TABLE XIV

Imports and Exports (Both Merchandise and Treasure)¹⁸³

Year.	Exports.	Imports.		Year.	Exports.	Imports.
1870–71	57,556,951	39,913,942		1881–82	83,068,198	60,436,155
1871–72	64,685,376	43,665,663		1882–83	84,527,182	65,548,868
1872–73	56,548,842	36,431,210		1883–84	89,186,397	68,157,311
1873–74	56,910,081	39,612,362		1884–85	85,225,922	69,591,269
1874–75	57,984,549	44,363,160		1885–86	84,989,502	71,133,666
1875–76	60,291,731	44,192,378		1886–87	90,190,633	72,830,670
1876–77	65,043,789	48,876,751		1887–88	92,148,279	78,830,468
1877–78	67,433,324	58,819,644		1888–89	98,333,879	83,285,427
1878–79	64,919,741	44,857,343		1889–90	105,366,720	86,656,990
1879–80	69,247,511	52,821,398		1890–91	102,350,526	93,909,856
1880–81	76,021,043	62,104,984		1891–92	111,460,278	84,155,045

TABLE XV

Nature of Industrial Pursuits in England and India¹⁸⁴

	Distribution of Indian Exports exclusive of Treasure.					Distribution of English Exports exclusive of Treasure.
	Manufactured Articles.	Raw Materials.	Food Articles.	Unclassified Articles.	Total.	Manufactured Articles.	Raw Materials.	Food Articles.	Unclassified Articles.	Total.
1857	11	34	22	23	100	90·9	4	4·9	·2	100
1858	6	35	26	33	100	91·4	3·4	5·1	·1	100
1859	6·5	40	15·5	38	100	91·5	3·8	4·6	·1	100
1860	5·7	43·6	17·7	33	100	91·9	3·6	4·4	·3	100
1861	5·8	46·5	15·3	32·4	100	90·4	4·8	4·8	—	100
1862	5	52	16	27	100	90·3	4	4·8	·9	100
1863	3·7	58·7	10·6	27	100	91·0	4	4	1·0	100
1864	4	69·2	9·3	17·5	100	92·5	3·7	3·7	·1	100
1865	3·5	68	12	16·6	100	92·1	3·6	3·6	·7	100
1866	4·2	67·2	10·3	18·3	100	92	3·7	3·7	·4	100
1867	4	58	11	27	100	92·2	3·8	3·7	·3	100
1868	4	58·5	11·5	26	100	92	4·4	3·4	·2	100
1869	4·8	60·5	14	20·7	100	92	4·2	3·1	·7	100
1870	4·4	63·6	9	23	100	91	4	4	1·0	100
1871	3·7	65·3	11	20	100	90	4·4	4·9	·7	100
1872	3·3	61·4	13·5	21·8	100	91·2	5·4	3·5	·9	100

[pg 101] the country, which had bounced up during the American Civil War, showed greater buoyancy after 1870, and continued to grow throughout the period of the falling exchange at a rapid pace. During the short space of twenty years the total imports and exports of the country more than doubled in their magnitude, as is shown by Table XIV., p. 99.

Not only had the trade of India been increasing, but the nature of her industries was also at the same time undergoing a profound change. Prior to 1870 India and England were, so to say, non-competing groups. Owing to the protectionist policy of the Navigation Laws, and owing also to the substitution of man by machinery in the field of production, India had become exclusively an agricultural and a raw-material-producing country, while England had transformed herself into a country which devoted all her energy and her resources to the manufacturing of raw materials imported from abroad into finished goods. How marked was the contrast in the industrial pursuits in the two countries is well revealed by the analysis of their respective exports on opposite page.

After 1870 this distribution of their industrial pursuits was greatly altered, and India once again began to assume the rôle of a manufacturing country. Analysing the figures for Indian imports and exports for the twenty years succeeding 1870 (see table below), we find that the progress in [pg 102] the direction of manufactures formed one of the most significant features of the period.

TABLE XVI

Changes in Industrial Pursuits of India¹⁸⁵

Years	Imports.		Exports.
	Manufactured.	Raw.	Manufactured.	Raw.
	Rs.	Rs.	Rs.	Rs.
1879	25,98,65,827	13,75,55,837	5,27,80,340	59,67,27,991
1892	36,22,31,872	26,38,18,431	16,42,47,566	85,52,09,499
Percentage of increase
Total	39	91	211	43
Annual	2·8	6·5	15	3

This change in the industrial evolution was marked by the growth of two principal manufactures. One of them was the manufacture of cotton. The cotton industry was one of the oldest industries of India, but during 100 years between 1750 and 1850 it had fallen into a complete state of decrepitude. Attempts were made to resuscitate the industry on a capitalistic basis in the sixties of the nineteenth century and soon showed signs of rapid advance. The story of its progress is graphically illustrated in the following summary table:—

TABLE XVII

The Development of Indian Cotton Trade and Industry

	Growth of Trade (Average Annual Quantities in each Quinquennium).
	1870–71 to 1874–75.	1875–76 to 1879–80.	1880–81 to 1884–85.	1885–86 to 1889–90.	1890–91 to 1894–95.
Imports of raw cotton—thousands of cwts.	23	52	51	74	89
Exports of raw cotton—thousands of cwts.	5,236	3,988	5,477	5,330	4,660
Imports of twist and yarn	33·55	33·55	44·34	49·09	44·79
	Growth of Industry (at end of each fifth year).
Number of mills	48	58	81	114	143
Number of spindles—000 omitted	1,000	1,471	2,037	2,935	3,712
Number of looms—000 omitted	10	13	16	22	34
Number of persons employed	—	39,537	61,836	99,224	—

Another industry which figured largely in this expansion of Indian manufactures was jute. Unlike the cotton industry [pg 103] of India, the jute industry was of a comparatively recent origin. Its growth, different from that of the cotton industry, was fostered by the application of European capital, European management, and European skill, and it soon took as deep roots as the cotton industry and flourished as well as it did, if not better. Its history was one of continued progress.

TABLE XVIII

Development of Jute Industry and Trade

Growth of Trade.	Average Annual of each Quinquennium.
	1870–71 to 1874–75.	1875–76 to 1879–80.	1880–81 to 1884–85.	1885–86 to 1889–90.	1890–91 to 1894–95.
Exports—
Raw, million cwt.	5·72	5·58	7·81	9·31	10·54
Gunny bags, millions.	6·44	35·96	60·32	79·98	120·74
Cloth, million yds.	—	4·71	6·44	19·79	54·20
Growth of Industry.
Number of —
Mills	—	21	21	24	26
Looms, 000 omitted	—	5·5	5·5	7	8·3
Spindles, 000 omitted	—	88	88	138·4	172·4
Persons employed, in thousands	—	38·8	38·8	52·7	64·3

This increasing trend towards manufactures was not without its indirect effects on the course of Indian agriculture. Prior to 1870 the Indian farmer, it may be said, had no commercial outlook. He cultivated not so much for profit as for individual self-sufficiency. After 1870 farming tended to become a business and crops came more and more to be determined by the course of market prices than by the household needs of the farmer. [pg 104]

TABLE XIX

Growth of Agricultural Exports of India

	1868–69.	1873–74.	1877–78.	1882–83.	1887–88.	1891–92.
Wheat	100	637·41	2,313·47	5,152·36	4,914·37	11,001·44
Opium	100	118·38	123·83	122·47	120·20	116·82
Seeds	100	111·26	305·87	239·97	403·60	480·99
Rice	100	131·66	119·84	203·28	185·55	220·36
Indigo	100	116·91	121·57	142·17	140·76	126·33
Tea	100	169·35	293·17	507·25	775·09	1,075·75
Coffee	100	86·04	69·98	85·31	64·59	74·11

Such was the contrast in the economic conditions prevalent in the two countries. This peculiar phenomenon of a silver standard country steadily progressing, and a gold-standard country tending to a standstill, exercised the minds of many of its observers. The chief cause was said to be the inability of the English manufacturers to hold out in international competition. This inability to compete with his European rivals was attributed to the prevalence of protective tariffs and subsidies which formed an essential part of the industrial and commercial code of the European countries. Nothing of the kind then existed in India, where trade was as free and industry as unprotected as any could have been, and yet the Lancashire cotton-spinner, the Dundee jute manufacturer, and the English wheat-grower complained that they could not compete with their rivals in India. The cause, in this case, was supposed to be the falling exchange.¹⁸⁶ So much were some people impressed by this view that even the extension of the Indian trade to the Far East was attributed to this cause. Already, it was alleged, the dislocation of the par of exchange between gold and silver had produced a kind of segregation of gold-using countries and silver-using countries to the exclusion of each other. In a transaction between two countries using the same metal as standard it was said the element of uncertainty arising from the use of two metals varying in terms of each other [pg 105] was eliminated. Trade between two such countries could be carried on with less risk and less inconvenience than between two countries using different standards, as in the latter case the uncertainty entered into every transaction and added to the expense of the machinery by which trade was carried on. That the Indian trade should have been deflected to other quarters¹⁸⁷ where, owing to the existence of a common standard the situation trade had to deal with was immune from uncertainties, was readily admitted. But it was contended that there was no reason why, as a part of the segregation of commerce it should have been possible for the Indian manufacturer to oust his English rival from the Eastern markets to the extent he was able to do (see Table XX, p. 106). [pg 106]

TABLE XX

Exports of Cotton Goods to Eastern Markets

Years.	Yarn, lb., 000 omitted.		Piece-goods, yds., 000 omitted.
	From India.	From U.K.	From India.	From U.K.
1877	7,927	33,086	15,544	394,489
1878	15,600	36,467	17,545	382,330
1879	21,332	38,951	22,517	523,921
1880	25,862	46,426	25,800	509,099
1881	26,901	47,479	30,424	587,177
1882	30,786	34,370	29,911	454,948
1883	45,378	33,499	41,534	415,956
1884	49,877	38,856	55,565	439,937
1885	65,897	33,061	47,909	562,339
1886	78,242	26,924	51,578	490,451
1887	91,804	35,354	53,406	618,146
1888	113,451	44,643	69,486	652,404
1889	128,907	35,720	70,265	557,004
1890	141,950	37,869	59,496	633,606
1891	169,253	27,971	67,666	595,258

The causes which effected such trade disturbances formed the subject of a heated controversy.¹⁸⁸ The point in dispute was whether the changes in international trade such as they were, were attributable to the monetary disturbances of the time. Those who held to the affirmative explained their position by arguing that the falling exchange gave a bounty to the Indian producer and imposed a penalty on the English producer. The existence of this bounty, which was said to be responsible for the shifting of the position of established competitors in the field of international commerce, was based on a simple calculation. It was said that if the gold value of silver fell the Indian exporter got more rupees for his produce and was therefore better off, while by reason of the same fact the English producer got fewer sovereigns and was therefore worse off. Put in [pg 107] this naïve form the argument that the falling exchange gave a bounty to the Indian exporters and imposed a penalty on the English exporters had all the finality of a rule of arithmetic. Indeed, so axiomatic was the formula regarded by its authors that some important inferences as to its bearing on the trade and industrial situation of the time were drawn from it. One such inference was that it stimulated exports from and hindered imports into the silver using countries. The second inference was that the fall of exchange exposed some English producers more than others to competition from their rivals in silver-using countries. Now, can such results be said to follow from the fall of exchange? If we go behind the bald statement of a fall of exchange and inquire as to what determined the gold price of silver the above inferences appear quite untenable. That the ratio between gold and silver was simply the inverse of the ratio between gold prices and silver prices must be taken to be an unquestionable proposition. If therefore the gold price of silver was falling it was a counterpart of the more general phenomenon of the fall of the English prices which were measured in gold, and the rise of the Indian prices which were measured in silver. Given such an interpretation of the event of the falling exchange, it is difficult to understand how it can help to increase exports and diminish imports. International trade is governed by the relative advantages which one country has over another, and the terms on which it is carried on are regulated by the comparative cost of articles that enter into it. It is, therefore, obvious that there cannot be a change in the real terms of trade between countries except as a result of changes in the comparative cost of these goods. Given a fall in gold prices all round, accompanied by a rise in silver prices all round, there was hardly anything in the monetary disturbance that could be said to have enabled India to increase her exportation of anything except by diminishing her exportation or increasing her importation of something else. From the same view of the question of the falling exchange it follows that such a monetary disturbance could not depress one trade more than another. If the falling or rising exchange was simply [pg 108] an expression of the level of general prices, then the producers of all articles were equally affected. There was no reason why the cotton trade or the wheat trade should have been more affected by the fall of exchange than the cutlery trade.

Not only was there nothing in the exchange disturbance to disestablish existing trade relations in general or in respect of particular commodities, but there was nothing in it to cause benefit to the Indian producer and injury to the English producer. Given the fact that the exchange was a ratio of the two price-levels, it is difficult to see in what sense the English producer, who got fewer sovereigns but of high purchasing power, was worse off than the Indian producer, who got more rupees but of low purchasing power. The analogy of Prof. Marshall was very apt. To suppose that a fall of exchange resulted in a loss to the former and a gain to the latter was to suppose that, if a man was in the cabin of a ship only ten feet high, his head would be broken if the ship sank down twelve feet into a trough. The fallacy consisted in isolating the man from the ship when, as a matter of fact, the same force, acting upon the ship and the passenger at one and the same time, produced like movements in both. In like manner the same force acted upon the Indian producer and the English producer together, for the change in the exchange was itself a part of the more sweeping change in the general price-levels of the two countries. Thus stated, the position of the English and Indian producer was equally good or equally bad, and the only difference was that the former used fewer counters and the latter a larger number in their respective dealings.

A bounty to the Indian producer and a penalty to the English producer, it is obvious, could have arisen only if the fall of silver in England in terms of gold was greater than the fall of silver in terms of commodities in India. In that case the Indian producer would have obtained a clear benefit by exchanging his wares for silver in England and thus securing a medium which had a greater command over goods and services in India. But à priori there could be no justification for such an assumption. There was no reason why gold price of silver should have fallen at a different [pg 109] rate from the gold price of commodities in general, or that there should have been a great difference between the silver prices in England and in India. Statistics show that such à priori assumptions were not groundless.

It is obvious that if silver was falling faster than commodities, and if silver prices in India were lower than silver prices in England, we should have found it evidenced by an inflow of silver from England to India. What were the facts? Not only was there no extraordinary flow of silver to India, but the imports of silver during 1871–93 were much smaller than in the twenty years previous to that period.¹⁸⁹ This is as complete a demonstration as could be had of the fact that the silver prices in India were the same as they were outside, and consequently the Indian producer had very little chance of a bounty on his trade.

Although such must be said to be the à priori view of the question, the Indian producer was convinced that his prosperity was due to the bounty he received. Holding such a position he was naturally opposed to any reform of the Indian currency, for the falling exchange which the Government regarded a curse he considered a boon. But however plausible was the view of the Indian producer, much sympathy would not have been felt for it had it not been coupled with a notion, most commonly held, that the bounty arose from the export trade, so that it became an article of popular faith that the fall of exchange was a source of gain to the nation as a whole. Now was it true that the bounty arose from the export trade? If it were so, then every fall of exchange ought to give a bounty. But supposing that the depreciation of silver had taken place in India before it had taken place in Europe, could the fall of exchange thus brought about have given a bounty to the Indian exporter? As was explained above, the Indian exporter stood a chance of getting a bounty only if with the silver he obtained for his produce he was able to buy more goods and [pg 110]