NOR had anyone reformed Bengal’s archaic land laws. Hereditary landowners called Zamindars paid tax to the Treasury and recovered the money from their tenants, taking far more than they should. Middle-ranking Company officials now joined in the racket, and Governor Hastings was shocked to find that despite the famine tax rates had been kept ‘violently high’.
Relief columns brought grain to stricken villages, but the Company also introduced what economist Adam Smith called ‘improper regulations and injudicious restraints’, such as price controls and penalties for stockpiling, which succeeded only in turning a crisis into a catastrophe.* Hastings prosecuted corrupt officials, streamlined the system and employed more Indians in the service, but wider reforms foundered on fears that British notions of property rights should not be imposed on India.*
By 1774, starvation and disease had carried off up to a third of Bengal’s population, perhaps ten million souls. Reports and graphic images soon reached London, and though Bengal’s finances recovered, the Company’s reputation was permanently damaged.*
For Smith’s arguments, see An Avoidable Tragedy. In brief, price controls and the ban on stockpiling grain meant that farmers could not vary prices to meet demand or need, and were forced to sell off precious stocks cheaply. Smith, who assumed Indian farmers knew more about Bengal’s economy than British bureaucrats did, believed that a free market would have prevented the shortage being anything more, but free trade was utterly alien to the Company’s ethos.
British sensitivity on this point may have been misplaced. In 1951, just four years after achieving independence, the Indian government abolished the system that Hastings had been compelled to leave in place by the British.
Lessons were not learnt, however. London kept up her protectionist market among her colonies, punishing foreign competition, imposing price controls and raking in tax revenue from trade within it. It all became too much for the Americans, who dumped a consignment of Company tea into Boston harbour in 1773, and a revolution ignited. See The Boston Tea Party.