice and greed of the faceless officials of the Company.

Taxes and Land Revenue became a major source of surplus extraction for the E.I. Company. Under the
regime of the Company land revenue was collected with a rapacity and ruthlessness that was unprecedented.
Initially the Company installed an Indian stooge as the Nawab of Bengal. Dutt writes that ‘When Mir Jafar
was first made Nawab, after the battle of Plassey in 1757, the British officers and troops received (from him)
a bonus of £1,238,575 out of which Clive himself had taken £31,500, besides a rich jagir in Bengal.’ R. C.
Dutt lists the large sums that were extracted by the Company and its officials on each occasion when when
successors to Mir Jaffer were appointed (in quick succession). He adds that ‘Besides these sums received in
presents, amounting within eight years to £ 2,169, 665, further sums were claimed and obtained as restitution
within this period, amounting to £3,770,883. (Dutt, 1956:32-33). These are astronomical sums which today
would be counted in trillions.

After 1765 the East India Company removed its nominee the Nawab of Bengal and took over the
government in its own hands. Now under the Company’s rule revenue impositions began to escalate
regardless of the peasant’s ability to pay. ‘In the final year of the administration of the last Indian ruler of
Bengal in 1764-5 the land revenue realised was £817,000. In the first year of the Company’s administration
in 1765-6 the land revenue realised in Bengal was £1,818,000. When Lord Cornwallis fixed the Permanent
Settlement in 1793, he fixed it at £3,400,000’. (R. Palme Dutt, 1970:106) Land Revenue was not only hugely
increased. The inflexibility of the Company’s exactions contrasted with the customary flexibility under Indian
feudal dispensation through good years and bad. The peasant was totally pauperised. The peasants being
robbed of every penny had to part with all their customary reserves of food grains. Famines became endemic,
the worst being the great Bengal famine of 1770. A Report of the Calcutta Council of the East India
Company to its Directors in London said ‘Above one third of the inhabitants perished in the once plentiful
province of Purneah and in other parts the misery is equal’. (quoted by Dutt, 1956: 51-2)

Once the East India Company acquired a large local source of funds in the form of land revenue, it was no
longer necessary for Britain to pay for India’s textile exports in bullion and precious stones as it had so far
done. It could now buy Indian textiles from the wealth that it extracted from Indians. Textiles for exports were
bought from the huge amounts of land revenue that now accrued to the Company and its employees. It was
now to be a one-sided flow of unrequited exports from India to Britain. It was to be spoken of by Indian
nationalists as the ‘Economic Drain’ from India.

Given its new found power, there was a qualitative change in the basis on which the Company’s agents now
dealt with the weavers, which was unrestrained. The erstwhile dadni merchants, who were independent
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dealt with the weavers, which was unrestrained. The erstwhile dadni merchants, who were independent
money lenders cum traders, were now pushed out by goomasthas or agents of the East India Company who
sought direct control over the weavers. As Bolt, a contemporary British business visitor, put it ‘the weavers
were obliged to work ‘against their will at whatever prices are arbitrarily imposed on them.’ (quoted by R. C.
Dutt, 1956:25-6) When the weavers resisted, a practice of direct physical coercion was introduced. ‘The
Company’s servants assembled the principal weavers and placed guard over them until they entered into
agreements to supply only the Company. When a weaver accepted an advance he seldom got out of his
liability. A peon was placed over him (with a cane) to quicken his deliveries. … Whole weaving population of
villages were thus held in subjection to the Company’s factories. … The control under which the weaver
population was held was not only a matter of practice but it was legalised by Regulations.’ (Dutt, 1956: 264-
5). Dutt, a liberal, said bitterly that this was a far cry from laissez faire!

The Third Phase: India and the Industrial Revolution

The East India Company had a major vested interest in the preservation and expansion of exports of Indian
textiles. It obtained Indian textiles for resale in the Far East as well as Europe, where they fetched a profit of
three times their cost. But there were rising pressures in England against that trade and for protection and
promotion of the cotton textile industry in Britain.

It was not until the middle of the seventeenth century that a cotton textile industry emerged in England. It is
generally held that it was the development of the Manchester textile industry that triggered off the Industrial
Revolution in England. As Landes pointed out, the ‘threshold’ of the industrial revolution in England was first
crossed in cotton manufacture’. (Landes, 1970:82) It is little realised that the prior destruction of the Indian
cotton textile industry was a necessary pre-condition for progress of the British Industry. It is a myth that is
universally believed by economic historians (Marx among them) that it was the mechanisation of English textile
production that killed the Indian textile industry. That was not so. Active steps had to be taken by the British
government to suppress the flourishing Indian textile industry. The East India Company had a large interest in
the continuation of Indian textile exports that conflicted with those of the rising British bourgeoisie and,
especially, the British textile interests. Under pressure from them, the Company’s profitable trading monopoly
was ended in 1813 and in 1833 it was required to stop its commercial operations altogether. It then became
exclusively an organ of colonial government.

Under pressure from British textile interests and despite ideological commitment to laissez faire, a 10%
import duty was imposed in Britain in 1685, against Indian textiles. In 1690 that duty was doubled. In 1619 a
law was passed that ‘absolutely prohibited the wear and use of Indian silks and calicoes, painted, stained or
dyed in India, under the penalty of £5 for each offence on each wearer and of £20 on the seller’ (Krishna,
1924:263). By the time that the East India Company began its conquest of India, from 1757, the British
import duty on Indian textiles went up by another 50%. When the Industrial Revolution got underway the
cheapness of mechanised production was not yet enough to drive out Indian textiles which were of finer
quality. More than half a century since the Industrial Revolution in Britain had got under way, the Indian textile
industry, far from being crushed by British mechanised production, was still undiminished in its competitive
power. To enable the British textile industry to survive, the protective duty against Indian textiles was raised
once again in 1813 to a massive 85%.

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Historian H. H. Wilson wrote at the time that ‘It is also a melancholy instance of the wrong done to India by
the country on which she has become dependent.’ Referring to the massive increases in protective duties
against Indian textiles, he adds ‘Had not such prohibitory duties and decrees existed the mills of Paisley and
Manchester would have been stopped in their outset and could scarcely have been set in motion even by the
power of steam. They were created by the sacrifice of Indian manufacture. Had India been independent, she
would have retaliated. …This act of self-defence was not permitted her.’ (Wilson:385) Such tear shedding
was not unconnected with the interests of the East India Company in the Indian textile export trade which
were hurt by British protectionism. James Mill (also an employee of the Company) declared that this
‘furnishes one of the most remarkable instances upon record of the power of interest to extinguish all sense of
justice and even of shame’ (quoted by Dutt, 1956: 30)

India’s strength vis-a-vis Manchester seemed to lie mainly in its ability to produce fine yarn. Much effort was
directed in Britain to improve spinning machinery. Crompton’s mule, developed in the 1780s, went some way
to improve spinning technology. But as it yet could not match Indian quality. Indian textile industry was not
easy to finish off. Contrary to the conventional wisdom (shared universally by Marxist and non-Marxist
historians alike) that it was machine production in England that killed the Indian textile industry, we can identify
three factors that combined to bring about its steady decline. All three related to the choking off of demand
for Indian textiles. First of all, as pointed out above, Britain imposed heavy protective duties and
administrative measures to keep Indian textiles out of the British market. The second factor, no less important,
was that this coincided with the period of the Napoleonic Wars. The British imposed cordon sanitaire
around Europe closed off the European market for Indian textiles entirely. Its importance can be gauged from
the fact that in 1789 85% of the calicoes imported into Britain were re-exported to Europe and 60 % of
muslins were re-exported. (Baines,1966:330) Simultaneously with the closing of the British and European
markets, there was also a collapse in internal demand for textiles in India. In pre-colonial India, taxes
collected from the peasant supported a large urban population, including the ruling elite. When, after the
British conquest, these taxes were appropriated by the East Indian Company and used to pay for the export
of Indian textiles, the Indian urban classes were suddenly dispossessed. There was a massive de-urbanisation.
For example, according to Charles Trevelyan, the population of Dacca, the ‘Manchester of India’, dropped
from 150,000 to 30,000.(quoted by Palme Dutt, 1970:120) The weavers were driven out of the towns, to
seek a livelihood in villages. The Urban elite and middle classes, the consumers, were gone too. The internal
demand for Indian textiles collapsed almost simultaneously with the closure of its outlets abroad.

Despite all this, the Indian handloom textile industry was surprisingly resilient. It took a long time to kill the
Indian handloom textile industry. It is not until well into the 19th century that we see its decline. In 1815 the
total value of of Indian cotton goods exported to Britain amounted to £1.3 million in value. As a result of
British protectionism, by 1832, the best part of a century after the Industrial Revolution had begun in Britain, it
fell to a mere £100,000. British cotton textile exports to India, on the other hand, were a mere £26,000 in
value in 1815, several decades after the Industrial revolution had got under way. It was not until 1832 that the
figure went up to £400,000 and by 1850 India was the market for one quarter of the total British textile
exports to the world. (R.P. Dutt, 1970: 119) India began to import coarse textiles from England but continued
to export fine textiles in return. Initially it was the Indian textiles that exceeded those received from England.
The balance in the value of that trade did not equalise until 1830 when India finally became a net importer of
textiles. The Indian handloom textile industry survived the early blows and its eventual decline was a post-
1850 phenomenon. (Twomey, 1983:41)
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1850 phenomenon. (Twomey, 1983:41)

India’s ‘Aid’ for the Industrial Revolution in Britain

In modern day terminology we can recognise British industrial development as an ‘import substitution’
development, but with one difference. The ‘import substitution’ strategy, was advocated for Third World
industrial development in the 1950s by Raoul Prebish and the UN-ECLA. It proved to be a failure. Its main
deficiency was that the strategy was restricted to light industries and not to production of capital goods. In
Britain, on the other hand its ‘import substitution strategy’ during the Industrial Revolution, entailed a balanced
and reciprocally stimulating development of both the consumer’s goods sector (Marx’s Dept II) and also the
capital goods producing sector (Dept. I). It is that reciprocity and mutual stimulation and reinforcement that
gave it a self-sustaining character. (cf. Marx, Capital Vol. II for a discussion of the dynamics of the
relationship between Dept I and Dept II)

That dynamic growth of British industry was made possible by a large and sustained inflow of resources
extracted from India and, indeed, colonised societies everywhere. In the mid-1960s, Eric Williams argued his
thesis of a colonial ‘Triangular Trade’ that, he claimed, financed the Industrial Revolution in Britain. (Williams,
1975) He pointed out that Britain sold textiles to Africa and used the proceeds to capture slaves who were
sold at great profit in the West Indies. With that money Britain brought sugar for Britain. He estimated the
profits from that triangular trade to amount to £14,000 in 1739 increasing to £303,000 by 1759. That wealth,
he argued, made the industrial revolution possible. Economic historians have treated the Williams’ thesis with
derision. (e.g. Crouzet, 1972:7-8). They have, however, failed to see the real argument that underlies
Williams’ thesis, for the flow of wealth into England was not limited to that arising from what Williams calls the
Triangular Trade. There was a huge flow of resources into Britain from the colonial enterprise all over the
world. If then we look at the figures of the flow of wealth from India alone, the argument no longer appears to
be derisory.

In a paper that I wrote in 1979, I made a very conservative estimate of the annual net flow of resources from
India to England, at the time of the Industrial Revolution, of about £2 million per year. (Alavi, 1980 and 1982)
That figure compares with estimates made (e.g.) by Marshall of some £3 million before 1757 and an average
of £5 million between 1757 and 1784. (Marshall, 1976: 256). Other estimates are equally large. We can
compare these estimates of the annual flow of resources from India to Britain, during the critical period of the
Industrial revolution, to estimates of annual industrial capital formation in Britain at the time. Crouzet, for
example, estimates gross capital formation in the British economy at a grand total of £9.4 million in 1770 and
£16 million in 1790-93. Of that grand total investment in machinery was £ 0.8 million in 1770 and £2 million
in 1790-93 and additional investment in stocks were £ 1.5 million and £ 2 million respectively. (Crouzet
1972:33) If we compare these figures of the amount of resources that went into industrial capital formation in
Britain, even my own much lower estimate of the flow of resources from India to Britain of £ 2 million annually
is no longer derisory—and other, better informed, estimates are twice that figure. The flow of resources from
India underpinned capital formation in British industry to a very large degree. To that we must add the tribute
extracted by Britain from the rest of the colonial world. It can be said that indeed the bulk of capital formation
in British industry during the Industrial revolution was paid for by the colonial tribute. The surplus arising in the
colonies was accumulated not at home but in the metropolis.

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Shaping of the Colonial Economy

It is noteworthy that it was not until the late 19th century that the relationship between India and Britain
conformed to the classic colonial pattern of export of raw materials from the colony and imports of
manufactured products. Indeed the initial trading activities of the East India Company, concentrating on export
of Indian manufactured textiles, was virtually the reverse of the familiar colonial pattern. The classic pattern of
the colonial economy, as we know it today, namely that of colonised India as an exporter of raw materials
and importer of manufactured goods from England did not take shape until the second half of the 19th
century. The American Civil War and the Manchester cotton famine that followed it, played a large part in
that change. There was a new urgency in developing canal irrigation for cotton cultivation. Cropping patterns
in agriculture were changed to suit the needs of the colonial economy. British capital began to be invested in
India mainly in plantations and extractive industries, railways and harbours.

In the rural areas of India, the old pattern of Indian feudalism was replaced by a new system, with a class of
landed magnates who were made subordinate to the colonial regime and became also its principal allies in
India. Space does not permit us to examine the process by which the colonial regime transformed the
structure of the rural society in India, beginning with the ‘Permanent Settlement’ imposed by Lord Cornwallis
in 1793 in Bengal. The main impact of that and successive changes was the elimination of the petty
sovereignties of chieftains and zamindars or landlords. Indeed, one might say that landlords were turned into
landowners. The localised structure of power which is characteristic of feudalism was dissolved, The power
of landowners was subsumed under the colonial state into which they were integrated. The resultant structure
of the rural society had features that were specific to it. However, the local power of landowners, though
subordinate to the colonial state was, to a degree, reinforced and integrated into the power structure of the
colonial state. It was a conscious and express policy of the colonial regime to take the landlord class as its
principal local allies. It was that ‘alliance’ between the colonial state and the Indian landlord class that made
possible the sustained colonial rule and exploitation of India, which in turn underpinned the development in the
metropolis itself. A colonial mode of production was established in India.

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