Hindu capitalism – a vibrant, innovative, and TRULY FORMIDABLE form of capitalism

I’m still trying to find out (in my spare moments) more about Hindu capitalism. Fortunately, I chanced upon a nice book, available freely online: Caste and Capitalism in Colonial India. I’ve extracted a nice, intriguing section from this book, below.

It is clear by now (from whatever little I know of this subject) that Indian innovations in capitalism have been SERIOUSLY NEGLECTED by world economic historians. There are, for instance, a vast number of Western economists who receive funds to study original documents of European capitalism, but almost no Indian economists funded to similarly study Indian capitalism.

This lack of study of INDIAN CAPITALISM has allowed half-baked “theorists” like Marx and Weber – and Western sociologists – to exercise a disproportionate influence on Indian intellectual thought. Such misguided thought, usually statist, if not socialist, has harmed India greatly.

We need to learn to appreciate the inner working of the WORLD’S GREATEST SOCIETY – India – over the past 2500 years, and find a way to bring back that dynamism, even as we reject caste based discrimination.

There are strong capitalist undercurrents in India that will ultimately overthrow socialism. But our education system has been ENTIRELY hijacked by socialists, and our politics and bureaucracy, as well.

It is going to be hard work to burn away the dross that covers India today in order to reveal its gleaming golden might.

The Study of Commerce in Indian Society

A major difficulty standing in the way of adequate historical understandings of Indian commerce is that we labor under the burden of past misunderstandings.^[1] They deny the existence of commerce and hence of institutional involvement in commercial activities.^[2] Excepting only some of the most recent studies, such as those by Baker (1984), Bayly (1983), and Subrahmanyam (1990), almost no one addresses the specific institutions that were agents of Indian commercial activity in the colonial or precolonial periods.^[3]

For the most part, our understanding of India’s precolonial social formations retains many traditional assumptions about India’s noncommercial character.

Only recently has there been any progress in addressing the powerful and complex non-Western commercial apparatus that underlay the Indian economy. Yet, despite growing recognition that India has long maintained itself as a formidable commercial society, we still understand very little about the people who engaged in commerce, the institutional structures by which they controlled credit and money, the ways they used these structures for investment, and the values that underlay these uses.

The legal history of the period is replete with judicial efforts to define indigenous financial instruments such as the hundi (a kind of bill of exchange used by moneylenders but not by “true bankers”). Ultimately, the courts concluded that such instruments lacked explicit statements stipulating conditions for certain kinds of transactions between multiple trading partners. Accordingly, their negotiability could not be appealed to a court of law (Krishnan 1959; Weersooria 1973). The implication of such a finding is that instruments such as hundis , which lack legal standing, could not possibly function effectively outside of a specific local community’s ability to apply customary sanctions; therefore, hundis must be ineffective instruments for any kind of large-scale or long-distance trade.

Such a conclusion might be appropriate for a jurist or administrator who looks only to the courts for sanctions on contracts or authoritative judgment of disputes. On the other hand, it is certainly inappropriate for any person dealing with the day-to-day operation of an Indian commercial enterprise. The difficulty is that it simply ignores customary sanctions on hundi transactions that are rigorously enforced by multilocale, multiregional, and even multinational communities of businessmen. Indeed, the considerable negotiability established by hundis is a testament to the adequacy of these customary sanctions. When jurists’ failure to appreciate these important financial instruments is placed in the context of stereotypic views about Indian bankers as merely clever (and sometimes irrational or usurious) moneylenders, it is clear that British and British-trained jurists never really comprehended the systematic operation of Indian financial institutions.

Even modern economic historians such as A. K. Bagchi (1972)  continue to accept Western colonial views that India lacked an institutional system capable of providing the large-scale finance necessary for industrial investment.^[8]

Lacking in all such views of Indian credit resources is any appreciation for the complex network of financial debts, opportunities, and possibilities that indigenous moneylenders and bankers could activate outside of Western-style banks through relationships of kinship and caste or through common participation with potential investors and lenders in a variety of religious and secular institutions. It is scarcely surprising that the scale and scope of Indian financial operations have been denied, when the very mechanisms for their transaction have gone unrecognized.

The present book attempts to modify the existing stereotypes (whatever their basis) by examining aspects of a large-scale system for credit provision—a non-Western banking system—operated by a South Indian caste during the colonial period.

Village Studies of Indian Commerce

There have been remarkably few studies of the operation of even contemporary Indian commercial and other economic systems.

Throughout Indian history, 40 percent to 60 percent, and under extreme circumstances perhaps as much as 80 percent, of village produce has left the village (Habib 1969; MBPEC 1930 1:35–85; Nicholson 1895; Rajayyan 1964–65; Robert 1983; Thorner 1960). A large part of this exported village surplus takes the form of taxes in kind or money levied by various governmental institutions. Anthropologists and historians have paid little attention to an entire range of significant economic activities occurring beyond the level of the village.

This observation applies to trade at a variety of periodic markets and especially to money-lending and banking activities involved in sophisticated indigenous systems for providing credit to farmers, traders, and governments. Without institutions of credit extension, India could not have maintained either its notorious tax levies or its extensive system of medium- and long-distance trade in agricultural and nonagricultural commodities.

To the extent that scholars have addressed Indian financial organization beyond the village, their studies seem to fall into two categories: (1) studies of bazaar economy, and (2) studies of major commercial centers, sometimes referred to as “burgher cities” (Bayly 1978, 1983), and of Indian “burghers,” sometimes called “portfolio capitalists” (Subrahmanyam 1990). But these studies scarcely scratch the surface of Indian commerce. The role, operation, and even existence of large-scale merchant-bankers remains, with few exceptions, unknown or unconsidered.

Indian Burghers and Portfolio Capitalists

The recent studies by Bayly and Subrahmanyam require additional comment, for, as I have already indicated, they represent a major turning point to the general trends I have just described, and at first glance their findings seem to stand in radical contradiction to the conclusions presented in the present study.^[16] I begin with Bayly, who explicitly joins the issue and, in this respect, provides the best opportunity to scout out potential differences and agreements in our views. In several places Bayly presents detailed historical data and interpretations about North Indian commercial towns and cities that correct largely unfounded, Weberian stereotypes about Indian commerce (Gadgil 1959; Lamb 1959; Sjoberg 1970). In particular, he is concerned with the organization of commerce in so-called burgher cities, such as Allahabad or Benares, which exhibit long histories of financial, commercial, and industrial activity and an elite, multicaste commercial community.

Bayly identifies an upper stratum of powerful merchant-bankers who maintain interregional trade in various commodities and credit notes and who provide important treasury and remittance facilities for regional and imperial authorities.

It may indeed be the case that the commercial elites of Allahabad and Benares gave no special precedence to relationships of caste. But this was not the case for all commercial magnates, especially those belonging to the Marwari caste (Timberg 1978) or the Kaikkolar caste (Mines, 1984). Nor was it the case for the Nakarattars, whose caste organization constituted a corporate financial institution in Indian society.

By 1870 (and, perhaps, for some time before this) the Nakarattars were the premier merchant-banking caste of the region. Moreover, individual Nakarattars were among the first Tamil businessmen to divert their assets from banking and trade to capital-intensive industry. Nakarattars also played major roles in providing financial support and management for temples and charitable institutions wherever they did business. [Sanjeev: the study of temple funding will surely provide vital clues about Indian capitalism. How could such HUGE mega temples get funded without deep institutions of capitalism?]

From the seventeenth to the nineteenth century, much of the European trade depended on financing by Indian capital under the control of large-scale merchants (Appadurai 1974; Arasaratnam 1980; Basu 1982; Brennig 1977; Chaudhuri 1978; Furber 1951; Lewandowski 1976; Subrahmanyam 1990). Not surprisingly, the relationship was always strained on both sides.^[20]

From the European point of view, Indian brokers held entirely too much power and, moreover, often employed it in competition with the Europeans themselves.

By 1680, European merchants were already attempting to alter the indigenous system by insisting on dealing with groups of merchants operating like their own joint stock companies rather than with individuals with privileged claims on their European patrons and monopolistic power over native producers (Brennig 1977: 338–340; see also Arasaratnam 1979; Subrahmanyam 1990). But these efforts to circumvent the Indian mercantile elite were by and large unsuccessful in that even the joint stock companies continued to be dominated by a small number of highly powerful “chief merchants” (Arasaratnam 1980).

…

It is just at this time that the Nakarattars emerge on the scene in a major way. And it is precisely the qualities of their caste organization that enable them to take advantage of the changing colonial economy and become the chief merchant-bankers of South India and Southeast Asia.