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, facing low demand in the
Orient for Occidental goods. From the mid-17th century more than 9 billion
Troy ounces or 290 thousand metric tons 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 their 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 tons to 75 by 1773. This increased further to 900 tons
by 1820; and to 1400 tons annually by 1838 -- an almost 100-fold increase in
Something had to be done. The Chinese government
introduced 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
British military superiority was clearly evident in the
armed conflict. British warships wreaked havoc on coastal towns. After taking
Canton 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 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 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 China yielded to the demand to create ten 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 U.S. 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 U.S. on its
international gold obligations, Milton Friedman (following an earlier failed
attempt of John M. 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.
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 U.S.) from scum to
the holy of holies: international currency. The fact that fiat paper money
has a history of 100 percent mortality was neatly side-stepped. Any
questioning of the wisdom of experimenting with is 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 U.S. 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 QE) had to be repeated when the effect faded by a fresh
administration of more opium (read: more 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. 170 years later a New China once more demurred against the
paper-torture treatment it was subjected to by the American debt-mongers and
But beware: if the West starts another Opium War, this
time it is not China that will be on the losing side.