08 October 2015

The First Cartel

by Eve Fisher

Well, probably not the first, but back in the 18th and 19th centuries, the main drug cartels were selling opium to Asia, and shipping the money home to Britain and the United States and the Netherlands.  And I'm not talking about little dribs and drabs:  in the mid-1800's, the opium trade provided one-third of British colonial revenues, and those millions of pounds (trillions in today's money) were just what actually made it home to the Crown.

The East India Company was the major player in India, where the opium was grown and processed. It was a private British joint-stock venture that effectively ruled India from 1757-1858.  Raw opium was processed into the smokeable stuff for the China market (in Western Europe, people preferred drinkable laudanum) - chests weighing about 133 pounds each, which went for $1,000 dollars (about $25,000 in today's money.)  The East India Company established a trading post in Canton, China in 1699, but leased out the trading rights to the trading companies, or hongs, which took the opium from Canton and smuggled it into China (via rivers, etc.).  The major players were:

Jardine and Matheson
  • Jardine, Matheson and Company, a/k/a The Honorable Company, was founded in 1832 in Canton with the partnership of William Jardine and James Matheson, both University of Edinburgh graduates. They were always the biggest trading company, or hong, and (having diversified heavily in the 20th century) are still going strong in Asia, even though they're incorporated out of Bermuda.  (Their official website is interesting: http://www.jardines.com/  NOTE: Jardine-Matheson was fictionalized - and I would say cleaned up to the point of unrecognizability - by James Clavell in Tai-Pan.)  
  • Dent & Company, another British smuggler under Thomas Dent's leadership.
  • The Dutch East India Company, about which I know tragically little.  
  • And the Americans:  Russell & Company was the major player.  One of the senior officers was Warren Delano, grandfather of Franklin Delano Roosevelt.  (In case you're wondering where some of the Roosevelt money came from...)  The other officer, Samuel Russell, was filthy rich and left a Russell Trust, which (among other things) is the original source of endowment funding for the Skull & Bones Society at Yale.  
Jardine-Matheson, Dent & Company, and Russell & Company all began - unofficially - as agents of the East India Company, and then for the British government.  They also took on more "official" jobs. James Matheson was the Danish consul for years, Thomas Dent the Sardinian consul, even though neither were from either country.  And they became hugely rich.

You see, up until the early 1800s, there was a major trade imbalance with China (and you thought that was a modern phenomenon!).  There were a lot of reasons:  China wasn't particularly interested in trade, they kept the British and other merchants hemmed into specific treaty ports and didn't let them into the rest of the country, 90% of their population was too poor to buy anything, and finally, the British didn't have much that they wanted.  Except silver.  So, for 130 years, China sold the West silk, porcelain, navigation equipment, firecrackers, and above all, tea.  And since in those days trade involved either hard goods or hard cash, the British were being drained of silver at an alarming rate. And then someone got the bright idea to sell them opium.

Charles Elliot 
The fact that opium was illegal in China didn't matter.  The British smuggled it in, as much as 1,400 tons of opium a year.  And, as the opium flowed in, the silver flowed out (in 1800's dollars, $21,000,000 a year; in today's terms, multiply that by about 25,000, making it $52.5 trillion a year), destabilizing the Chinese economy, not to mention creating a huge number of hopeless drug addicts.  Eventually even the Imperial Court - locked up in the Forbidden City in distant Beijing - launched a war on drugs. The Emperor sent an imperial commissioner Lin Zexu to Canton, where he seized 2.6 million pounds of opium and burned it.  (A lot of boats sailed and held themselves downwind of that fire...)

Now the British charge d'affaires in Canton was Brian Thornton's and my favorite 19th century British agent, Captain Charles Elliot, R.N.  He basically said that that opium (despite being illegal) was the property of the British crown and the Chinese needed to reimburse the merchants.  They wouldn't, Elliot seized Hong Kong for starters, and the war was on.

There aren't too many wars which have been fought for the specific purpose of requiring the losing nation to legalize drugs.  The Opium Wars were about the only ones I can think of.  And, in terms of size and wealth disparities, it was the equivalent of the Colombian government aligning with the Colombian drug cartels to declare war on the United States in order to legalize cocaine in the 1970s. And winning.  And, getting the following results:
Sir Robert Hart
  • China had to open more treaty ports to foreigners.
  • China had to give Britain Hong Kong permanently.
  • China had to pay a $21,000,000 indemnity for all the costs of the war.  (In today's terms, $52 trillion.)
  • China had to give the British the right to set, control, and collect its own tariffs.  NOTE:  The Imperial Maritime Customs Service was manned by British officers from 1854-1950.  Yes, you read that correctly.  Look, it takes a long, long time to extort $52 trillion from any country, much less the additional revenues that Britain consistently expected. Over time, besides collecting maritime trade taxes and managing domestic customs administration, the IMCS collected maritime trade taxes, managed domestic customs administration, postal administration, harbor and waterway management, weather reporting, and published monthly Returns of Trade.  The most famous Inspector-General was Sir Robert Hart, who held the post from 1863-1911.  
  • All foreigners got the equivalent of diplomatic immunity (called extraterritoriality back then); the right to be tried only by its own consul (i.e., whichever Jardine-Matheson-Dent was there). What really stuck in the Chinese craw was that this was extended to any Chinese employees of foreigners, making them suddenly beyond Chinese law.
  • China had to allow foreigners to travel freely into the Chinese interior and live in Beijing.
  • China had to legalize opium.
  • China had to legalize Christianity.  (You may wonder why China was upset about this.  I'll talk more about that, and the one and only Karl Gutzlaff, missionary and opium trader, in another post.)
Opium Den, unromanticized by Hollywood

Imagine the United States having to submit to Colombian rule.  Or any other...  Imagine having a foreign power in charge of our taxes and tariffs for almost a hundred years.  Imagine having our country carved up into "spheres of influence", until there's hardly anything officially Chinese left. And now wonder why the Chinese have viewed, and still view, the West with suspicion.  We think we have excellent reasons to distrust China.  I'd say that if we do, it's called revenge.


Anonymous said...

Well done! Your posts are always exceptional but this one is just superlative.

I have to point out, though, that China isn't the only place that's been occupied this way and had its laws and religion dictated by the U.S. That's pretty much the way the last few hundred years has felt to Native people on this continent.

janice law said...

A good piece.
You might like Amitav Ghosh's trilogy on the opium trade. It's excellent and weaves a wonderful picture of some of the Indian, British and Chinese involved.

Melodie Campbell said...

Wow. And we thought the Brits were such good guys - grin. Great post, and once again, I've learned something new.

Leigh Lundin said...

Fascinating as usual, Eve. I've often heard the term Opium Wars, but had no idea what the history was.

Interesting how many 'trusted' brand names of today had dodgy beginnings. Bank of America supposedly operated as banker for the Black Hand Mafia. WikiLeaks argues they haven't strayed too far from their roots.

Dixon Hill said...

As always your post was eye-opening and informative. While I had been aware of the opium wars, I still have large holes in my knowledge about US gunboat diplomacy and river patrolling viv-a-vis The Sand Pebbles. Any input? All info welcome.