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America's Great Meltdown compared to Great Britain's Opium Trade, or...

... why they had a real empire and we didn't.

It is a truism among world historians that the two longest-running crimes in modern world history were the Atlantic Slave Trade (c. 1550-1850) and the British Opium Trade (c. 1798-1905).

The British people had an addiction to tea that, in many ways, mirrors the American addiction to foreign oil [but the tea tasted better].

The problem: tea grew only in China, which was not only halfway around the world, but the Emperor controlled the trade and demanded payment for tea in gold bullion.

This created an enormous economic threat to the British, as exchanging a durable form of wealth [gold] for a consumable [tea] on a long-term basis is not really a transaction, but an ongoing transfer of wealth.

Eventually, all the gold ends up in China and the tea stays there as well. So what to do?

The British had also acquired India during the late 18th Century [in our history books Lord Cornwallis is the man who lost at Yorktown, guaranteeing our independence; in Indian history books he's the bastard whose conquests finally turned India into a colony], and some merchants hoped they could grow tea there. No such luck.

But what they could grow was opium poppies. So the British had this magnificent idea.

They'd grow the poppies and produce opium. British smuggling vessels would then slip into the wide, navigable rivers of China, head upstream and sell [quite illegally under Chinese law] opium to the millions of people in the Chinese interior.

But they'd only sell it for gold. Then they'd use the gold they received from selling the opium to purchase tea.

Now the Chinese are effectively selling their tea for gold that was already in the country, which allows the British to exchange one consumable [opium] for another [tea].

This simple mechanism lay at the basis of complex colonial economics around the world.

Now how could America have applied this principle to stay out of our current mess?

First, realize that we are sending dollars overseas primarily to China (hello, Wal-Mart); India (hello, outsourcing); the Middle East (hello, oil); and even Mexico (outsourcing plus money sent home by undocumented workers). These dollars got parked with their new owners who were looking for ways to make them pay off in investments. The greatest growth appearing to take place was in, you guessed it, the US.

So with the insight of the British opium traders, brokers in India, China, the Middle East, and even Mexico have used the dollars we sent them to purchase more American properties, loans, derivatives, etc.

We would have appeared to have become the Chinese opium-smoking peasants in the equation, as our own durables [real estate] and investment instruments have been purchased with the money we are still bleeding.

Options? Well, we could have supported American tobacco companies as they attempted to penetrate the Chinese and Indian markets, encouraging those folks to trade dollars back to us for a consumable, but that would have been ... unethical!?

We could have actually encouraged American automobile makers to try to penetrate the Asian and African markets with a vehicle like the new Tata Nano that is starting to sweep across Asia. But that would have made ... too much sense.

No, we're apparently not bright enough to fund our imperial growth with OPM [Other People's Money], and we're damn sure not bright enough to realize that you can't keep exporting your currency forever and thing nothing bad will come of it.

Interesting point, by the way: when the opium trade tailed off, the British Empire fell into decline.

Funny how that happens.

Comments

Ian smith said…
Growing demand and shrinking domestic production means America is importing more and more oil each year - much of it from the world's most unfriendly or unstable regions. We spend more than $200,000 per minute -- $13 million per hour -- on foreign oil, and more than $25 billion a year on Persian Gulf imports alone.
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ChrisNC said…
One small correction: the tea-opium trade was in silver, not gold (see http://www.teamuse.com/article_010502.html). The problem with the trade imbalance is actually a problem of government. Dollars sent overseas to buy products would normally then be sent back to buy Amercian-made products. Instead, it is coming back to purchase federal bonds. The federal deficit is stealing the bread from the mouth of Americans. Further, the Federal Reserve expansion of the money supply prevents the deflation that should result from a trade imbalance. As deflation lowered prices here in comparison to the receiving nation, economic factors would force a reversal of the flow. The solutions are threefold: real free trade (not managed trade), a balanced federal budget, and the abolition of the Fed.
Chris
Only after about 1840 was silver used as a primary medium of exchange; and the Chinese preference remained for gold
tom said…
the parallel between dollars in our current trade imbalance and gold (and/or silver) in the british tea-opium trade is not as strong as you might think. first of all, as chrisnc said, real free trade would do much to alleviate the problem, and second, gold and/or silver are relatively stable and nearly universal stores of value, while the US$ has value only so far as the US government is willing to accept it as payment for goods/services/debts. anyone, foreign or not, holding dollars or US$ denominated investments in at the mercy of the passing whims of those who set our monetary policy
Anonymous said…
nice piece.

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