12/10/2002
The Evolution of Mentality Followed by Capitalistic Society:
Study through the East India Companies and Colonialism
Introduction
The original concept of capitalism, which is solely pursuing the interest and benefits of business owners, is not sufficient to manage all business problems. Businesses cannot survive without a basic understanding of sociology.
The major characteristics of today’s society are capitalism and globalization.
Capitalism in the form of the corporation, and the original accounting system developed in the industrial age. The East India Companies (EICs) played a key role in the development of capital for the industrial age, in the 17th to 19th century.
By introducing the development of capitalism through the history of the EICs and India, I will focus on the first corporation and the original accounting system. Also, I will discuss the consequence of the harsh business behaviors within growing capitalist society, and their impact on and eventual alienation of their possessions in the colonial territories. In the conclusion, I will discuss about evolution of mentality that follows these business practices.
Development of Capital Accounting System Followed by Social Change
The original business transaction between Europe and India entailed Europeans pooling their money, and sending a merchant ship loaded with trade goods to India. Money and trade goods would be exchanged for Indian products that would then be brought back to Europe.
When the ship returns, profits from the voyage would be distributed amongst the business partners, and the business transaction will be finished. Future business ventures would have to accumulate capital all over again to start the process anew.
This kind of business style was unpredictable and unprojectable into the future, and their financial management was imprecise and inefficient so that the business could not grow as well as businesses with long-term investment. Businesses, like railroads, required larger-scale investment and long-term planning in order to operate. Short-term operations like the original merchant-ship transactions could not institute a railroads-size business while transportation systems, like railroad in similar business operations, were essential in the development of larger-scale economies.
Around 17th and 18th, century, Mass production, followed by the invention of technically advanced machinery system, introduced the industrial revolution. The EICs originally consisted with separated companies and disintegrated business system that often created inefficiency in business. They were unable to make long-term investments, and frequently hampered one another’s business ventures. Thus, the companies created the alliance and formed ‘corporation’ that has the nature of perpetuity in business.
Along with the development of mass production, transportation systems, like railroad, improved export and import of products. The development of railroad and mass production necessitated creation of long-term investment. This necessity in long-term investment led to the evolution of accounting system.
To have further understanding in these developments, I will set them in their historical context.
Introduction of Capital Accounting Followed by Social Change
By looking at the development of accounting system from 1600 when British EICs gradually developed ‘accounting system’ from its formation under Royal charter to 1657 of its Commonwealth charter, there are four key stages:
・ Introduction of ‘capital accounting’ in 1614.
・ Formation of ‘capital accounting’ that required the auditors to ensure the accounts were ‘fair’ and ‘true’ in 1621,
・ Introduction of ‘double-entry bookkeeping’ in the early 1630s.
・ Introduction of an agreed system of managerial accountability in the early 1640s.
・ Abolishing feudal directors and payment of ‘division’ of capital and surpluses, and replacing them with ‘permanent’ capital on which capitalist ‘dividends’ paid from ‘profit’ in 1657. (Bryer, 1997)
And these stages created the fundamental capital accounting mechanism.
(Made by author)
From the capitalist point of view, the capitalist aims at the profit like this: “some of the distributions were made in commodities which were rated at the wholesale price or below it, and it follows that the adventurer who accepted such a division had the opportunity of making a further profit on the realization of it” (Scott, 1912). The elite merchants with big capital and stocks made some of their distributions at the wholesale price or sometimes below the price. Because, the elites knew that the adventurer, the general merchants who accepted such division would bring the opportunity of making a further profit. (Inoue, “The Birth of Accounting and Evolution of Accounting”)
This mentality is simply showing that the elites did not want to take a risky adventurous business, so to avoid the risk on themselves, they let the adventurers to do the risky jobs by distributing their products at a cheaper price, and giving opportunities to have them grow further profit. Thus, for elites merchants, it was better the adventurer to take a risk, and wait for them to bring the further profit.
To appreciate the transition in the mentality of merchants, I will look at the following history of the transformation that took place within corporations due to the monetary forces.
There were often conflicts between generalities and merchant elites during the period of transformation of EICs from an essentially feudal company in 1600 to a capitalist company by 1657. Eventually, the capitalistic power circumscribed.
From this change, the rule of financial capital becomes established. With this context of financial capital, I will investigate capitalism in the next section.
One of the senior employees of EICs, Adam Smith, describes that capitalism is grounded in the concept of free competition. In the later period, C. Marx criticizes that the main characteristics of capitalism are to stress competition and profits for its own interest and benefit.
By putting these significant aspects of capitalism in mind, I will analyze the EIC’s expansion in their business.
History of Colonial India
I will explain about the brief history of British colonizing India.
At the battle of Plassey in 1757, the English defeated the Mogul emperor at the battle. With winning the battle, English imposed a huge indemnity and the restoration of all company privileges. English demanded around 2 billion pounds from the Mogul emperor. This unbelievable sum was eventually paid in pounds, privileges, territory and revenues. This transfer of monetary power led to the transfer of the governance of India by the EIC as well.
Using this control, the EIC eliminated Indian cotton manufacture by vetoing protective tariffs and taxing Indian products to improve access of English products. Indian cotton industry was taken over and destroyed by English EICs. England and English industries found their cash cow. (Landes, 1999) This transfer of money continued up through India’s independence in 1947. Since then, the company acted as a colonial government over the India.(Wilson, 2000)
The English’s carelessness toward commoners has caused to have continuous riots and conflicts between English and commoners. Indian economy was transferred into a colonial economy whose nature and structure was determined by the needs of the British economy. And the major impacts and results are as following,
・ The drain of Indian wealth to England
・ Heavy and Severe Taxation on common people
・ The new land revenue system ruined many peasant properties
・ Destruction of Indian cottage industries and market
・ Discrimination in the promotion of natives as against Europeans caused discontent amongst Sepoys.
Thus, the combination of the British’s careless of ‘labors’ = ‘human emotion’, and careless of local culture has created rage in commoners. Eventually, the commoners began to revolt against Britain. These revolts are shown in, for example, the battle of Plassy, in 1757, the revolt of Sepoy in 1857, and Gandhi’s movement from 1894 to 1947.
In the next section, I would like to broaden the view from one colony to entire world to talk about period of ‘De-colonization’.
The World’s De-colonization Era
One of the examples of changing world from colonial period to de-colonial period is seen at the Boer War in Africa, in 1899. This war was seen as the break through of revolting against colonial nations. The Boer republics began to buy modern weapons by exchanging with their own products such as gold. Then, commoners in Boer have developed the armed power in the name of ‘armed guerrillas’. These armed guerrillas created a significant military and economic challenge to Britain. According to Curtin says “in the early time of colonial wars, an offensive war against people with equal arms requires at least equal numbers,” and in contrast, “an offensive war against armed guerrillas requires by five or six to one in average.”
The increase in the price of holding colonial territories forced the imperial powers to release their prized and exceptionally profitable possessions. Then, the de-colonization age arose in the mid 20th century. Here, we see the money is often to be the cause of waging and quitting a war.
These are some of the examples; in 1949, the Dutch gave up Indonesia; in the late ’50s and early ‘60s, French gave up Indo-China, East African colonies, and more; and in the late ’50s and early ‘60s, Britain gave up South Africa, and more.(McKay, & Hill, & Buckler, 1995)
Conclusion
While I actively support the concept of a global community, as the world is moving toward the capitalistic society, I have been seeing more of the downside of the possible consequences of capitalism. The nature of capitalistic society, “Haves and Have-nots,” borrowing from Marx, tends to pursue only their own interest, the consequence can be to create the sociological fallout, such as, revolt, crime, violence, or riot.
These consequences are indeed predictable, and almost inevitable, as we have already seen the increase in criminal activities, especially our recent tragedies with ‘terrorism’, and the number of similar kinds of tragedies has increased remarkably over the last few years.
Imperialistic enterprises should give the world’s citizens the equal opportunity for freedom. Freedom are, such as providing education, giving an economical support for enhancing self-development of poor nations, and supporting environmental protection in order to achieve a sustainable development. Also, I would like to emphasize the importance of enhancing local entrepreneurs to assist both locals and recent arrivals to take a more active role in the economy, and promote partnerships between locals and recent arrivals to maximize the strengths of each.
In today’s business arena, capitalism has evolved into a broader concept that includes basic understanding of sociology. Capitalism and sociology are now permanently linked together; they will never succeed in business without the other. Capitalism cannot survive without the basic understanding of sociology.
The consequence of not taking care of human emotion, and only pursuing physical profit, one’s own interest and benefits, creates the rioting and rage among people in subordinate economy, and eventually it creates more expenditure for settling the riot and rage. As it was seen in what happened in India or Africa in the later period of European colonialization, that was the penalty given onto the brutal colonizers.
It is obvious that the original capitalism concept, which is solely pursuing interest and benefits of business owners, is not sufficient to manage all business problems. Business owners must concern the benefits of their cannot survive without the basic understanding of sociology.
References
Landes, David S. (1999). The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor, New York, London, pp.150-167.
Curtin, Philip D., The World and The West: Technology and Power, pp.32
Scott, W.R., (1912). The Constitution and Finance of English, Scottish and Irish Joint-Stock
Companies to 1720: vol2, pp.99, (3 volumes, Cambridge University Press.)
Wilson, Jone. (2000). The English Historical Review, v115, i460, p213: (An Empire of Free Trade: The East India Company and the Making of the Colonial Marketplace. (Review)_(book review) Wilson, Jone.
McKay, John P., & Hill, Bennett D., & Buckler, John, (1995) A History of Western Society: Since 1400, 5th Edition, pp.1017
Inoue, Norio. The Birth of Accounting and Evolution of Accounting, from World Wide Web: http://www2.plala.or.jp/dogcat/kabusikikaishanotannjyou.htm
Bryer, R.A., (1997). Accounting For the ‘Bourgeois Revolution’ in the English East India Company 1600-1657, from World Wide Web: http://les.man.ac.uk/ipa97/papers/bryer2.pdf