<p>According to Sunderland who is well renown expert on British History (see his book &quot;Financing the Raj&quot;) this system was indeed a remittance instrument.</p>
<p>The way how it worked was that a merchant would pay by pound (backed by gold) in London  and get the council bill. Then the bill would be used to pay for goods in India where people would get a rupee for the bill.</p>
<p>As far as I see in this system only way how Indian manufactures can get 'cheated' is if the exchange rate was made artificially lower than it would be if there would be free floating exchange rate, which is not mentioned in the article. Even if that would be done, economically artificially lower exchange also increases demand for your goods which means more customers and more revenue so that would also benefit Indian manufacturers (although whether it was net benefit or loss would require even more research). Hence, without providing any further evidence there is no clear mechanism how wealth could be extracted via this system.</p>
<p>It is also a quite bizarre claim to make. Britain did levied taxes in India that is not disputed. The taxes Britain levied were used to purchase goods and services or finance various projects for the British government, this is again not disputed. To an extent some of this spending was done to finance purchases or investment projects outside India you could consider it wealth extraction (although its a bit of a misnomer since Britain did not had much wealth taxation but taxes on economic activity, but I suppose non-economist layman would classify it as an wealth extraction). Hence, for any year where Britain's government revenue from India exceeded government spending you could say Britain was extracting wealth from India. It is unclear of how the bill of exchange system was supposed to help facilitate this. If there would be direct pound-rupee exchange rate via forex market UK could still tax rupees and change them back for pound or gold to back more pounds or even collect tax in pound or gold directly by taxing exporters.</p>
<p>Moreover, while I would certainly agree that British colonialism was immoral, it is not correct to call taxation theft as the article does. A government has a legal right to impose taxes on its territory and then spend the proceeds regardless of whether the territory in question was acquired morally in the past or not. Theft is an illegal violation of property rights not legal one, even if one might consider them morally equivalent in some situations.</p>

CC BY-SA 4.0
2023-01-06T21:31:11.740Z
Thanks for the reply.

I don’t think Hickel is saying that the Indian manufacturers themselves are being cheated, rather he’s saying that the cost of producing these manufactures is being  borne by the rest of the Indian population and therefore the Indian population as a whole is being cheated. Rather like the brief period at the end of the 18th century when the EIC purchased Indian goods with Indian taxes and sold them in Britain for a profit.

My simple non-economic brain is telling me that India has to at some point import something in exchange for the exported goods.
Edward H
CC BY-SA 4.0
2023-01-06T21:40:04.393Z
@EdwardH  As mentioned in my answer there is no clear mechanism for the council bill system to cheat anyone. It was basically something analogous to financial and exchange rate system, when you order let's say carpet from India today you are not cheating any Indian by that. Any importing done by business is done so goods can be resold by profit, again that does not result in any cheating (although that Al Jazeera cites as a support book written by Marxist economist and they do consider profit extraction of surplus value by labor but such notion is not accepted by serious mainstream economists)
1muflon1
CC BY-SA 4.0
2023-01-06T21:51:11.593Z
@EdwardH India was running persistent trade surpluses. India was importing goods from west, in fact by some estimates UK alone exported about 10% of all its exports to India at one time period (see Appleyard 2006). Nonetheless they exported more than they imported. However, India was experiencing capital inflow because  of this -> money was flowing into India where it was used for capital formation. This itself would not be considered cheating india in any way by modern economists. This trade was done by individuals not UK government... this is what makes the al Jazeera claim so bizarre
1muflon1
CC BY-SA 4.0
2023-01-06T21:56:40.417Z
UK government itself was not generally directly peddling goods. That was done by private enterprises.
1muflon1
CC BY-SA 4.0
2023-01-06T22:07:22.520Z
But if I order a carpet from India today, do I not first have to exchange my pounds for some rupees and does that not mean that someone in India has got pounds that they can use to buy British goods? But what if I’ve got a machine that can print rupees? Aren’t I getting the carpet for free? (I’m not economically trained, I’m interested in this because of the history.)
Edward H
CC BY-SA 4.0
2023-01-07T07:48:16.993Z
@EdwardH 1. not necessarily if you buy something from India, your bank will buy rupees from someone (it might be someone non-Indian like some non-Indian bank/individual or it could be someone Indian who wants to buy something from UK) then they will use the rupees to settle the transaction at an Indian merchant.  But note Indians during the colonial India were allowed to have pounds. They could sell their rupees for pounds if they wanted to.
1muflon1
CC BY-SA 4.0
2023-01-07T07:53:14.453Z
2. regarding the printing press. Rupee was silver backed currency not fiat currency so this is a moot point. India only introduced paper currency (still backed by metals) during WWI due to shortage of silver and it was abandoned completely only at late stages WWII shortly before british rule ended. But suppose it was fiat currency, then yes you could initially buy stuff with printed money for "free" (minus the cost of printing) but that done on grand scale would lead to massive inflation or even hyperinflation inflation
1muflon1
CC BY-SA 4.0
2023-01-07T07:55:30.227Z
because prices are endogenous government cannot finance unlimited amount of **real** spending (as opposed to nominal spending) simply by printing money. Initially government can get some 'free stuff' out of it as prices might be slow to adjust, but once they start adjusting and people expect inflation and adjust them automatically you won't get anything free out it. Doing it on very small scale could be sustainable but then the government would not profited in any grand/meaningful from the activity if its done just occasionally
1muflon1
CC BY-SA 4.0
2023-01-06T20:31:21.660Z
2023-01-06T20:55:28.993Z
2023-01-06T20:55:28.993Z
1muflon1
<p>Jason Hickel says that the council bill system used to pay exporters of Indian goods during the British Raj was a mechanism by which Britain extracted wealth from India without giving India anything in return:</p>
<p><a href="https://www.aljazeera.com/opinions/2018/12/19/how-britain-stole-45-trillion-from-india/" rel="nofollow noreferrer">https://www.aljazeera.com/opinions/2018/12/19/how-britain-stole-45-trillion-from-india/</a></p>
<p>Tirthankar Roy insists that the council bill system was simply a remittance instrument like a bankers draft and that there was no mystery or fraud in it:</p>
<p><a href="https://historyreclaimed.co.uk/did-the-british-loot-india/" rel="nofollow noreferrer">https://historyreclaimed.co.uk/did-the-british-loot-india/</a></p>
<p>Who is right?</p>
<p>I’m suspicious of Hickel because his writing is polemical. However, what he says does sort of makes sense to me and I don’t quite understand Roy’s attempt at refutation.</p>
<p>Clearly no fraud has been committed on the individual exporter – they are being paid. But are they not been paid with Indian wealth and, if they are, does that not mean that Britain is getting the goods from India for free and then selling them on for a profit to a third party?</p>
<p>Roy says that the council bill had nothing to do with taxation, but he goes on to say that the rupees paid to the exporter might come from taxation. But even if the rupees are newly created, at what point is Britain paying for the goods, goods for which it is receiving payment in gold?</p>

<international-trade><currency><balance-of-trade><balance-of-payments><remittance>
Was the council bill system used in British India a wealth extraction mechanism?
Edward H
# Was the council bill system used in British India a wealth extraction mechanism?

(Asked by: username_0 on 2023-01-06)

Jason Hickel says that the council bill system used to pay exporters of Indian goods during the British Raj was a mechanism by which Britain extracted wealth from India without giving India anything in return:

<https://www.aljazeera.com/opinions/2018/12/19/how-britain-stole-45-trillion-from-india/>

Tirthankar Roy insists that the council bill system was simply a remittance instrument like a bankers draft and that there was no mystery or fraud in it:

<https://historyreclaimed.co.uk/did-the-british-loot-india/>

Who is right?

I’m suspicious of Hickel because his writing is polemical. However, what he says does sort of makes sense to me and I don’t quite understand Roy’s attempt at refutation.

Clearly no fraud has been committed on the individual exporter – they are being paid. But are they not been paid with Indian wealth and, if they are, does that not mean that Britain is getting the goods from India for free and then selling them on for a profit to a third party?

Roy says that the council bill had nothing to do with taxation, but he goes on to say that the rupees paid to the exporter might come from taxation. But even if the rupees are newly created, at what point is Britain paying for the goods, goods for which it is receiving payment in gold?

**Tags:** international-trade, currency, balance-of-trade, balance-of-payments, remittance


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## 1 answers

### Answer by username_1 on 2023-01-06. Score: 0

According to Sunderland who is well renown expert on British History (see his book "Financing the Raj") this system was indeed a remittance instrument.

The way how it worked was that a merchant would pay by pound (backed by gold) in London and get the council bill. Then the bill would be used to pay for goods in India where people would get a rupee for the bill.

As far as I see in this system only way how Indian manufactures can get 'cheated' is if the exchange rate was made artificially lower than it would be if there would be free floating exchange rate, which is not mentioned in the article. Even if that would be done, economically artificially lower exchange also increases demand for your goods which means more customers and more revenue so that would also benefit Indian manufacturers (although whether it was net benefit or loss would require even more research). Hence, without providing any further evidence there is no clear mechanism how wealth could be extracted via this system.

It is also a quite bizarre claim to make. Britain did levied taxes in India that is not disputed. The taxes Britain levied were used to purchase goods and services or finance various projects for the British government, this is again not disputed. To an extent some of this spending was done to finance purchases or investment projects outside India you could consider it wealth extraction (although its a bit of a misnomer since Britain did not had much wealth taxation but taxes on economic activity, but I suppose non-economist layman would classify it as an wealth extraction). Hence, for any year where Britain's government revenue from India exceeded government spending you could say Britain was extracting wealth from India. It is unclear of how the bill of exchange system was supposed to help facilitate this. If there would be direct pound-rupee exchange rate via forex market UK could still tax rupees and change them back for pound or gold to back more pounds or even collect tax in pound or gold directly by taxing exporters.

Moreover, while I would certainly agree that British colonialism was immoral, it is not correct to call taxation theft as the article does. A government has a legal right to impose taxes on its territory and then spend the proceeds regardless of whether the territory in question was acquired morally in the past or not. Theft is an illegal violation of property rights not legal one, even if one might consider them morally equivalent in some situations.

> **Comments:**
> **username_0**: Thanks for the reply.  I don’t think Hickel is saying that the Indian manufacturers themselves are being cheated, rather he’s saying that the cost of producing these manufactures is being  borne by the rest of the Indian population and therefore the Indian population as a whole is being cheated. Rather like the brief period at the end of the 18th century when the EIC purchased Indian goods with Indian taxes and sold them in Britain for a profit.  My simple non-economic brain is telling me that India has to at some point import something in exchange for the exported goods.  
> **username_1**: @username_0  As mentioned in my answer there is no clear mechanism for the council bill system to cheat anyone. It was basically something analogous to financial and exchange rate system, when you order let's say carpet from India today you are not cheating any Indian by that. Any importing done by business is done so goods can be resold by profit, again that does not result in any cheating (although that Al Jazeera cites as a support book written by Marxist economist and they do consider profit extraction of surplus value by labor but such notion is not accepted by serious mainstream economists)  
> **username_1**: @username_0 India was running persistent trade surpluses. India was importing goods from west, in fact by some estimates UK alone exported about 10% of all its exports to India at one time period (see Appleyard 2006). Nonetheless they exported more than they imported. However, India was experiencing capital inflow because  of this -> money was flowing into India where it was used for capital formation. This itself would not be considered cheating india in any way by modern economists. This trade was done by individuals not UK government... this is what makes the al Jazeera claim so bizarre  
> **username_1**: UK government itself was not generally directly peddling goods. That was done by private enterprises.  
> **username_0**: But if I order a carpet from India today, do I not first have to exchange my pounds for some rupees and does that not mean that someone in India has got pounds that they can use to buy British goods? But what if I’ve got a machine that can print rupees? Aren’t I getting the carpet for free? (I’m not economically trained, I’m interested in this because of the history.)  
> **username_1**: @username_0 1. not necessarily if you buy something from India, your bank will buy rupees from someone (it might be someone non-Indian like some non-Indian bank/individual or it could be someone Indian who wants to buy something from UK) then they will use the rupees to settle the transaction at an Indian merchant.  But note Indians during the colonial India were allowed to have pounds. They could sell their rupees for pounds if they wanted to.  
> **username_1**: 2. regarding the printing press. Rupee was silver backed currency not fiat currency so this is a moot point. India only introduced paper currency (still backed by metals) during WWI due to shortage of silver and it was abandoned completely only at late stages WWII shortly before british rule ended. But suppose it was fiat currency, then yes you could initially buy stuff with printed money for "free" (minus the cost of printing) but that done on grand scale would lead to massive inflation or even hyperinflation inflation  
> **username_1**: because prices are endogenous government cannot finance unlimited amount of **real** spending (as opposed to nominal spending) simply by printing money. Initially government can get some 'free stuff' out of it as prices might be slow to adjust, but once they start adjusting and people expect inflation and adjust them automatically you won't get anything free out it. Doing it on very small scale could be sustainable but then the government would not profited in any grand/meaningful from the activity if its done just occasionally  

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