Department of History, National University of Singapore

Opium and Empire: Some Evidence from Colonial-Era Asian Stock and Commodity Markets Author(s): Warren Bailey and Lan Truong Source: Journal of Southeast Asian Studies, Vol. 32, No. 2 (Jun., 2001), pp. 173-193 Published by: Cambridge University Press on behalf of Department of History, National University of Singapore Stable URL: http://www.jstor.org/stable/20072323 . Accessed: 13/06/2013 09:58
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173

Journal of Southeast Asian Studies, 32 (2), pp 173-193 June 2001. Printed ? 2001 The National University of Singapore

in the United Kingdom.

Opium

and Empire: Some

Evidence

from Colonial-Era

Asian Stock and Commodity Markets

By Warren Bailey and Lan Truong*

On

the basis of a new database commodity exports

of stock and and immigration,

commodity

prices,

along with

measures

of government trade on Stock with

revenues,

the article Indies

assesses

the impact from

of the opium 1873

the economies returns for opium price a

of colonial Malaya, few Malayan changes, industries

the Netherlands related for

and China

to 1911. correlated

to international

trade are significantly Chinese-dominated export

as are prices However, commodity

labour-intensive, changes balance,

commodities of the only

such as tin and gambier. behaviour secondary of stock and importance

opium price prices. On

explain, stock and

at most,

only a small fraction markets by the price ascribed

commodity

to ups and downs

in the opium

trade as measured

of the drug.

Introduction the nature and impact of colonialism continues to be important to Understanding the economics Asia. of economic and political institutions and The understanding history, politics and conditions that evolved under colonial rule continue to colour the workings of today's modern
Asian states. One of the most peculiar and interesting aspects of colonialism in Asia was the opium

trade. Opium was already an important commodity inAsia when Europeans first visited Southeast Asian and Chinese ports. Europeans started to ship opium to the Far East to compete for the considerable profits associated with the trade and to barter for the silks, teas and spices that
originally colonial certain motivated possessions, points in the their the travels import to Asia. of Turkish and As the European Indian twentieth opium presence became in Asia a major evolved economic opium into extensive activity. At and early

late nineteenth

centuries,

for example,

tax revenues

comprised much,
and French

if not most,

of colonial government trade continues

on the

budgets

inMalaya,

the Netherlands

Indies

Indochina.

The significance of the opium

article is to offer some empirical

to be debated. Therefore,
importance of opium

the purpose of our

Asia. We

evidence

to colonial-era

organise our work around two alternative hypotheses. If the desire to profit from selling opium was the primary reason for colonialism in Southeast Asia and China, changes in the health of the opium trade would have a significant impact on the general health of the colonial economies. Therefore,
*Warren Bailey University Candidate is an Associate Professor of Finance with the Johnson Graduate at Cornell School of Management Lan Truong is a Ph.D. (Sage Hall, Ithaca, NY 14853-6201, USA). His e-mail address is [WBBl@cornell.edu]. at Cornell University. Her address is 1614-D Belmont St. NW, in the Department of Government Washington,

DC 20009, USA, and her e-mail address is [ljt5@cornell.edu]. The authors would like to thank Kirida Bhaopichitr, Melanie Orhant, Allen Reidy, Carl Trocki, Oliver Acknowledgement: at Cornell's seminar participants Southeast Asia Programme, and especially Michael Montesano for helpful Wolters, on earlier drafts and other assistance. We thank Serena comments discussions, James Chan, Julie Agora-Menyang, Goking, Gustavo Grullon, Blair Kanbar Wu and Jane for research assistance.

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174

WARREN

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our first hypothesis

management administering tobacco, alcohol and

is that opium was a principal driving force in these economies. Alternatively,

taxation of the opium business represented are react to, merely involved rather one of many aspects and colonies, gambling. just The as modern opium governments trade would in regulating than cause,

the
of

the Asian and

taxing

the broader

factors that drove the demand for opium. Therefore, our second hypothesis is that the opium trade merely reflected and followed more fundamental economic conditions. Our two competing hypotheses have a number of distinct implications that we detail below. economic
We base our tests on a unique database of stock and commodity prices spanning the period

from 1873 to 1911, when legal, unregulated opium dealing ceased. From Singapore's principal business newspaper, The Straits Times, we have collected monthly market-determined prices for tin, rubber, pepper, other local commodities and, most importantly, for opium itself. This newspaper and others also supply monthly stock prices from Malaya, Netherlands East Indies and European administered areas of China. Our sample includes companies that shipped the opium; transported the largely Chinese workforce who consumed it; financed the opium traders; and harvested, processed and transported mineral and agricultural commodities produced by opium-using
workers. Asia, data with We colonial allow us also collected annual data on movements and commodity on many of Chinese production dimensions migrant workers to Southeast these activity government to measure precision. tax revenues, the effect in Malaya. of colonial Collectively, economic

of opium

considerable

The article is organised as follows. The first section briefly sketches the historical setting. The following sections present our testable hypotheses and outline the data set and empirical tests we
conduct. Then come the results of the tests, followed by a summary and discussion of implications.

Historical overview Indiaand opium: export commodity to the East The opium trade developed rapidly given the desire of European merchants
opium scale for highly Portuguese prized Far Eastern traders products. were Before British shipping domination opium of the opium Canton, and Dutch regularly to Macau,

to exchange
trade, small the Java and

With the extension of British influence inAsia, the East India Company (EIC) sought Spice Islands.1 to control cultivation and sale of the drug by constructing authority and power over crucial parts of in 1773, the Company gradually consolidated control India. Starting with the Bengal Monopoly and, in 1797, prohibited opium cultivation in their territories except under licence. In this way, the
EIC controlled opium opium production at Company while auctions leaving exportation to private traders and agency houses that purchased in Calcutta.

high opium prices, the Company continued with the steady neutralisation, treaties and warfare, of rival opium-producing Native Indian states. By the time the EIC through lost monopoly privileges in 1833 and the Crown claimed India, opium production had been a organised into reliable system of revenue and provided a steady trade between India and much of To maintain eastern Asia. The 1843 annexation of the Sindh, amajor smuggling route, effectively sealed British control over opium cultivation and sales. Native cultivation of opium in China began in the late 1860s and offered strong competition to India in the 1870s and 1880s. The growing threat of local cultivation was a significant factor in negotiations with British India to slow and eventually stop the
in India (New Delhi: Ashish Publishing House, 1985); Press, 1934); and Carl A. (New Haven: Yale University Trocki, Opium and Empire: Chinese Society in Colonial Singapore, 1800-1910 (Ithaca, NY: Cornell University Press, 1990) of the origins of the opium trade. for detailed descriptions 1 See Ananta Edward Owen, C. Sahu, Some Aspects of British Trade Policy British Opium Policy in China and India

David

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OPIUM

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175

India-China opium trade. The legal flow of Indian opium to China was administratively curtailed starting in 1911 and ceased entirely in 1917. Southeast Asia's role in the opium business increased continually with the trade between India
and China. For Indian years, opium the Malay and Archipelago its price had when served as an important opium absorbing supporting the Chinese market secondary was market, depressed.2

Southeast Asia developed rapidly as an important part of the colonial economic system of independent traders and agency houses facilitating the India-China trade. Indeed, the British established the port of Singapore in 1819 specifically in the interests of these colonial enterprises. Historians have argued that, as British colonialism matured, it was shaped mostly by local and regional interests in colonial Asia, not by officials in the m?tropole.3 In 1868, the Colonial Office took control of the Straits Settlements (essentially Singapore, Malacca and Penang). Informal British control was placed over Perak, Selangor and Sungei Ujong after 1870, leading ultimately to British authority throughout theMalay Peninsula. An underlying cause for the British expansion was turbulent local politics. Power struggles within theMalay ruling classes and feuding between Chinese secret societies were major disturbances in the Peninsula and hindered the production of tin at a time (1866-72) when world tin prices were rising rapidly. Prominent tin capitalists reached out for assistance and were even willing to appeal to non-British powers for help in stabilising the situation. Wary of losing their foothold
Opium and Southeast Asia's economy

in Southeast Asia, the British intervened.

Southeast Asia's export-led growth was largely funnelled through the free-trade of entrep?t Singapore, which featured open, legal trading of opium atmarket-determined prices.4 was a part of the system of commodity production and exportation that evolved Opium rapidly in colonial Southeast Asia. There was virtually no cultivation within the region.5 The British, Dutch, Colonial
and French areas of influence Many Ding were scholars major have consumers emphasised was of opium given social important their and substantial economic commodity ethnic effects in intra of Chinese opium. populations. Chiang Hai the pervasive once the most

has written

that opium

Asian trade. For instance, he claims that in 1870 opium comprised fully one-tenth of all imports and
exports in the region.6 James Rush describes a colonial Java where, 'in sharp contrast to the rest of

Southeast Asia, the vast majority

native Javanese'.7 The resultant

of [opium] customers were not labouring Chinese

growth of the opium farm'8 system of

sojourners but

government-licensed

2 See Anthony Webster, 'British Export Interests in Bengal and Imperial Expansion into Southeast Asia, 1780 to 1824: The Origins of the Straits Settlements', inDevelopment Studies and Colonial Policy, ed. Barbara Ingham and Colin Simmons (London: Frank Cass, 1987), 138-74. 3 See, for example, Michael Adas, High Imperialism and theNew History (Philadelphia: Temple University Press, 1993); 'British Export Interests'; and David K. Fieldhouse, Economics and Empire 1830-1914 Trocki, Opium and Empire, Webster, (London: Macmillan, 1984). 4 See, for example, Cheng U Wen, 'Opium in the Straits Settlements', Journal of Southeast Asian History, 2,1 (1961): 52 75, and British Opium Policy in the Straits Settlements 1867-1910 {Kuala Lumpur: University ofMalaya Press, 1960). 5 Martin J. Murray, The Development of Capitalism in Colonial Indochina 1870-1940 (Berkeley: University of California Press, 1980) notes that opium was imported into French Indochina from India or southern China. James R. Rush, Opium to Java: Revenue Farming and Chinese Enterprise in Colonial Indonesia, 1860-1910 (Ithaca, NY: Cornell University Press, 1990) in the Dutch colony of Java. Trocki, Opium and Empire, likewise explicitly discusses the lack of opium poppy cultivation regards opium in the Straits asmainly an import from India. 6 1978), p. 118. Chiang Hai Ding, A History of Straits Settlements Foreign Trade 1870-1915 (Singapore: National Museum, ' 7 Rush, Opium toJava, p. 3. In contrast, JanC. Van Ours, writing about a later period in the Dutch East Indies, asserts that [t]he share of the Chinese in the population of opium users averaged 47 per cent, whereas their share in total was 2 cent in per population 1930. Furthermore, Chinese opium users used more opium than their amount consumed by the indigenous companions...the Chinese was more than three times as high' ('The Price Elasticity of Hard Drugs: The Case of Opium in theDutch East Indies, 1923 1938', Journal of Political Economy, 103,2 (1995): 266).

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176

WARREN

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distributors

affected

the

politics

and

economics

of

colonial

Java.

Carl

Trocki

focuses

on

the

influence of opium syndicates on life in the Straits Settlements and other British-controlled
Malaya.

areas of

The role of opium clearly increased as the economies of the port cities and their hinterlands developed. Trocki identifies opium as both a critical determinant of and a barometer for economic activity inMalaya: 'the health of the local economy was largely dependent upon its price. Because opium was themajor exchange commodity for local Straits produce, its price affected the values of ... Its rises and falls marked all other commodities periods of crisis and prosperity in the colonial He the characterises entrep?t.'9 guiding political events of the day as involving the economic importance of opium, its distribution
of immigrant workers.

and its significance

in the social control of large populations

Many scholars have highlighted the importance of opium as an input to the production of commodities like tin, pepper and gambier (a derivative of the leaves of a plant used to produce these medicines, producing dyes and tanning chemicals). The largely Chinese workforce
commodities energising were effect regular on miners consumers and of opium. Trocki notes relieving that opium was thought aches and to have allowing an plantation labourers, work-related

longer and more productive work.10 Opium was also influential beyond themines
however, scholars disagree about its general economic impact. Rush draws a picture

and plantations;
of constant but

low usage in the Netherlands

economic economic impact of opium not was as a prosperity,

East Indies, where hard-core

not substantial. causal In his view, factor.

addiction was the exception

opium served sales merely fluctuated as an with

and the
of the

indicator

significant

'Opium

yearly

peasant and plantation

over the years.'11 By contrast, British Trocki

agricultural cycles and with general rises and falls in economic prosperity
public asserts servants that overseeing opium the empire's was trade seemed to share Straits this view. Settlements, addiction widespread in the

affected craftsmen and common workers in addition to immigrants, and had a significant, if not predominant, impact on all locally produced commodities.12 Wilfred Hinton observed that average
spending on opium seemed extremely high in relation to daily wages. He saw a positive correlation

between the physical labour intensity of a job and the degree of opium consumption. He attributes
the arduous labour of coal handlers on the docks 'carrying coal in baskets up a gangway ...

dumping
round'Hinton

it into the gaping bunkers, and back again to the beginning

as a major reason why 'six out of ten' such labourers who, became for example, also mentions the common rickshaw operator,

of the apparently endless

regular opium $1.00 consumers. to $1.50 a 'will earn

day in good times, and will very likely spend fifty to sixty cents of it a day on opium, for the chances
and sale of retail opium to certain rights for the preparation, distribution opium farm' consisted of monopoly areas within colonies. Control of the farm usually meant significant control over other avenues of trade as well. Successful bidders for the opium farm' were usually the more politically connected, wealthy and powerful members of society. In Java and Singapore, Chinese businessmen generally controlled the farm; European bidders were rare and tended to front for 8 The concession on the operation of the groups. See Rush, Opium to Java, and Trocki, Opium and Empire, respectively for studies opium farm' systems in these two colonies. 9 Trocki, Opium and Empire, p. 52. their work 10 reports tell of labourers taking a break for a pipe of opium and then resuming '[Contemporary but they also had to cut wood "refreshed." Gambier planters not only had to clear jungle and brush for their plantations, rival Chinese not in any sense a cure, exertions...While coolies faced even more demanding for the fires to boil the gambier. Mining aches and pains, lowered opium was a palliative that at least relieved the symptoms of these afflictions. It dulled muscular fevers, stopped inflammations, stopped up bowels, and allowed the mind to forget, for a time, the grinding loneliness and of their lives. In these circumstances, opium may well have been considered a necessity' (ibid., p. 67). desperation 11 12 Rush, Opium to Java, p. 64. Trocki, Opium and Empire, pp. 67-9.

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OPIUM

AND

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177

are about four in ten that he will

industriousness of workers would have

smoke'.13 The
been much

implication

is that, if not for opium,

the

lower.

Furthermore,
opium played

the economic development

contracts between

of the region might have slowed if not for the role

capitalists and planters. Trocki claims that

in financial

merchant

lending terms in the colonial period

consumption necessities of opium.14 were usually In Malaya, provided by

frequently
an on-site

included a share of the profits

often worked in remote company store. Employees

from worker
and basic

planters

and workers

areas,

purchased

general

supplies, including liquor and opium, from the company itself. Due to this captive market, mark ups of up to 300 per cent between the market price of raw opium and retail chandu15were not
unknown. opium The income degree as of consumption security was evidently their so reliable investment. that investors considered the a share commodity in dependable against If, for example,

market for pepper declined, thewell-being

Relation There administrative of opium are many level, to government references the purchase and to the

of investors would
business in colonial of an opium

still be assured.
Southeast revenues if not Asia to colonial dominant, coffers. form At the

importance was

tax on opium

important,

of revenue

for colonial governments.

Settlements Straits government on government revenues.

Chiang, Hinton
opium-related For the period

and Trocki all note

income; under some study, years itwas

the dependence
it constituted over opium

of the Straits
60 per cent of did not total

a rare year when

at least 40 per cent of Straits revenue. Martin Murray discusses themassive income generated by the in Indochina, where the drug was priced to appeal French colonial government's opium monopoly
to everyone from the 'rickshaw man and errand boy' to more wealthy consumers.16 Even before the

imposition of government monopoly

revenue. Furthermore, opium revenues

in 1883, opium had become

in Indochina doubled

the largest source of colonial

between 1894 and 1907, and

continued
portion

to grow until as late as the 1930s. Rush writes of how the drug 'underwrote a significant
colonial enterprise'. Quoting a paper by F.W. Diehl, he goes on to share a

of Holland's

stunning revelation: between 1876 and 1915, 'when the colonial accounts ran into deficits totaling /295.3 million, the opium revenues amounted to/703.3 million, in the absence of which, the total deficit would have been/998.6 million. Thus opium reduced the potential deficit by 70 per cent.'17In
Asia opium of For important 'farms', study seems to have been a powerful economic and social force that shaped the growth and control the European the economy colonial as a whole, businesses, empires. however, which the picture were almost is not always businesses to the more as clear. While the operators remains locally-based opium of opium undetermined. Chinese was and certainly related

for Chinese its effect on the

European latter's

or more role as

export-oriented

Chiang's companies,

describes

'complementary'

13 Wilfred British Malaya, J. Hinton, Government of Pacific Dependencies: (Honolulu, HI: Institute of Pacific Relations, of a British pound or about half of a US 1929), p. 17. One Straits Settlements dollar was typically worth about one-ninth dollar during the period we study. 14 Trocki, Opium and Empire, pp. 67-8. 15 Rush describes chandu as purified raw opium mixed with taste enhancers and adulterants. The product came in a on the locale. In the Straits Settlements, for instance, chandu was sold by the tahil (about 1.3 variety of sizes, depending or 100 ounces), chi (one-tenth of a tahil), or hoon (one-tenth of a chi). In Indochina, opium was sold in tins of 5,10,25,50 grams {Opium to Java). 16 17 Murray, Development of Capitalism, pp. 121-2. is from F.W.Diehl,'The Rush, Opium toJava,p. 124; the quotation of Government History Revenue and Chinese Colonial Tax Farmers' Economic in the Dutch Period, Australian Farms in Java, 1813-1914: TheQuest Opium-tax on Profits' (paper presented at the Conference National University [ 1983] ), pp. 8-9; '/ refers to

for Maximisation Indonesian Dutch

guilders.

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178

WARREN

BAILEY

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TRUONG

and

concludes The

that

there

was

general

lack

of notes

competition the lack of

between success

European encountered

and

Chinese

businesses.18

scholarly

literature

in general

by Europeans

in their bids for entry into the world of commodity production and opium farming. The end result was that certain sectors, notably gambier and pepper planting, were ceded to Chinese firms, while
Westerners other controlled assume other sectors that opium's like shipping influence and can plantation be finance.19 to Nevertheless, the whole these economy, and to historians generalised

European and Chinese firms alike, and to firms in various import and export industries. However, ethnic specialisation could imply that opium was not so influential. Rather, itmay well be that its effect was strong in certain local sectors, but insignificant in others. Therefore, the interests of
certain sectors business did not. sectors may have overlapped with those of the government, while those of other

Our data begin after the separation of the Straits Settlements from control by the India Office in 1867. The state in the Straits Settlements began to govern as a separate colonial body, with its own
interests in preserving colonial revenue and carrying out governmental functions. Thus, Singapore

may

have originated
colonial

from the needs of agency houses

government did not necessarily remain

and traders, but

coincident.

the interests of

its

independent

Principal export commodities In this section, we briefly describe several of the export commodities that are an important our tests.We stress which commodities were most important and profitable during the of part we period study, were especially labour-intensive, and were dominated by Chinese labour or
management. period nineteenth of Tin was the most China important was once commodity a major in East-West consumer and Western trade during Asian most tin, by of our study.20 Although century demand of Southeast Europe the early By

from North

America

dominated

tin markets.21

1883, the tin output of theMalay Peninsula

of world initially that

led the world, and by 1885-96 it represented five-sixths

industry. demands of Because were many low, deposits a situation the

a labour-intensive At first, tin was mostly production.22 a at in shallow the depth lay relatively ground, technological the labour-intensive, low-tech mining techniques

complemented

the Chinese.

However,

industry shifted from Chinese dominance

more deeper labour capital-intensive for force Rubber ore. Yet European even after largely relevant the dredging ascendance

to European control early in the twentieth century, and

methods predominated as tin miners were forced notes to that dig the of European tin producers, Jackson

remained became

Chinese.23 to Southeast Asian trade at the turn of the century. Driven by the rise

of the automobile
and

industry and especially its boom in the United States, world demand for rubber increased exponentially and it quickly came to dominate the plantations of Southeast Asia.
Chinese planters alike abandoned other crops for the newly lucrative rubber tree. 18 19 See Chiang, A History. is a central theme,

European

in James C. Jackson, Planters and Speculators: Chinese and European for example, in 1786-1921 (Kuala Lumpur: University of Malaya Press, 1968). Rush, Opium to Java, pp. Enterprise Malaya, Agricultural instances of partnership between Chinese and Europeans. A few such partnerships 127-9, mentions sprang up after 1870 This In addition, some Chinese plantations hired European managers. land leasing and development. concerning commercial These examples appear to centre on personal relationships between individual European and Chinese families. 20 Lin Ken, The Malayan Tin Industry to 1914 (Tucson: University See Wong of Arizona Press, 1965); Chiang, A History, Jackson, Planters and Speculators; and Trocki, Opium and Empire. 21 Mary F. Somers Heidhues, Bangka Tin and Mentok Institute of Southeast Asian Studies, 1992), p. 36. 22 Chiang, A History, p. 24. 23 Jackson, Planters and Speculators, pp. 33,60. Pepper: Chinese Settlement on an Indonesian Island (Singapore:

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OPIUM

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179

Economic

motives

to cultivate

rubber

were

further

strengthened

by positive

regulatory

actions

in

the region: in 1897, for instance, the FMS introduced special land rents for rubber, asking only ten
cents per acre for the first ten years of cultivation and only fifty cents per acre afterwards.24 By 1908,

Malaya had become cthe premier planting territory [for rubber] in Southeast Asia'.25 Rubber gradually superseded tin as the dominant trade commodity. One distinctive feature of the rubber industry was its labour force, largely immigrant Indian labourers; the expansion of the industry meant a like increase in Indian immigration to the region. In Government of Pacific Dependencies, Hinton
Indian

notes that in 1901 the Indian population in the Federated Malay States was only about 58,000. By 1927, that number had increased to 400,000.26 Unlike immigrant Chinese labourers,
workers were not known for opium consumption.

increased then declined in importance during the period under study. The 1880s and 1890s were a period of rapidly escalating demand for gambier from Britain and North America, the main destinations for this product.27 Chinese planters largely controlled the gambier industry. Gambier Europeans did not succeed in gambier because they could not compete against the Chinese, who not only paid lower wages but also made significant side profits from the sale of opium and food to
their employees.28 However, gambier was not usually a profitable plant; its price was seldom high

enough to justify its cultivation alone. Rather, gambier was often planted
pepper.29 Gambier cultivation was a labour-intensive endeavour,

in close association with

almost continuous

requiring

collection of the gambier foliage, clearing of jungle and bush, and plenty of available cut wood for the fires inwhich to boil the final product.30 This proved to be greatly complementary to the highly
seasonal nature of pepper production. Gambier was a way to ensure constant employment

throughout the year for the labour force.31 Chinese gambier workers, like those in other highly labour-intensive
use opium on a regular basis. Jackson for writes revenue that from in some opium years gambier incurred substantial losses if not consumption.

industries, were prone to

production He notes would that have

gambier

exports declined by over 40 per cent between 1890 and 1910.32Furthermore, Trocki suggests that the link between gambier and the opium trade weakened after 1870.33By the end of the FirstWorld War, the gambier industry had ceased to be a significant part of Southeast Asian commodity trade.
Pepper was a staple item of the East-West trade. As noted above, it was often associated with

gambier by Chinese planters, and the fate of the pepper industry largelymirrored that of gambier. By 1890, pepper had already become a fairly unimportant portion of Straits trade, and between 1912 and 1917, exports of both commodities fell by 60 per cent.34Like gambier, most of the planting land dedicated to pepper was switched over to rubber at the beginning of the twentieth century. Our main interest in pepper lies in its largely Chinese labour force, and the possible price effect of opium through them.
Ibid., p. 36. Voon Phin Keong, Western Rubber Planting Enterprise Universiti Malaya, 1976), p. 73. 26 Hinton, Government of Pacific Dependencies, p. 29. 27 Jackson, Planters and Speculators, pp. 24-5. 25 28 29 24 in Southeast Asia 1876-1921 (Kuala Lumpur: Penerbit

Chiang, A History, p. 117; see also Trocki, Opium and Empire. See James C. Jackson, 'Chinese Agricultural in Singapore Pioneering Branch Royal Asiatic Society, 38,1 (1965): 77-105; and Trocki, Opium Malaysian 30 Ibid., p. 114. 31 32 33 34 Jackson, 'Chinese Agricultural Ibid., p. 97. Pioneering', p. 79.

and Johore 1800-1917', and Empire, pp. 68-9.

Journal

of the

Trocki, Opium and Empire, pp. 152,190. Jackson, 'Chinese Agricultural Pioneering',

p. 97; and Chiang, A History,

p. 117.

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l80

WARREN

BAILEY

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TRUONG

Copra,

the dried

kernel

of coconuts,

came

into

prominence

as an export

article

around

1870.

The popularity
providing steady

of coconut
if unspectacular

oil and nut oils in margarine

returns.35 In addition, around

ensured
the turn

the future of this industry,

of the century, government

policy in both the Straits Settlements and the Federated Malay States required the inter-planting of 'permanent' crops, specifically coconut and rubber, for all land grants for gambier and pepper cultivation.36 Itwas felt that the introduction of such crops would help sustain the fertility of the
land, pepper, Chinese rubber workforce of Indian and perhaps and who shift producer towards interest from the more investments. and pepper destructive, This short-term policy was cultivation targeted mainly of at as gambier planters, and copra was tapioca were more longer-term gambier and product

the principal lucrative As time

producers. expanded. changed

It proved For our

fortuitous,

became

markets this probably

period, great

the copra numbers

mostly on

Chinese.

progressed, plantations.

to include

labourers

European-owned

Tapioca37 was the last of the great plantation crops inMalaya prior to the rubber boom of the early twentieth century; its heyday was in the second half of the nineteenth century. Chinese planters dominated this industry. Tapioca cultivation proved quite destructive, land faster than other crops like pepper or gambier.38Official opinion began to the much exhausting turn against the cultivation of tapioca in the 1890s. Officials first tried to regulate it in order to allow
land regeneration. Eventually, tapioca land grants also required the simultaneous

and workers

maximum

cultivation of permanent crops, like rubber or coconuts. The decline of the tapioca industry was quickened in the early 1900s by a drastic fall in prices. Testable
Given prominent

hypotheses
understanding we state two of the opium trade and about the the viewpoints importance expressed of the opium by several trade to alternative

our writers,

hypotheses

the colonial
between commodity

economies.
price and

Each hypothesis
and a

leads to distinct
variety of indicators of Chinese

predictions
of stock workers

about the associations

market out performance, of the region.

opium prices

movements production,

and movements

in and

Our first hypothesis

central role of opium

is inspired by Carl Trocki's Opium

Asian economies as follows:

and Empire.59 It characterises

the

in the colonial

HI:

Changes

businesses, prosperity

in the price of opium the amount of revenue in the colonies.

had a direct collected

impact by colonial

on the profitability of colonial Asian and the general level of governments

If demand for opium was inelastic,40 increased opium prices would

35 36 R.L. German, Handbook

imply a higher total opium

toBritish Malaya 1927(London: Malay States Information Agency, 1927), p. 92. Jackson, Planters and Speculators, pp. 35-6. of foodstuffs and various industrial uses; see 37 Tapioca pearl and flake were required for flour in the preparation inHistory 10,2 (1967): 13 The Plantation Crop Which Preceded Rubber inMalaya', Malaysia James C. Jackson,'Tapioca: 24. 38 that tapioca lands were generally abandoned within five years, with a general concession usually Jackson mentions within 25 years. By contrast, gambier and pepper lands usually could be cultivated regularly for 15 to 25 years 11,54-5). {Planters and Speculators,])]).

exhausted

39 Note, however, that Trocki describes the size, volatility, and impact of the opium trade as being largest during the Opium and Empire, p. 57). period prior to the start of our data set in 1873 ( see van Ours, 'The Price Elasticity', for some supportive statistical evidence. On the 40 This is a strong assumption; other hand, there is also conflicting historical and anecdotal evidence suggesting that the quantity of opium consumed was quite sensitive to the price of the drug.

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OPIUM

AND

EMPIRE

l8l

revenue Prices colonial

which for

would

have

benefited companies

shippers, would

merchants be positively

and

financiers with

associated opium

with prices,

the

trade.

shares

in these

correlated

as would

government

revenues.

HI also implies that higher opium prices could have an adverse impact on production costs in labour-intensive industries. A higher cost of living (the price of opium) increases thewage demands of mining and agricultural workers (or decreases the supply of immigrant workers from China),
and raises the cost and of producing corporate commodities. profits. Higher Therefore, production prices for costs shares of raise price, lower that quantity produce produced decrease companies

and process commodities should be negatively correlated with opium prices, as should the output of those commodities. Prices of commodities should be positively correlated with opium prices. of immigrant workers into export commodity businesses would be negatively Movements correlated with opium prices. Under HI, opium should have no impact on rubber-related
indicators, since the rubber workforce consisted mainly of immigrant Indians.41 To the extent that

wage demands and other costs adjust only gradually to the increased cost of opium, opium prices
may lead prices for export commodities.

Our alternative hypothesis is inspired by James Rush's Opium toJava. It suggests that the health of the opium trade was derived from, or indicative of, more fundamental economic conditions:
H2: Changes fundamental in the price of opium factors. were caused by shifts in demand driven by more

economic

When commodity exports and other aspects of the colonial economy were booming, wages were high and the demand of immigrant labourers and others for opium increased. The price of opium was positively correlated with good economic times in colonial Asia's principal industries, just as the demand for discretionary or luxury products rises with prosperity in any economy. Share prices of all enterprises rise during an economic upswing and are thus positively correlated with the
price of opium. Prices of export commodities are the source of much of any such upswing.

Therefore, prices and outputs of tin, pepper, and other commodities

opium prices, as are government revenue and movements of immigrant

are positively correlated with

workers into the region. To

the extent that demand for opium lags behind the economic cycle, the price of opium may lag behind share prices for export commodities. The rubber industry would have contributed to the general prosperity driving demand for opium and, in contrast to what is predicted by HI, all indicators from the rubber industry should be positively correlated with the price of opium.
Table 1 summarises the hypothesised effects on various aspects of the colonial economy.

Data and methodology 1872 to June 1911. Prior to 1872, stock and Our sample spans the period from December in The Straits Times and other newspapers only sporadically. After June prices commodity appeared 1911, regional governments regulated the supply of opium and did not allow its price to fluctuate
freely.

41 Rubber data proved difficult to gather, as rubber company share prices dozen years of our sample period. Price data for the commodity was impossible occurred only irregularly in Singapore and Penang during our sample period.

are only observable during the last half to collect consistently as rubber auctions

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l82

WARREN

BAILEY

AND

LAN

TRUONG

Table

1 Predicted

associations

between

opium

prices

and

indicators

of colonial

economic

activity

Correlation with opium price given inelastic opium demand and: H1 : Opium is a central causal
factor

H2: Opium
economic

reflects basic
conditions

Share prices of banks, shippers, and others directly involved in opium trade
Share prices of of

Positive: they benefit from higher opium prices,

Positive: profits risewith good

economic times.

Negative: higher opium with

increase prices demands. wage

Positive: high profits from

export primary growth. commodities source are the of economic

producers/processors

export commodities
Chinese workforce

Prices of export
commodities workforce with Chinese

Positive: production
up so prices rise,

costs go

Positive: high export commodity demand is the

source of economic growth.

Output of export commodities which use primarily Chinese

workforce

Negative: higher price

reduces quantity sold.

Positive: again, high output is associated with high demand.

Share prices of rubber plantations and output of rubber Colonial

revenue

None: not

Indian known

workers to use

were

Positive: workforce.

same

effect

as export

opium.

industries with Chinese

government

Positive

Positive

Chinese

immigration

Negative: higher wage

demands labour. reduce demand for

Positive: high demand for

exports raises labour demand.

Opium

leads or lags

Opium
demands gradually opium

leads ifwage
increase only to in response increase. price

Opium
consumer

lags if increased
demand for opium

only gradually responds to

economic prosperity.

Note: This table briefly outlines under our hypotheses.

the predicted

associations

between

opium prices

and other economic

indicators

Some

of the predictions may allow

differ markedly us to distinguish

under H1 versus between

H2. When

combined

with

our empirical

results,

these

differences

the two hypotheses.

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OPIUM

AND

EMPIRE

183

Opium

prices

We collected end-of-month raw opium balls each weighing

represent particularly the most important regularly for several

prices in Straits dollars per export'42 opium chest (containing 40 about 1.5 kilograms) from The Straits Times. Our price quotes
reported reasons. Benares opium. The as a data Its regularity Singapore source export and opium price nature is its free-market

make it possibly the best available indicator of opium demand, relatively free of local idiosyncrasies, for the Asian region.43 'The forces that generally determined the opium price were outside of
Southeast became Asia', Trocki writes; of global 'as the centre of the trade in Southeast export Asia, opium however, prices from Singapore Singapore the transmitter economic forces.'44 Therefore,

are a relatively undistorted measure of global demand and supply. They had substantial impact on more controlled markets. Rush and Van Ours, for instance, credit the free trade in Singapore for
driving down governmentally negotiated opium farm' prices in Java.45 By some estimates, the

amount of smuggled opium

smuggled free-market opium opium accounted price

substantially overwhelmed
for up to 60 per cent of the Singapore is applicable

that of legal opium. One source thought

available even to opium colonies in Java.46 Therefore, where the price the was

from

nominally much higher. Historically,

government from Chinese farm prices. Finally, opium sources.

gyrations
price

in the free-market price directly affected nominal

are neither reliably nor systematically available

data

Export commodity prices The Straits Times is also the source of matching end-of-month commodity prices. We selected commodities that were produced (and often processed) locally for export: tin, gambier, tapioca,
sago, black pepper, copra and Liberian coffee.

Share prices for publicly listed companies Chinese firms were particularly vulnerable
much of Southeast Asian commerce, but it was

to opium price fluctuations. These firms facilitated

rare for a Chinese firm to list on a stock exchange

during the colonial era.While

thus not possible, directly our or sample companies indirectly

direct comparative analysis between European and Chinese firms is

includes related a broad facets cross-section of the opium of European-owned colonial to several trade.

End-of-month
newspapers. British

stock prices were

Malaya stock prices were

collected
obtained

from
from

principal
the Straits

colonial
Times,

or metropolitan
was known as

which

Singapore Daily Times prior to 1882. Prices for Hong Kong stocks were obtained from the China Mail and China Overland Mail (prior to 1881), the Hong Kong Telegraph (1881 to 1904) and the South China Morning Post (after 1904). Data for the Netherlands Indies are from Nieuwe Amsterdamsche Courant (through November 1884) and Die IndischeMercuur thereafter. Shanghai
42 Sales of opium within Singapore were controlled by the licensed opium 'farmer' or, later, by the colonial itself. government 43 As Trocki notes

itself had little impact on the larger {Opium and Empire, p. 57), the local Singapore retail market trade in opium. He estimates that only 20 per cent of Indian production was landed at Singapore, and much of this was to other points like Java or further east to Hong Kong. transshipped 44 Ibid., pp. 56-7. 45 The Dutch traders.

colonial government bought opium either directly from the Calcutta auctions or indirectly through in Batavia, Semarang, and Surabaya (Rush, Java's opium farmers would then buy their rations from warehouses these farmers were forced to buy and sell at inflated prices, which reflected both official Opium to Java, p. 65). However, Dutch policy to limit opium consumption and Dutch reliance on opium revenues. A price advantage, therefore, could accrue to successful 46 Rush smugglers. (in Ibid., p. 66) attributes this calculation to Christian Casten, a Batavia official responsible for opium affairs.

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l84

WARREN

BAILEY

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LAN

TRUONG

figures were found in theNorth China Herald and North China Daily News. Stock prices are either
closing transactions or bid-offer midpoints from organised or over-the-counter markets. The firms

selected are quoted regularly, have relatively large capitalisation, and represent leading industries. While only a handful of companies are collected from each market, they are typically the largest firms that represented much of the total market capitalisation and, inmany cases, explicitly owned partial stakes inmany other listed firms. Information on dividends, ex-dividend dates and shares
outstanding was published only irregularly and, therefore, was not collected.47 Table 2 summarises

the stock price data. It also indicates how the individual company stock prices have been classified
into industries.

Other data
End-of-month were also exchange rates for each country or territory case of and silver, the price from of The silver Times pound in London48 of London. - are closing from the same newspapers collected or, in the rates to translate all prices into a common used

Exchange

currency,

the British

or midpoint

quotes supplied to the newspapers by leading banks. As ameasure of global trends in asset values and general economic conditions, we also collected monthly returns on British and US stock indexes. For Britain, we use a spliced series of The London and Cambridge Economic Service

The British Economy Key Statistics (through 1921) and Banker's Monthly (from 1922) indexes.49 For the US, we combine the series constructed by G. William Schwert50 through 1925 with the value weighted index computed by the Centre for Research in Securities Prices (CRSP) at the University of Chicago. We
British for'other and US factors'

translate the US index returns to pounds and construct an equally weighted

index returns to serve as our global stock index we are return trying series, attempting ups in our statistical analysis. If, for example, to explain

index of
to control in

and downs

the price of a tinmining

to control Finally, publications Settlements Straits for general' obtained other other we and and

stock with opium prices, the global index returns can be included in the test
factors and thereby data on These states, focus more several precisely series annual on the specific impact in colonial revenues and drawn of opium. government of the Straits for the annual summaries. Malayan the output non-price the published government immigrants data were documents.

include

the numbers

of Chinese These

emigrants from

Settlements, Annual

and

of export Reports

commodities. and other

the Straits

Settlements

Departmental

government

Methodology Our testable hypotheses

collected assess the data on. We assume a significance

imply significant
simple linear between

relationships
and, two variables,

between
therefore, Xt and Yt, use

the variables we have

regression analysis to

relationship

of the relationship

ln{Yt/Ym} The function

47

=a +? ln{X/ Xm} + Et. values of Y and X respectively. This

ln{*} takes the log of consecutive monthly

dividends 48

of price changes, the absence of and other higher moments correlations Since our study focuses on estimating is not likely to induce significant bias in our results. This would not be the case ifwe were studying long-term cumulative stock returns, the fit of asset pricing models, or other issues related to total equity return performance.

on the silver standard during our period of study and the exchange values of their Hong Kong and China were currencies were determined by the price of silver in London. 49 The British Economy: Key Statistics 1900-64 (London: Times Publishing Co., 1965); references supplied by Professor Tim Opler, Ohio State University. 50 G.William Schwert,'Indexes of U.S. Stock Prices from 1802to 1987', Journal of Business, 63,3 (1990): 399-426.

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OPIUM ASIAN Table

AND STOCK

EMPIRE: AND

SOME

EVIDENCE

FROM

COLONIAL-ERA

I85

COMMODITY

MARKETS

2 Overview

of the sample British Malaya

of equities Netherlands Nederlandsche Handel, N.I. Handelsbank, Koloniale Bank Indies Hong Kong Shanghai

Industry Agricultural Groups

Banking and Insurance Commercial Industrial and

Straits Insurance (1884-1902) Singapore Dispensary

Javasche Bank, N.I. Escompto(1895on)

Hong Kong and Shanghai Bank EWO Cotton on) Dairy Farm (1899 on) (1895

(1893 on)
Cold Storage (1904 on), Fraser and Neave ( 1898 on) Tongkah Harbour Tin Dredging (1909 on), Malay Peninsula Prospecting (1887-1898),JelebuMining (1889-1904),Pahang(1889 on),Tronoh (1901-1933), Eastern Smelting (1908 on), Straits Trading (1894 on)

Food (Processing and Retailing) Mining and Smelters

Ports (Ship Building, Engineering, Docks, Wharves, and Warehouses)

Tanjong Pagar Dock (ends 1907), New Harbour Dock (1876-1899), HowarthErskine(1901 on), Riley Hargreeves (1899 on), Maynard ( 1884 on) Tanjong Pagar Land (1884-1893) Bukit Rajah (1905 on), Pataling(1905on), Selangor (1905 and on),Highlands Lowlands (1906 on) Straits Steamship (1891 on), Singapore Steamship (ends 1886) Koninklijke Paketvart (1889 on), JavaChina Japan Line (1902 on), N. I. Spoorweg, Deli Spoorweg(1888on)

Hong Kong and Whampoa Dock, H. K. and Kowloon Wharf and Godown (1887

Shanghai Dock

Real Estate

Hong Kong Land (1894 on)

Shanghai Land on)

Rubber Plantations

Transport (Ship Lines and Railways)

Utilities

China Light and Power Shanghai Gas, (1901 on), Hong Kong Shanghai Telephone Electric (1894on), (1900 on), Shanghai Hong Kong and China Water ( 1881 on) Gas (1899 on)

Note: End-of-month quoted company were

stock prices were relatively

collected

from colonial

or metropolitan leading

newspapers.

The firms selected noted, each

are

regularly, have has monthly

large capitalisation,

and represent

industries. Except where before exports of opium

data from January 1873

to June 1911,

the last month

from British due

India to

regulated

by international agreement. corporate reorganisation,

The table does infrequent

not indicate the frequency newspapers.

of missing

observations

market closures,

trading or missing

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l86

WARREN

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TRUONG

expresses The error

changes terms,

in those 8t, define

variables the

as a

growth of the

rate slope

that

typically

has ?,

good and

statistical therefore

properties. indicate the

precision

coefficient,

statistical significance of the estimated relationship. The estimated sign and significance of the slope
coefficient, estimated 0.8 also For suggests yields example, ?, tells us whether the cent or not scale change of there is a linear relationship between with the between two variables. cent change power time can the two For variables. example, The a ? of ? also indicates the association is associated of that

that a 1 per an 'r-squared' an

in X

a 0.8 per of

in Y. The of the

regression regression. 50 per cent

statistic, of 0.5

a measure indicates

the degree the behaviour

explanatory of X over

'r-squared'

explain

of the behaviour of Y.
Note that both Y and X are measured as changes over the same time period, from 't-1' to 't'.

Therefore, no causality is implied by which variable goes on the 'right' side versus the 'left' side of the
regression.51 The estimated equations can help us distinguish between the causality stories of HI

and H2 only when

For one test, we

interpreted with the predictions

also estimate the 'rank correlation'

in Table 1.
between two variables. The rank correlation

measures
value This

the extent to which

lowest value measure cases (such

the highest value of X tends to occur at the same time as the highest
tends to occur or not data at the same time as the lowest value to each of Y, and other. so on. of whether as our two variables on commodity appear related It can be and

of Y, the

of X

is an alternative for some

effective

annual

output,

government

revenues

immigration) where
nature of the statistical

the quantity and quality of data is poor, or we are not confident about the
distribution of the errors, 8t, which relate the two variables.

Results
Prior to discussing our results, we present an overview of the driving factor behind this study,

themonthly price of opium at Singapore. Figure 1 plots the end-of-month price of Benares opium in Straits dollars per chest. During most of the period of our study, the price fluctuated between $400 and $1,200 per chest. There is an upward trend in prices and, as restriction of Indian opium
exports loomed, the price in Singapore shot up.

2200 2000 1800 i 1600 1400 1200 1000 i 800 600 400
-1?i?r?j?i?i?i?i?i?i?r?i?i?i?i?i?i?(?i?i?i?i?t?i?i?i?i?f?i?i?i?i?i?!?i?i?i?r?i?i?i?i

ywnAj^v
1870 1874

1878

1882

1886

1890

1894

1898

1902

1906

1910

Figure 1. End-of-month 51 value, We will

price of Benares opium in Singapore, Straits dollars per chest

conduct one test inwhich a 'previous' value, ln{Xt-2/Xt-i}, appears on the right side and a 'contemporaneous' ln{Yt 2/Yt-1},appears on the left side. This specification does imply causality from X to Y across time.

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OPIUM

AND

EMPIRE

I87

Opium

prices

and

stock

returns

Table 3 (p. 188) presents regressions of stock portfolio price changes on opium price changes
and the return on our global stock index. There is one regression estimate for each of the industry

portfolios
returns Shanghai.

described by Table 2, plus one regression for an equally weighted

each of the four economies, British Malaya, Hong Kong,

average of all stock

Indies and

from

Netherlands

The table indicates only a few portfolios that exhibit a significant association with changes in the price of opium. British Malaya Banking and Insurance portfolio increases 0.65 per cent for every one per cent increase in the price of opium. As Table 2 indicates, this portfolio consists entirely of a
single firm, Straits Insurance. During this period, local insurance companies were primarily

shipping insurance. Therefore, the result suggests that the demand for shipping insurance and, implicitly, the amount of shipping activity, were positively correlated with movements in the price of opium. This is consistent with either HI or H2. The R2 coefficient indicates that the combined
of the movements

concerned with

impact of opium and the global stock index explains about five per cent
value. British Malaya Ports also shows a statistically significant

in the portfolio's

positive association with opium, although it is smaller and explains less than one per cent of the overall movements in stock returns for the portfolio. Again, this is evidence of higher profits from the shipping business at times of high opium prices and is consistent with either HI or H2. The food portfolios for British Malaya and Hong Kong show positive associations with opium price changes, although they are only marginally statistically significant. These portfolios consist of retailers such as Cold Storage and Dairy Farm. Therefore, these results are consistent with either HI or H2: high opium prices boost the spending power of colonial elites who benefit from the trade (HI) or are associated with generally good economic times during which retail sales are high and profitable (H2). The index of all British Malayan stock returns (towards the bottom of Table 3)
exhibits per cent a very increase strongly significant price positive regression with relationship a 0.17 per cent with opium price inMalayan changes. stock A one prices in the opium is associated increase

in those stock prices. This generally, and opium explains about two per cent of all movements confirms that opium had a small but significant impact on the Malayan economy as measured through its stock market. The lack of reaction on the part of labour-intensive British Malayan Mining rejects both HI and H2: there is no evidence that opium was a 'cost of production' in these industries (HI) or that prosperity in these industries spurred demand for opium (H2). In the case of British Malayan Rubber, the lack of reaction is consistent with HI and rejects H2. To the extent thatMalaya as awhole
may be thought of as an export commodity economy, the positive association between the index of

allMalayan
supportive

stocks and the price of opium reported in the previous paragraph could be considered
of H2. There are no reactions for stocks from the other colonies and territories.

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l88

WARREN

BAILEY

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TRUONG

Table

3 Regressions Series

of Region

industry portfolio

price

changes Constant

on opium

price

changes Slope coefficient on global stock index return 0.33911 (4.95) * 0.51612 (1.37) -0.05675 (-1.19) 0.07364 (0.78) 0.40723 (1.66) -0.35184 (-1.05) -0.18729 (-1.18) > 0.15220 (0.37) -0.12853 (-0.32) * -0.07131 (-0.90) -0.06201 (-0.60) -0.12472 (-1.07) 0.35543 (0.54) -0.03323 (-0.23) -0.02708 (-0.13) -0.18613 (-0.53) -0.15256 (-1.34) 0.06685 (1.31) -0.01708 (-0.06) -0.15289 (-1.67) -0.02849 (-0.33) 0.00601 (0.07) 0.16094 (3.72) -0.12144 (-1.52) Adjusted R2

Portfolio

Number of observations

Slope coefficient on opium price change

Agricultural Groups Banking and Insurance

Netherlands Indies British Malaya Netherlands Indies Hong Kong

449

0.00149 (0.80) -0.01948 (-1.98) 0.00043 (0.36) 0.00114 (0.40) -0.00229 (-0.46) 0.00650 (0.74) 0.00923 (1.73) 0.01398 (1.90) 0.00715 (0.52)

0.02946 (0.83) 0.65620 (2.15) 0.00530 (0.23) -0.00149 (-0.03) 0.07831 (0.97) 0.00216 (0.02) 0.13839* (1.78) 0.14775 (1.78) 0.24326 (1.54) 0.08342 (2.07) 0.03298 (0.56) 0.00306 (0.05) 0.37499 (0.93) 0.05418 (1.30) -0.03097 (-0.56) 0.0664 (0.32) 0.05400 (0.94) 0.02612 (1.19) 0.06543 (0.84) -0.02816 (-0.70) 0.17302* (3.61) 0.03870 (0.93) 0.02457 (1.21) -0.02029 (-0.58)

0.035

225

0.051

391

-0.002

450

-0.004

Commercial Industrial

British Malaya

212

0.010

Shanghai Food British Malaya

190

-0.005

160

0.007

Hong

Kong

145

0.001

Mining Ports

British Malaya British Malaya 450

-0.003

0.00040 (0.19) -0.00042 (-0.14) -0.00128 (-0.45) -0.00270 (-0.14) -0.00398 (-1.19) 0.00456 (0.99) 0.02416 (1.90) -0.00090 (-0.31) 0.00354 (2.87) -0.00204 (-0.34) 0.00341 (1.57) 0.00055 (0.22) 0.00033 (0.13) 0.00219 (1.79) 0.00327 (1.63)

0.006

Hong

Kong

450

-0.004

Shanghai Real Estate British Malaya

451

-0.002

103

-0.013

Hong

Kong

267

-0.003

Shanghai Rubber Plantations Transport British Malaya British Malaya Netherlands Indies Utilities Hong Kong

269

-0.007

73

-0.024

377

0.001

446

0.003

266

-0.006

Shanghai Equal Weight Index British Malaya ofAll Sample Stocks Hong Kong

443

0.003

450 450
449

0.023

-0.003

Netherlands Indies Shanghai

0.019

451

0.001

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OPIUM

AND

EMPIRE

189

Table 3 Note: Monthly and a constant 1911 but missing

industry portfolio price changes

are regressed

on opium price changes, Time period

global stock

index returns

(see Table 2 for descriptions observations

of the component

securities).

is ordinarily January 1873 to June

for serial correlation and heteroscedasticity. cent) level. -

inparentheses beneath each coefficient estimate are adjusted may reduce this. Tstatistics ** (*) indicates statistical significance for opium at the five per cent (ten per

Table 3

Source:

See Whitney

K. Newey

and Kenneth

D. West,

'ASimple,

Positive

Semi-Definite, 55, 3 (1987): Test for 703-8; and

Heteroskedasticity Halbert White, Heteroscedasticity',

and Autocorrelation

Consistent

Covariance Covariance 817-38.

Matrix', Econometrica Matrix Estimate

'AHeteroscedasticity-Consistent Econometrica 48, 4 (1980):

and A Direct

Table

4 Regressions

of Commodity

Price Changes

on Opium

Price Changes

Commodity

Number of observations

Constant

Slope coefficient on opium price change

Slope coefficient on global stock index return 0.55897 (4.38) 0.19065 (1.82) 0.36143 (2.65) 0.14569 (0.94) 0.22277 (1.54) -0.07134 (-0.38) -.23834 (-1.69)

Adjusted

R2

Tin

451

-0.00180 (-0.72)

0.18126** (3.65) 0.12247** (2.34) 0.13132 (1.83) 0.15599* (1.78) 0.18900** (3.02) 0.20521** (2.03) 0.24645** (4.40)

0.082

Gambier

450

-0.00100 (-0.37)

0.014

Black Pepper

442

-0.00309 (-0.99)

0.024

Tapioca

380

-0.00148 (-0.39)

0.009

Sago

448

-0.00231 (-0.79)

0.020

Liberian Coffee

257

-0.00233 (-0.52)

0.025

Copra

317

.001185 (0.36)

0.060

Note: Monthly constant.

commodity

price changes

are regressed

on opium price changes, but missing

global

stock may

index returns, and a reduce this. See also

Time period

is ordinarily January 1873

to June 1911

observations

notes on Table 3. prices and export

Opium

commodity

prices

Table 4 presents regressions of commodity

return on our global stock index. There is one

price changes on opium price changes and the

estimate for each of the commodities in the

regression

sample. Rubber is excluded as itwas not traded regularly except at the end of our sample period. All of the commodities exhibit some relationship with the price of opium. About eight per cent of the variation in the price of tin can be explained by opium, with a one per cent increase in the price of opium associated with a 0.18 per cent increase in the price of tin. The importance of the general health of the world economy to the tinmarket
stock index return series. Prices for labour-intensive

is evident in the large slope coefficient on our world

gambier and copra also show a very significant

association with opium prices, as indicated by the statistics in the table. Black pepper, tapioca, sago and Liberian coffee also show significant or marginally significant associations with the price of
opium.

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190

WARREN

BAILEY

AND

LAN

TRUONG

Commodity Table

exports,

government

revenues

and migration in annual government revenues, Chinese immigration,

5 presents

regressions

of changes

and commodity
number

exports of the Straits Settlements on changes in the price of opium. Because the
of data is low and the statistical properties of the series are not clear, we also

of observations

present rank correlations that relate both levels and changes of these variables. The data series span different time periods due to the varying availability of these series, but all series extend to the end of
our sample period, June 1911. Government revenues and expenses show no correlation with ups

and downs
Table

in the price of opium. While

of annual worker changes

this could indicate that opium was an extremely

Settlements opium commodity price changes exports, colonial government

steady

5 Regressions

in Straits

revenues Series

and agricultural

immigration

on annual

Regression Number of Constant on Slope coefficient opium price change Adjusted R2

Rank correlation (p-value)

observations

Government opium revenue Government revenues Government expenditures Chinese immigration, total Female Chinese immigration Male Chinese immigration Opium imports total

42

0.0494 (1.756)

-0.1351 (-0.632) 0.0134 (0.199) -0.0863 (-0.791) 0.2483 (1.278)

-0.011

.074 (.642)

42

0.0481 (3.164)

-0.024

.053 (.741)

total

42

0.0446 (2.654)

-0.007

-.039 (.805)

14

-0.0751 (-1.183)

-0.008

.066 (.823)

14

-0.0357 (-0.647)

0.1499 (0.906) 0.2523 (1.275) 0.421** (2.294) -0.114** (-3.822) -0.16 (-1.082) -0.0648 (-1.943) -0.703 ** *

-0.047

-.073 (.805)

14

-0.0778 (-1.239)

-0.010

.035 (.905)

16

-0.0828 (-1.03)

-0.021

.331 (.210)

Tin exports

16

0.0289 (3.257)

0.266

-.375 (.152)

Pepper

exports

16

0.0323 (1.189)

-0.001

-.275 (.302)

Gambier

exports

16

-0.0458 (-4.198)

-0.002

-.361 (.170)

Rubber

exports

0.695 (8.759)

0.404

-.912 (<.001)

(-2.728)

Note:

Log-differences

of these annual economic

indicators are regressed of data available,

on opium price changes but all series extend

and a constant. ;only the

The number of observations starting points differ. See

indicates differing amounts also notes on Table 3.

to June 1911

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OPIUM

AND

EMPIRE

I9I

source

of government

revenue,

itmay

also

reflect

changes

in retail

prices

and

licence

fees

that helped

smooth the opium revenue against fluctuations

numbers points exports show is too (tin, no correlations to support are with the opium small statistical supportive inference. of HI.

in the wholesale price of the drug. The immigration

price, but itmay negative the be the case slope that the number of data Some However, coefficients for commodity rank correlations

pepper)

non-parametric

reported in the right-hand column of the table indicate that the results on tin and gambier are not robust, which isunsurprising given the small number of observations for those series. The apparent negative correlation between rubber exports and opium price changes would reject both HI and H2, but the number of observations of data available for analysis is too tiny to be taken seriously. Like the stock price results, these regressions confirm
opium Malaya. on the export-commodity significant sector that of the Southeast strong results Asian It is especially are observed

the small but significant

colonial for economies, tin and gambier, since

impact of
for are they

particularly

known to be labour intensive and Chinese dominated. However, the commodity results do not allow us to distinguish between HI and H2. It maybe the case that the positive associations between and opium prices commodity prices represent the higher cost of labour implied by higher opium prices (HI). The results are also consistent with a general business cycle effect inwhich commodity prices rise and fall with global demand, and opium prices reflect these trends like other consumer prices in an export-dependent economy (H2). Leads and lags of opium versus other commodity prices. Table 6 (p. 192) presents regression evidence on the extent towhich export commodity prices followed (HI) or led (H2) opium prices. For each commodity in the sample, price changes are regressed on leading, lagging and contemporaneous opium price changes. The slope coefficients on
the contemporaneous opium price change are mostly significant, and mirror the results reported in

Table 4. However, commodity

leads or lags, but

there is very little evidence of any leading or lagging relationship between the prices and the opium price. Three cells indicate significant or marginally significant
they are not strong, consistent in sign, or numerous. Therefore, these tests do not

allow us to distinguish between H1 and H2. Summary and conclusions We have used monthly prices from stock and commodity markets,
annual data, to assess the importance of the opium trade to colonial Asian

along with other relaed

economies during the

period from 1873 to the restriction of Indian opium exports to China in 1911. Opium prices explain
a small Most but export significant commodity fraction prices of the stock price movements with opium in selected prices, However, trade-related those industries. for labour of the are also products correlated like particularly a small only

intensive,

Chinese-dominated

tin and

gambier.

fraction

movements

in the prices of these commodities can be explained by opium. There is no reliable evidence that fluctuations in opium prices affected annual government revenues, immigration or quantities of commodities exported. Except for the evidence on rubber share prices, there is little evidence economies.
economic

to support hypothesis HI that proposes opium as a leading economic factor in these It seems more likely that opium was a significant but small indicator of broader
trends, perhaps consistent with a weak version of H2.

We
opium's

recognise that several limitations constrain our ability to draw strong conclusions
impact on the colonial economies. First, we cannot gauge how large and important

about
the

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192

WARREN

BAILEY

AND

LAN

TRUONG

35' 0)

2. CD "" n o O >t3 o" n o 3 g?

?z c/i r

_t

o^

? p
<* o

? P ?
"h-

P *?

_ in

<

h- o b b

H 'h-?

?2 ?

H o ?Z!

? P

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fe s

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OPIUM

AND

EMPIRE

193

stock

and

commodity to by

markets in the

were state

or how of

responsive

prices business. reflect

were

to economic

developments were small very

and, in size precisely. or

in particular, dominated

changes

the opium they may not

If these markets fundamental

short-term

speculators,

information

Second, it is simplistic to assume that changes in the price of opium are sufficient to characterise the
state of the opium revenues. trade as a whole complete or the array drug's of particular impact including on business prices, costs and government A more information retail quantities

imported and sold, and estimated prices and quantities sold in the black market might give us more definitive results. In particular, we do not know the quantity of opium purchased by 'farmers' and
government from ashes monopolies, or pipe the number scrapings. Third, of smokers or the importance on consumer of 'recycled' prices, opium wages, obtained and other more information

everyday economic
Fourth, that may we have have

indicators could be used to study another facet of the impact of the opium trade.
no influence information on the on monetary trade conditions or on the and colonial currency economies regime changes generally.52

included had an

opium

the lack of data from prior to the year 1873 excludes the period when opium price fluctuations, links between commodity production and opium and direct European participation in the opium trade were thought to be strongest. Finally, the lack of data on the rubber trade prevents us studying the rubber industry more extensively to distinguish between HI and H2. Furthermore,
In spite evidence on of the these potential of shortcomings, the opium trade we believe our results Asian are interesting We and also offer hope new our importance to the colonial economies.

work encourages others to address historical and political questions with financial market data.

52

See Warren

Fluctuations references

'How Important Bailey and Kirida Bhaopichitr, in Colonial-Era and Stock Returns Asia (unpublished

was

Silver? Some University

Evidence working

on Exchange paper, 2000)

Rate and

Cornell

therein.

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