Drain Gain: An Investigation Into How Colonial Drain Counteracted The Fall In The Rate Of Profit
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Published
Apr 22, 2025
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Abstract
India’s colonial history has received substantial scholarly attention, yet the focus has often remained on the drain of surplus as a cause of India’s underdevelopment. This study shifts the lens to examine how the transfer of surplus from India to Britain played a crucial role in Britain’s economic development. By highlighting this aspect of global surplus extraction, I demonstrate empirically how this transfer was pivotal to the success of the British economy. While the drain of wealth from India is a well-documented phenomenon, this article not only clarifies its complexities but also connects it to Marxian Political Economy. To the best of my knowledge, this is the first study that investigates both how capital was accumulated through colonial exploitation and how this accumulation enhanced the profitability of the British economy—a key indicator of economic viability. Through a detailed analysis of colonial accounting practices, this study enhances our understanding of the impact of the wealth drain on Britain’s economic situation. By addressing spurious correlations, as suggested by Hamilton (2020), I find that a doubling of my measure of colonial drain corresponds to approximately a 10% increase in Britain’s rate of profit. This finding is further supported by an alternative measure of colonial drain, known as Expenditure in England. The analysis covers the period from the enactment of the Third Charter Act in 1833 to the onset of the First World War.
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Keywords
Colonial Drain, Rate of Profit, Time Series Analysis, India Introduction
References
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R.C. Allen. 2009. Engels’ pause: Technical change, capital accumulation, and inequality in the British Industrial Revolution. Explorations in Economic History, 46(4):418–435.
D. Basu and P.T. Manolakos. 2013. Is there a tendency for the rate of profit to fall? econometric evidence for the US economy, 1948-2007. Review of Radical Political Economics, 45(1):76–95.
Deepankar Basu and Debarshi Das. 2017. Profitability and investment: Evidence from india’s organized manufacturing sector. Metroeconomica, 68(1):47–90.
G. Bertocchi and F. Canova. 2002. Did colonization matter for growth?: An empirical exploration into the historical causes of Africa’s underdevelopment. European Economic Review, 46(10):1851–1871.
A. Bhaduri and S. Marglin. 1990. Unemployment and the real wage: the economic basis for contesting political ideologies. Cambridge Journal of Economics, 14(4):375–393.
H.V. Bowen. 1998. British india, 1765–1813: The metropolitan context. In P.J. Marshall, editor, Oxford History of the British Empire, Vol. II, The Eighteenth Century, pages 530–551. Oxford University Press, Oxford.
K.N. Chaudhuri. Foreign trade and balance of payments (1757–1947). 1983. In The Cambridge economic history of India. Cambridge University Press.
G. Clark. 2002. Land rental values and the agrarian economy: England and Wales, 1500–1914. European Review of Economic History, 6(3):281–308.
G. Clark, K.H. O’Rourke, and A.M. Taylor. 2014. The growing dependence of Britain on trade during the Industrial Revolution. Scandinavian Economic History Review, 62(2):109–136.
Gregory Clark. 2009. The macroeconomic aggregates for England. Research in Economic History.
J. Cuenca-Esteban. 2007. India’s contribution to the british balance of payments, 1757–1812. Explorations in Economic History, 44(1):154–176.
P. Deane and W.A. Cole. 1969. British economic growth 1688-1959: Trends and structure. Cambridge: Cambridge University Press.
Phyllis Deane and H. J. Habakkuk. 1963. The take-off in britain. In W. W. Rostow, editor, The Economics of Take-Off into Sustained Growth, International Economic Association Series, pages 43–71. Pal- grave Macmillan, London.
Maurice H. Dobb. 1939. Political Economy and Capitalism. International Publishers, New York.
R.C. Dutt. 1902. The economic history of India: In the Victorian Age. History of Economic Thought Books, 1902.
R.C. Dutt. 1904. India in the Victorian Age: An economic history of the people. K. Paul, Trench, Tru¨bner & Company Limited.
E. Erikson. 2014. Between monopoly and free trade: The English East India Company, 1600-1757. Princeton: Princeton University Press.
Javier Cuenca Esteban. 2001. The British balance of payments, 1772-1820: India transfers and war finance. Economic History Review, 54(1):58–86.
Charles H. Feinstein. 1998. Pessimism perpetuated: Real wages and the standard of living in Britain during and after the Industrial Revolution. The Journal of Economic History, 58(3):625–658.
M. Feldstein, L. Summers, and M. Wachter. 1977. Is the rate of profit falling? Brookings Papers on Economic Activity, 1977(1):211–228.
Ronald Findlay and Kevin H. O’Rourke. 2009. Power and Plenty: Trade, War, and the World Economy in the Second Millennium. Princeton: Princeton University Press.
A.G. Frank. 2011. World accumulation. New York: NYU Press.
H. Furber. 1948. John Company at Work: A Study of European Expansion in India in the Late Eighteenth Century. Cambridge: Harvard University Press.
Carlos A. Duque Garcia. 2022. Economic growth and the rate of profit in colombia 1967–2019: A var time-series analysis. Review of Radical Political Economics, 54(3):298–316.
Michael Greenberg. 1951. British Trade and the Opening of China 1800–42. Cambridge: Cambridge University Press.
C.J. Hamilton. 1919. The trade relations between England and India (1600-1896). Thacker, Spink and Company.
J.D. Hamilton. 2020. Time series analysis. Princeton : Princeton University Press.
C.E. Heim and P. Mirowski. 1987. Interest rates and crowding-out during Britain’s Industrial Revolution. The Journal of Economic History, 47(1):117–139.
Folke Hilgerdt. 1942. The Network of World Trade: A Companion Volume to ”Europe’s Trade”. League of Nations, 1942.
David Hume. 1758. Of the balance of trade. In Essays and Treatises on Several Subjects, pages 172–178. A. Millar, London.
H. Irfan. 1975. Colonization of the Indian economy, 1757–1900. Social Scientist, 3(8):23–30.
V. Iyer. 2020. Commodity export surplus, council bills and sterling debt. Social Scientist, 48(3/6):55–66.
M. Kalecki. 1942. A theory of profits. The Economic Journal, 52(206-207):258–267.
LI Minqi, XIAO Feng, and ZHU Andong. 2007. Long waves, institutional changes, and historical trends: A study of the long-term movement of the profit rate in the capitalist world-economy. Journal of World-Systems Research, pages 33–54.
A. Maddison. 1971. Class structure and economic growth: India and Pakistan since the Moghuls. George & Urwin.
E.E. Maito. 2014. The historical transience of capital: The downward trend in the rate of profit since 19th century. Munich: Munich Personal RePEc Archive.
E.E. Maito, G. Carchedi, and M. Roberts. 2018. The tendency of the rate of profit to fall since the nineteenth century and a world rate of profit. In World in Crisis: A Global Analysis of Marx’s Law of Profitability, pages 140–167. Chicago: Haymarket Books.
Karl Marx. 2018. Das Kapital, Chapter 10. e-artnow.
D. N. McCloskey. 2009. Slavery and imperialism did not enrich Europe. Munich: Munich Personal RePEc Archive.
B.R. Mitchell. 1975. European historical statistics, 1750-1970. Springer,.
J. Mokyr. 1987. Has the Industrial Revolution been crowded out? Some reflections on Crafts and Williamson. Explorations in Economic History, 24(3):293.
Morris D. Morris. 1963.Towards a reinterpretation of nineteenth-century indian economic history. The Journal of Economic History, 23(4):606–618.
F. Moseley. 1988. The rate of surplus value, the organic composition, and the general rate of profit in the US economy, 1947-67: A critique and update of wolff’s estimates. The American Economic Review, 78(1):298–303.
D. Naoroji. 1901. Poverty and un-British rule in India. London S. Sonnenschein.
L. Neal. 1991. A tale of two revolutions: International capital flows 1789–1819. Bulletin of Economic Research, 43(1): 57–92.
P. Nogues-Marco. 2021. Measuring colonial extraction: The East India Company’s rule and the drain of wealth (1757–1858). Capitalism: A Journal of History and Economics, 2(1): 154–195.
Nobuo Okishio. 1961. Technical change and the rate of profit. Kobe University Economic Review, 7: 85–99.
Kevin H. O’Rourke. 2017. Two great trade collapses: The interwar period & great recession compared. Technical Report w23825, National Bureau of Economic Research.
U. Patnaik. 2000. New estimates of eighteenth-century British trade and their relation to transfers from tropical colonies. Habib, Irfan. The Making of History: Essays Presented to Irfan Habib.
U. Patnaik. 2017. Revisiting the ‘drain’, or transfer from India to Britain in the context of global diffusion of capitalism. In Agrarian and Other Histories: Essays for Binay Bhushan Chaudhuri.
J. Persky and H. Tsang. 1974. Pigouvian exploitation of labor. The Review of Economics and Statistics, 56:52–57.
M. Hashem Pesaran. 2007. A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics, 22(2):265–312.
M. Hashem Pesaran and Yongcheol Shin. 1995. An Autoregressive distributed lag modelling approach to cointegration analysis. Department of Applied Economics, University of Cambridge, Cambridge, UK.
C.H. Philips. 1940. The East India Company 1784–1834. Manchester University Press, Manchester.
Kenneth Pomeranz. 2000. The Great Divergence: China, Europe, and the Making of the Modern World Economy. Princeton: Princeton University Press.
E.H. Pritchard and P.J. Tuck. 1936. The crucial years of early anglo-chinese relations, 1750-1800.
John E. Roemer. 1981. Analytical Foundations of Marxian Economic Theory. Cambridge: Cambridge University Press.
T. Roy. 2019. How British rule changed India’s economy: The paradox of the Raj. Springer International Publishing.
Tirthankar Roy. 2011. The Economic History of India, 1857-1947. Oxford: Oxford University Press.
S.B. Saul. 1960. Studies in British overseas trade, 1870-1914.
S. Sen. 1992. Colonies and the empire: India, 1890-1914. Orient Blackswan Private Limited.
A. Shaikh. 1992. The falling rate of profit as the cause of long waves: Theory and empirical evidence. In New findings in long-wave research. Palgrave Macmillan UK.
N.K. Sinha. 1956. The economic history of Bengal: From Plassey to the permanent settlement. Firma K.L. Mukhopadhyay.
Hiro Y. Toda and Taku Yamamoto. Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66(1-2):225–250.
A. Tripathi. 1954. Trade and finance in the Bengal Presidency 1793-1833. University of London, School of Oriental and African Studies (United Kingdom)
J.G. Williamson. 1984. Why was British growth so slow during the Industrial Revolution? The Journal of Economic History, 44(3):687–712.
E.N. Wolff. 1979. The rate of surplus value, the organic composition, and the general rate of profit in the us economy, 1947-67. The American Economic Review, 69(3):329–341.
R. Allen. 2005. English and Welsh agriculture, 1300-1850: outputs, inputs, and income.
R.C. Allen. 2009. Engels’ pause: Technical change, capital accumulation, and inequality in the British Industrial Revolution. Explorations in Economic History, 46(4):418–435.
D. Basu and P.T. Manolakos. 2013. Is there a tendency for the rate of profit to fall? econometric evidence for the US economy, 1948-2007. Review of Radical Political Economics, 45(1):76–95.
Deepankar Basu and Debarshi Das. 2017. Profitability and investment: Evidence from india’s organized manufacturing sector. Metroeconomica, 68(1):47–90.
G. Bertocchi and F. Canova. 2002. Did colonization matter for growth?: An empirical exploration into the historical causes of Africa’s underdevelopment. European Economic Review, 46(10):1851–1871.
A. Bhaduri and S. Marglin. 1990. Unemployment and the real wage: the economic basis for contesting political ideologies. Cambridge Journal of Economics, 14(4):375–393.
H.V. Bowen. 1998. British india, 1765–1813: The metropolitan context. In P.J. Marshall, editor, Oxford History of the British Empire, Vol. II, The Eighteenth Century, pages 530–551. Oxford University Press, Oxford.
K.N. Chaudhuri. Foreign trade and balance of payments (1757–1947). 1983. In The Cambridge economic history of India. Cambridge University Press.
G. Clark. 2002. Land rental values and the agrarian economy: England and Wales, 1500–1914. European Review of Economic History, 6(3):281–308.
G. Clark, K.H. O’Rourke, and A.M. Taylor. 2014. The growing dependence of Britain on trade during the Industrial Revolution. Scandinavian Economic History Review, 62(2):109–136.
Gregory Clark. 2009. The macroeconomic aggregates for England. Research in Economic History.
J. Cuenca-Esteban. 2007. India’s contribution to the british balance of payments, 1757–1812. Explorations in Economic History, 44(1):154–176.
P. Deane and W.A. Cole. 1969. British economic growth 1688-1959: Trends and structure. Cambridge: Cambridge University Press.
Phyllis Deane and H. J. Habakkuk. 1963. The take-off in britain. In W. W. Rostow, editor, The Economics of Take-Off into Sustained Growth, International Economic Association Series, pages 43–71. Pal- grave Macmillan, London.
Maurice H. Dobb. 1939. Political Economy and Capitalism. International Publishers, New York.
R.C. Dutt. 1902. The economic history of India: In the Victorian Age. History of Economic Thought Books, 1902.
R.C. Dutt. 1904. India in the Victorian Age: An economic history of the people. K. Paul, Trench, Tru¨bner & Company Limited.
E. Erikson. 2014. Between monopoly and free trade: The English East India Company, 1600-1757. Princeton: Princeton University Press.
Javier Cuenca Esteban. 2001. The British balance of payments, 1772-1820: India transfers and war finance. Economic History Review, 54(1):58–86.
Charles H. Feinstein. 1998. Pessimism perpetuated: Real wages and the standard of living in Britain during and after the Industrial Revolution. The Journal of Economic History, 58(3):625–658.
M. Feldstein, L. Summers, and M. Wachter. 1977. Is the rate of profit falling? Brookings Papers on Economic Activity, 1977(1):211–228.
Ronald Findlay and Kevin H. O’Rourke. 2009. Power and Plenty: Trade, War, and the World Economy in the Second Millennium. Princeton: Princeton University Press.
A.G. Frank. 2011. World accumulation. New York: NYU Press.
H. Furber. 1948. John Company at Work: A Study of European Expansion in India in the Late Eighteenth Century. Cambridge: Harvard University Press.
Carlos A. Duque Garcia. 2022. Economic growth and the rate of profit in colombia 1967–2019: A var time-series analysis. Review of Radical Political Economics, 54(3):298–316.
Michael Greenberg. 1951. British Trade and the Opening of China 1800–42. Cambridge: Cambridge University Press.
C.J. Hamilton. 1919. The trade relations between England and India (1600-1896). Thacker, Spink and Company.
J.D. Hamilton. 2020. Time series analysis. Princeton : Princeton University Press.
C.E. Heim and P. Mirowski. 1987. Interest rates and crowding-out during Britain’s Industrial Revolution. The Journal of Economic History, 47(1):117–139.
Folke Hilgerdt. 1942. The Network of World Trade: A Companion Volume to ”Europe’s Trade”. League of Nations, 1942.
David Hume. 1758. Of the balance of trade. In Essays and Treatises on Several Subjects, pages 172–178. A. Millar, London.
H. Irfan. 1975. Colonization of the Indian economy, 1757–1900. Social Scientist, 3(8):23–30.
V. Iyer. 2020. Commodity export surplus, council bills and sterling debt. Social Scientist, 48(3/6):55–66.
M. Kalecki. 1942. A theory of profits. The Economic Journal, 52(206-207):258–267.
LI Minqi, XIAO Feng, and ZHU Andong. 2007. Long waves, institutional changes, and historical trends: A study of the long-term movement of the profit rate in the capitalist world-economy. Journal of World-Systems Research, pages 33–54.
A. Maddison. 1971. Class structure and economic growth: India and Pakistan since the Moghuls. George & Urwin.
E.E. Maito. 2014. The historical transience of capital: The downward trend in the rate of profit since 19th century. Munich: Munich Personal RePEc Archive.
E.E. Maito, G. Carchedi, and M. Roberts. 2018. The tendency of the rate of profit to fall since the nineteenth century and a world rate of profit. In World in Crisis: A Global Analysis of Marx’s Law of Profitability, pages 140–167. Chicago: Haymarket Books.
Karl Marx. 2018. Das Kapital, Chapter 10. e-artnow.
D. N. McCloskey. 2009. Slavery and imperialism did not enrich Europe. Munich: Munich Personal RePEc Archive.
B.R. Mitchell. 1975. European historical statistics, 1750-1970. Springer,.
J. Mokyr. 1987. Has the Industrial Revolution been crowded out? Some reflections on Crafts and Williamson. Explorations in Economic History, 24(3):293.
Morris D. Morris. 1963.Towards a reinterpretation of nineteenth-century indian economic history. The Journal of Economic History, 23(4):606–618.
F. Moseley. 1988. The rate of surplus value, the organic composition, and the general rate of profit in the US economy, 1947-67: A critique and update of wolff’s estimates. The American Economic Review, 78(1):298–303.
D. Naoroji. 1901. Poverty and un-British rule in India. London S. Sonnenschein.
L. Neal. 1991. A tale of two revolutions: International capital flows 1789–1819. Bulletin of Economic Research, 43(1): 57–92.
P. Nogues-Marco. 2021. Measuring colonial extraction: The East India Company’s rule and the drain of wealth (1757–1858). Capitalism: A Journal of History and Economics, 2(1): 154–195.
Nobuo Okishio. 1961. Technical change and the rate of profit. Kobe University Economic Review, 7: 85–99.
Kevin H. O’Rourke. 2017. Two great trade collapses: The interwar period & great recession compared. Technical Report w23825, National Bureau of Economic Research.
U. Patnaik. 2000. New estimates of eighteenth-century British trade and their relation to transfers from tropical colonies. Habib, Irfan. The Making of History: Essays Presented to Irfan Habib.
U. Patnaik. 2017. Revisiting the ‘drain’, or transfer from India to Britain in the context of global diffusion of capitalism. In Agrarian and Other Histories: Essays for Binay Bhushan Chaudhuri.
J. Persky and H. Tsang. 1974. Pigouvian exploitation of labor. The Review of Economics and Statistics, 56:52–57.
M. Hashem Pesaran. 2007. A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics, 22(2):265–312.
M. Hashem Pesaran and Yongcheol Shin. 1995. An Autoregressive distributed lag modelling approach to cointegration analysis. Department of Applied Economics, University of Cambridge, Cambridge, UK.
C.H. Philips. 1940. The East India Company 1784–1834. Manchester University Press, Manchester.
Kenneth Pomeranz. 2000. The Great Divergence: China, Europe, and the Making of the Modern World Economy. Princeton: Princeton University Press.
E.H. Pritchard and P.J. Tuck. 1936. The crucial years of early anglo-chinese relations, 1750-1800.
John E. Roemer. 1981. Analytical Foundations of Marxian Economic Theory. Cambridge: Cambridge University Press.
T. Roy. 2019. How British rule changed India’s economy: The paradox of the Raj. Springer International Publishing.
Tirthankar Roy. 2011. The Economic History of India, 1857-1947. Oxford: Oxford University Press.
S.B. Saul. 1960. Studies in British overseas trade, 1870-1914.
S. Sen. 1992. Colonies and the empire: India, 1890-1914. Orient Blackswan Private Limited.
A. Shaikh. 1992. The falling rate of profit as the cause of long waves: Theory and empirical evidence. In New findings in long-wave research. Palgrave Macmillan UK.
N.K. Sinha. 1956. The economic history of Bengal: From Plassey to the permanent settlement. Firma K.L. Mukhopadhyay.
Hiro Y. Toda and Taku Yamamoto. Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66(1-2):225–250.
A. Tripathi. 1954. Trade and finance in the Bengal Presidency 1793-1833. University of London, School of Oriental and African Studies (United Kingdom)
J.G. Williamson. 1984. Why was British growth so slow during the Industrial Revolution? The Journal of Economic History, 44(3):687–712.
E.N. Wolff. 1979. The rate of surplus value, the organic composition, and the general rate of profit in the us economy, 1947-67. The American Economic Review, 69(3):329–341.
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How to Cite
Drain Gain: An Investigation Into How Colonial Drain Counteracted The Fall In The Rate Of Profit. (2025). World Marxist Review , 2(1), 93-120. https://doi.org/10.62834/wd6xjf93