The Opium Wars do not belong to the
glorious episodes of Western history. Rather, they
were instances of shameful behavior the West still
has not lived down.
Mercantilist
governments resented the perpetual drain of silver
from West to East in payment for Oriental goods
(tea, silk, porcelain) that were in high demand in
the Occident, while facing low demand in the
Orient for Occidental goods. From the mid-17th
century, more than 9 billion Troy ounces, or 290
thousand tonnes, of silver was absorbed by China
from European countries in exchange for Chinese
goods.
The British introduced opium along
with tobacco as an export item to China in order
to reduce the trade deficit. Under the
disguise of free trade,
the British, the Spanish and the French, with the
tacit approval of the Americans, continued sending
their contraband to China through legitimate as
well as illegitimate trade channels even after the
Chinese dynasty put an embargo on opium imports.
Because of its strong appeal to the
Chinese masses, and because of its highly
addictive nature, opium appeared to be the ideal
solution to the West’s trade problem. And, indeed,
the flow of silver was first stopped, and then
reversed. China was forced to pay silver for her
addiction to opium smoking that was artificially
induced by the pusher - the British.
Thus
silver was replaced by opium as the mainstay of
Western exports. In 1729 China, recognizing the
growing problem of addiction and the debilitating
and mind-corrupting nature of the drug, prohibited
the sale and smoking of opium, allowing only a
small quota of imports for medicinal purposes. The
British defied the embargo and ban on opium trade,
and encouraged smuggling. As a result, British
exports of opium to China grew from an estimated
15 tonnes to 75 tonnes by 1773. This increased
further to 900 tonnes by 1820; and to 1,400 tonnes
annually by 1838 - an almost 100-fold increase in
100 years.
Something had to be done. The
Chinese government introduced the death penalty
for drug trafficking and put British processing
and distributing facilities on Chinese soil under
siege. Chinese troops boarded British ships in
international waters carrying opium to Chinese
ports and destroyed their cargo, in addition to
the destruction of opium found on Chinese
territory. The British accused the Chinese of
destroying British property and sent a large
British-Indian army to China in order to exact
punishment.
British military superiority
was clearly evident in the armed conflict. British
warships wreaked havoc on coastal towns. After
taking Canton (Guangzhou), the British sailed up
the Yangtze River. They grabbed the tax barges,
inflicting a devastating blow on the Chinese as
imperial revenues were impossible to collect. In
1842, China sued for peace, with a pact that was
concluded in Nanking and ratified the following
year. In the treaty, China was forced to pay an
indemnity to Britain, open four port cities where
British subjects were given extraterritorial
privileges, and cede Hong Kong to Britain. In 1844
the United States and France signed similar
treaties with China.
These humiliating
treaties were criticized in the House of Commons
by William E Gladstone, who later served as prime
minister. He was wondering "whether there had ever
been a war more unjust in its origin, a war more
calculated to cover Britain with permanent
disgrace". The Foreign Secretary, Lord Palmerston,
replied that nobody believed that the Chinese
government’s motive was "the promotion of good
moral habits", or that the war was fought to stem
China's balance of trade deficit.
The
American president, John Quincy Adams, chimed in
during the debate by suggesting that opium was a
"mere incident". According to him "the cause of
the war was the arrogant and insupportable
pretensions of China that she would hold
commercial intercourse with the rest of mankind
not upon terms of equal reciprocity, but upon the
insulting and degrading forms of the relations
between lord and vassal."
These words are
echoed, 160 years later, by President Barack
Obama's recent disdainful pronouncements to the
effect that China's exchange-rate policy is
unacceptable to the rest of mankind as it pretends
that China's currency is that of the lord, and
everybody else's is that of the vassal.
The peace of Nanking did not last. The
Chinese searched a suspicious ship, and the
British answered by putting the port city of
Canton under siege in 1856, occupying it in 1857.
The French also entered the fray. British troops
were approaching Beijing and set on to destroy the
Summer Palace. China again was forced to sue for
peace. In the peace treaty of Tianjin, the port
for Beijing, China yielded to the demand to create
10 new port cities, and granted foreigners free
passage throughout the country. It also agreed to
pay an indemnity of five million ounces of silver:
three million to Britain and two million to
France.
This deliberate humiliation of
China by the Western powers contributed greatly to
the loosening and ultimate snapping of the
internal coherence of the Qing Dynasty, leading to
the Taiping Rebellion (1850-1864), the Boxer
Uprising (1899-1901) and, ultimately, to the
downfall of the Qing Dynasty in 1912.
The
present trade dispute between the US . and China
is reminiscent of the background to the two Opium
Wars. Once more, the issue is the humiliation and
plunder of China as a "thank you" for China's
favor of having provided consumer goods for which
the West was unable to pay in terms of Western
goods suitable for Chinese consumption. The only
difference is the absence of opium in the dispute.
Oops, I take it back. The role of opium in
the current dispute is played by paper. Paper
dollars, to be precise.
In 1971, an
atrocity was made that I call the Nixon-Friedman
conspiracy. To cover up the shame and disgrace of
the default of the US on its international gold
obligations, Milton Friedman (following an earlier
failed attempt of John Maynard Keynes) concocted a
spurious and idiotic theory of floating exchange
rates. It suggests that falling foreign exchange
value of the domestic currency makes it stronger
when in actual fact the opposite is true: it is
made weaker as the terms of trade of the devaluing
country deteriorates and that of its trading
partners improves.
President Richard Nixon
was quick to embrace the false theory of Friedman.
No public debate of the plan was permitted then,
or ever after. Under the new dispensation, the
irredeemable dollar was to play the role of the
ultimate extinguisher of debt, a preposterous
idea. The scheme was imposed on the world under
duress as part of the "new millennium", shaking
off the "tyranny of gold", that "barbarous relic",
the last remnant of superstition, the only
remaining "anachronism of the Modern Age".
The ploy was played up and celebrated as a
great scientific breakthrough, making it possible
for man to shape his own destiny rationally, free
of superstition, for the first time ever. Yet all
it was a cheap trick to elevate the dishonored
paper of an insolvent banker (the US) from scum to
the holy of holies: international currency. The
fact that fiat paper money has a history of 100%
mortality was neatly side-stepped. Any questioning
of the wisdom of experimenting with it in spite of
logic and historical evidence was declared
foggy-bottom reactionary thinking.
The
amazing thing about this episode of the history of
human folly was the ease with which it could be
pushed down the throat of the rest of the world,
including those nations that were directly hurt by
it, such as the ones running a trade surplus with
the US. Their savings went up in smoke.
The explanation for this self-destructing
behavior is the addictive, debilitating and
mind-corrosive nature of paper money, in direct
analogy with that of opium. The high caused by
administering the opium pipe to the patient (read:
administering quantitative easing, or QE) had to
be repeated when the effect faded by a fresh
administration of more opium (read: QE2).
If the patient resists, like China did in
1840, then a holy opium war must be declared on it
in the name of the right of others to free trade.
Now 170 years later, a New China once more demurs
against the paper-torture treatment it was
subjected to by the American debt-mongers and
opium pushers.
But beware: if the West
starts another Opium War, this time it is not
China that will be on the losing side.
Antal E Fekete has since 2001
been consulting professor at Sapientia University,
Cluj-Napoca, Romania. In 1996, Professor Fekete
won the first prize in the International Currency
Essay contest sponsored by Bank Lips Ltd of
Switzerland.
(Copyright 2011 Antal E
Fekete)
(From March 5 through 13, 2011,
the New Austrian School of Economics will hold a
course on "Adam Smith's Real Bills doctrine and
circulating capital" at the Martineum Academy in
Szombathely, Hungary. This is the second in a
four-course series on Austrian Economics, a branch
of economic science based on the work of Carl
Menger (1840-1921). On Monday, March 14, the
school will hold a seminar on "Basis, Co-basis,
Permanent Backwardation of Gold and Silver and
What It Means", the third in the series. For
further information on both course and seminar,
please contact Dr Judith Szepesvari, e-mail:
szepesvari17@gmail.com.)
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