The East India Company and Parliament’s “Fateful Decision” of 1767

Critical Thinking

September 26, 2019
by Steven Neill Also by this Author


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India, the fabled land of rubies, diamonds, gold, tigers, and mystery, captured the imagination of the British people in the mid 1700s. Robert Clive provided fodder for gossip when he returned to England in 1760 with a reported “£1,200,000 in cash, bills, and jewels. He is said to be the richest subject in the three realms”[1] Along with tales of unlimited wealth for those fortunate enough to go to India, were the stories of corruption, brutality, and profiteering by the employees of East India Company.

Founded in 1600 with a Royal Charter as a trade monopoly between Britain and the Mogul Empire of India, the East India Company would eventually make its directors more potent than most kings. The company’s private army, built initially to guard their warehouses, conquered Bengal, the wealthiest state in India, during the battle of Plassey in 1757 under the leadership of Robert Clive. That victory made the company the controller and tax collector of over one hundred million people. Following the battle, Clive received “£2.5 million (over £250 million in today’s currency) from the Bengal treasury for the Company and £160,000 for himself.”[2] Following a victory at Buxar in 1766, the price of the company’s stock increased 263 percent.[3]

Between the 1760s and the 1780s, two to three hundred English officials returned from India. Most enjoyed a very comfortable living, but several bought large estates and became members of Parliament.[4] Called Nabobs, they were despised by most Englishmen for their extravagant spending and excessive power. Prime Minister William Pitt said of the returning Nabobs in a January 22, 1770 speech:

For some years past, there has been an influx of wealth into this country, which has been attended with many fatal consequences, because it has not been the regular, natural produce of labor and industry. The riches of Asia have been poured in upon us, and have brought with them not only Asiatic luxury but, I fear, Asiatic principles of government. Without connections, without any natural interest in the soil, the importers of foreign gold have forced their way into Parliament by such a torrent of private corruption, as no private hereditary fortune could resist. My Lords, not saying but what is within the knowledge of us all, the corruption of the people is the great original cause of the discontents of the people themselves, of the enterprise of the Crown, and the notorious decay of the internal vigor of the Constitution.[5]

William Pitt and His Tax Plan
While the lengthy and costly Seven Years War may have made England the master of the waves and holder of a worldwide empire, it left them with a national debt of £140,000,000, double what it was before the war. William Pitt became prime minister after George Grenville’s disastrous attempt to tax the American colonists through the Stamp Act. While he was secretary of state, Pitt had received a letter from Robert Clive stating that the East India Company could realize £2 million a year profitfrom its Indian conquests. Pitt saw India as the “greatest of all objects”[6] and believed taxing its profits was preferable to taxing the American colonies. Pitt, like the Americans, concluded that although Parliament could levy taxes on the colonies, it should not. Pitt was also not alone in regarding India as a way to balance the books. Privy Council President William Beckford wrote Pitt a letter that stated: “we must look to the East and not to the West,” meaning looking at the East India Company as a means to fill British coffers.[7]

Pitt may have had other reasons for defending the colonists against taxes as well. During the Sugar Act of 1764 and the 1773 Tea Act, the colonists had used non-importation agreements to limit the number of products they imported from Britain. The effect of this cannot be understated; the colonists were buyers of more than forty percent of all British manufactured goods in 1774.[8] Also, American colonists owed British merchants almost £3 million, which the merchants were afraid of losing.[9] Additionally, Pitt was aware that numerous London merchants would be willing to pay a lot of money to the treasury if the government broke the East India Company’s monopoly over trading in the East.

William Pitt the Elder, 1766. (Library of Congress)

When Pitt proposed a Parliamentary inquiry into the affairs of the company, he believed that although it should retain its trading privileges while its charter was in force, it did not have the right to revenue generated in the territory nor should it have the responsibility to govern; both of which belonged to Britain. Pitt also stressed that the unrestrained corruption and subjugation prevailing in India called for parliamentary intervention. Pitt saw the revenue from the company as the “redemption of a nation, within reach of being saved at once by a kind of gift from heaven.”[10] He proposed to look into taxing the vast wealth of the company to balance the national budget. He also intended the inquiry to examine the company’s method for rewarding dividends and to look into the reports ofcorruption.

Pitt considered revoking the company’s monopoly trade agreement in India, opening it to competition from other British merchants. The London Political Journal printed Pitt’s impression of the company: “the lofty Asiatic plunderers of Leadenhall Street [location of the company headquarters] who were pouring the wealth of the east into the laps of Nabobs instead of the coffers of the British Exchequer.”[11]

This inquiry divided the administration with Pitt and Lords Grafton, Shelburne, and Camden agreeing that sovereignty in India belonged to the Crown, and that open debate in Parliament was the best way to settle the issue. Pitt said of the matter:

On the whole, there is in substantial justice a mixed right to the territorial revenues between the State and the Company as joint captors; the State equitably entitled to the larger share as the largest contributor in the acquisition by fleets and men. Nor can the Company’s share, when ascertained be considered as private property, but in trust for the public purposes of India and the extension of trade; never, in any case, to be portioned out in dividends to the extinction of the spirit of trade.[12]

Concern over the power of the Nabob’s in Parliament was not limited to members of the cabinet; Gentlemen’s Quarterly Magazine pondered in their April 1767 edition “whether the freedom or the slavery of this island shall result”[13] because of their [the East India Company] continued acquisition of power.

Lords Townshend, Grenville, and Conway however, believed the company’s claim to sovereignty was stronger, and the issue was settledin private negotiations between representatives of Parliament and the company.

Sadly, at this time Pitt was bed-ridden with gout and barely able to receive visitors, let alone dictate policy. His inability or unwillingness to convey his intentions to Grafton, Shelburne, Camden, and others loyal to him left the door open for the demagogue Townshend (who was later a stockholder of the East India Company) to control the issue. Basil Williams would say of the Pitt and Townshend rivalry:

Townshend had no high conceptions of State policy and was supremely indifferent to the question of right as between the Crown and the Company: but his responsiveness to popular feeling taught him that the public expected something out of the Bengal revenues, and he proceeded to obtain it in the manner least disagreeable to his friends in Leadenhall Street. He damped down Beckford’s inquiry on the plea that he was making a private arrangement with the Company which was the method condemned beyond all others by Chatham: “the whole becomes a farce,” he moaned, “and the Ministry a ridiculous phantom. not by the force of factions from without, but from a certain infelicity (I think incurable), which ferments and sours the councils of His Majesty’s servants.”

By Townshend’s bargain with the directors, the Company retained all their old privileges and was left in undisturbed enjoyment of the new revenues, in consideration of a trifling payment to the public and restraint imposed on excessive dividends. The proposal, Chatham vainly told a friend, “deserves the highest disapprobation of Parliament. . . . It barters away in effect the great right and interest of the nation (which if duly and wisely asserted would have brought effectual relief) for the convenience of the present minute.” But Townshend was now the master. No inquiry, such as Chatham had demanded, was held on the state of India, no abuses were redressed, and no conditions were attached to ensure the good government of the new provinces.[14]

East India House, c. 1768, by Thomas Malton the Younger. (Yale University Art Gallery)

Pitt’s proposed Parliamentary inquiry faced several hurdles, not the least of which was that up to a third of the Members of Parliament had stock in the company.[15] The investigation also united several organizations created by royal charters, including the City of London, in opposition because they were unsure how a change in the charter of the East India Company might affect their own charters. Edmund Burke even resisted the inquiry because of how it might affect the people’s rights to property: “To make a most important Revolution indeed in the whole Policy of this Country with regard to its Laws[,] its Commerce and its Credit” because it restricted “by a positive arbitrary Regulation the enjoyment of the profits which should be made in Commerce” and did so by taking profit from the East India Company, even though “it sinned against no rule prescribed by Law.”[16]

At the same time, Charles Townshend offered his revenue acts as a way to quell the mutiny in the American colonies and force them to pay their way. Parliament lost interest altogether in Pitt’s India concerns when the company agreed to pay £400,000in duties and limit the amount of dividend they would pay their stockholders. Starting in June 1767, Parliament made what historian Oliver Morton Dickerson called its most “fateful decision” and they passed the Townshend Acts.[17]

Pitt said in his 1770 State of the Union address:

The abolition of inland trade on private account is highly laudable, as far as that provision goes; but I would assuredly carry the prohibition further, and open again to the natives and other eastern merchants the inland trade of Bengal, and abolish all monopolies on the Company’s account; which now operate to the unjust exclusion of an oppressed people, and the impoverishing and alienating of those extensive and populous provinces. The hearts and good affections of Bengal are of more worth than all the profits of ruinous and odious monopolies.[18]

While Pitt fought for more Parliamentarian control over the East India Company, he also argued for moderation towards the American colonies, as he did in his last speech before Parliament in January 1775:

An hour now lost may produce years of calamity—I contend not for indulgence but justice to America. Resistance to your acts was necessary as it was just. The Americans are a brave, generous, and united people, with arms in their hands and courage in their hearts: three millions of them, the genuine descendants of a valiant and pious ancestry, driven to those deserts by the narrow maxims of a superstitious tyranny. Of the spirit of independence animating the nation of America, I have the most authentic information. Destroy their towns and cut them off from the superfluities, perhaps the conveniences of life . . . And they would not lament their loss while they have—what, my Lords ?—their woods and their liberty. Such a united force, what force shall we muster to oppose it, a few regiments in America and 11,000 or 8,000 men at home? The idea is too ridiculous to take up a moment of your Lordships’ time. Laying papers on your table or counting numbers on a division will not avert or postpone the hour of danger. It is not repealing this act Parliament; it is not repealing a piece of parchment, that can restore America to our bosom: you must repeal her fears and her resentments, and you may then hope for her love and gratitude.[19]

Several historians have cited Pitt’s support towards the American colonies and his disdain for the East India Company as evidence that his 1767 plan intended to tax the revenues from the Company while leaving the colonies alone:

The East India Company [whom] . . . British military forces had supported. . . . [William Pitt, the earl of] Chatham . . . it is proposed that the company should pay an annual rental to the government and that the dividend policy of the Company should be regulated by the government to prevent speculation in the company’s stocks. [Furthermore], revenues from the Company could have made up the national deficit and averted the taxation issues with the American colonies.[20]

Pitt sought to do justice to Ireland and Anglo-American colonies, to inaugurate Parliamentary reform in England and to secure the transfer of the government of British India from the East India Company to the British crown; but he was obliged to retire from public affairs because of ill-health.[21]

As for the East India Company, employees continued to skim its profits, forcing the government to grant the company a £1.2 million loan, and to give support in selling its enormous stockpile of tea. “The Bailout in part demonstrated the extent to which Parliament itself had come under the sway of nabob money and influence because it had become clear from the previous decade how many were sitting members had significant shares, and often proprietary interests, in Company fortunes.”[22] With the help of William Pitt, Parliament passed the Regulating Act of 1773, installing a series of economic and administrative reforms over the company.

What If?
The most crucial year between the French and Indian War and the Revolution was 1767. The colonies were content after the repeal of the Stamp Act and could have remained that way for the foreseeable future had Parliament followed Pitt’s plan. So the questions remain: what if Parliament had taxed the East India Company and strengthened trade with the American colonies instead? How much did the company influence Parliament’s decision to set aside Pitt’s plans to instead demand a “rent” payment from the company? Could his plan have saved the Anglo-American Union?


[1]Sir George Forrest, The Life of Lord Clive (London: Cassel and Company, LTD, 1918), 172.

[2]William Dalrymple, “The East India Company: The original corporate raiders,”, accessed July 14, 2019.

[3]James Mill, The History of British India, 3rd edition (London: Baldwin, Cradock, and Joy, 1826), Vol. 3,

[4]Philip Lawson and Jim Phillips, “Our Execrable Banditti’: Perceptions of Nabobs in Mid-Eighteenth Century Britain,” Albion: A Quarterly Journal Concerned with British Studies, vol. 16 no. 3, (Autumn 1984): 225–241.

[5]John Taylor, The Identity of Junius with a Distinguished Living Character Established (New York: Kirk & Mercein, 1818), 249-250.

[6]Augustus Henry Fitzroy, Autobiography and Political Correspondence of Augustus Henry, Third Duke of Grafton (London: John Murray, 1898), 110-111.

[7]William Hunt, The Political History of England (New York: Longman’s, Green, and Co., 1905), 10: 80.

[8]“1754-1783: Business and the Economy: Overview,”, accessed 07 15, 2019.

[9]Richard B. Sheridan, “The British Credit Crisis of 1772 and The American Colonies,”The Journal of Economic History, 1960: 161-186.

[10]Fitzroy, Autobiography and Political Correspondence, 110-111.

[11]John C. Miller, Origins of the American Revolution (Boston: Little, Brown, and Company, 1943), 244.

[12]Basil Williams, The Life of William Pitt, Earl of Chatham (New York: Longmans, Green, and Company, 1914), 2: 233-236, 305.

[13]Nick Robins, The Corporation That Changed the World (London: Pluto Press, 2012), 106.

[14]Williams, The Life of William Pitt, 233-236, 305.

[15]Lenny Flank, The East India Company: A History,, accessed July 15, 2019.

[16]Paul Langford, The Writings and Speeches of Edmund Burke (Oxford: Clarendon Press, 1981), 2: 65-66.

[17]Oliver Morton Dickerson, “England’s Most Fateful Decision,” The New England Quarterly Vol. 22 No 3 (1949), 388-394.

[18]Kate Hotblack, Chatham’s Colonial Policy: A Study in the Fiscal and Economic Implications of the Colonial Policy of the Elder Pitt (London: G. Routledge & Sons, Limited, 1917), 96.

[19]Williams, The Life of William Pitt, 233-236, 305.

[20]J. C. Long, George III: The Story of a Complicated Man (Boston: Little, Brown, and Co., 1960), 178.

[21]John H. Clifford, Library of World History: Containing a Record of the Human Race, Vol. VII (Chicago: Western Press Association, 1914), 3192.

[22]Dirks, Nicholas B. Dirks, The Scandal of Empire (Cambridge: Belknap Harvard, 2006), 15.

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