Robert Clive was the richest European…only for a short while
A short trip to colonial India
“The Anarchy: The Relentless Rise of the East India Company” by William Dalrymple is a compelling narrative that explores the astonishing rise of the East India Company from a modest trading enterprise to a powerful colonial ruler in India.
When I read it to brush up my historical knowledge, I wasn’t expecting to be forced to question basic economic principles of wealth generation and inflation. But that is exactly what happened after I read Robert Clive’s story.
Robert Clive was a major figure, certainly in the book but more importantly, in the history of British Empire. Working for the East India Company, Robert Clive came to India a young man and in June of 1757, at the age of 32, he led East India forces against the Nawab of Bengal, Siraj-ud-Daulah. This victory would be the start of the British Empire in India and shape the future of the entire subcontinent for centuries to come. For such a far reaching impact, Robert Clive was adequately rewarded; and when he left India just three years later, at the age of 35, he arrived in Europe as one of the richest men on the continent.
Nothing unexpected so far, right? But this got me curious, how much money did he actually make? What did it take to become the richest man in Europe in 1750s?
While difficult to pin down the exact number, most historians seem to agree that Clive left India with around £500,000 in his coffers. So, we know that half a million pounds in 1750s would have made one the richest man on the continent. This also does make sense, because our understanding of inflation tells us that things used to be cheaper the further back you go.
So far, so good. But something interesting happens when we start to take that number and inflation-adjust it to current prices. Most estimations place this inflation-adjusted amount in the £60–80million range, but let’s be generous and take the upper end of the estimates I’ve seen — $200million. So that means if Robert Clive were leaving India in today’s age, he’d leave for England with around $200million in his bank accounts.
This piqued my curiosity. Because there’s no way someone with “only” $200million pounds would be the richest European in today’s age. Sure, they’d still be considered obscenely wealthy, but to qualify for the ‘richest European’ you’d need at least tens of Billions. Bernaurd Arnault for example is estimated to be worth $200Billion.
The core conundrum
A question then emerges: how is it possible that inflation doesn’t really translate to Robert Clive’s relative wealth being maintained. I would have been quite satisfied if Robert’s inflation-adjusted fortune was in the 200billion dollar range — but it’s three zeroes short of it.
The relative decline in ‘rich person ranking’ that Robert’s fortune underwent over 300 years means that multiple persons with MUCH more ability to buy resources and services (almost 1000x if one is to compare 200B vs 200m) have emerged. A question comes to the fore: how does the upper limit of richness (Clive with ~200Million vs Arnauld with ~200Billion) itself change?
Confounding things even further, $200m pounds today can buy a lot more things than an equivalent amount in the 1750s. Consider the following thought-experiment: after Robert Clive returned to England, he became obsessed with mirrors and decided to spend his entire fortune on it. Would he be able to buy more mirrors in 1750 with £500,000 or today with $200million (inflation adjusted amount)? Most people would agree that he could buy many more mirrors today with the $200m. Paradoxically, this goes against everything we expect about inflation. So how are things getting cheaper over time?
Understanding abundance
Perhaps both questions are best understood through using a visual analogy. I like to think that the world has moved from this
…To this
Imagine if the economy were represented by an apple pie — then there are two things that matter, the size and the ingredients. The first image is of the economy at the time when Robert Clive was heading back to Europe — we see that it is a small pie made with the bare minimum ingredients required, i.e., dough, sugar and apples. Contrast that with the second image, this pie is not only bigger but has many more ingredients such as cinnamon and nuts.
But what does all this have to do with inflation & Robert Clive? Let’s explore it through the two attributes we discussed earlier — size and ingredient list.
Size explains the first question of how the ‘upper limit of richness’ is arrived at. The underlying assumption here is that there’s a limit to the amount of wealth that one individual can accumulate. Furthermore, this limit is determined in percentage terms of the entire economy (e.g., 2%), instead of a specific absolute number (e.g., 300Billion). What this means is that the richest people of any era (the elites like Clive and Arnaud) will capture a percentage of the upside of the entire economy, say 2%. The size of the economy then determines the upper limit of richness. And Arnaud is so much richer than Clive because he’s capturing 2% of a MUCH bigger economic pie.
Now let’s get to the ingredient list. Basically, this means that as the economy grows bigger, it changes fundamentally — usually due to cumulative impact of technological progress. There are things you can do in a newer economy that were just not possible in the older economy. Take the example of internet or e-commerce; a middle-class consumer can now order lemons from a store, and they’d be at her doorstep in 10 minutes; this level of convenience was probably impossible to imagine 200 years ago — even for kings and elites.
To keep the apple analogy going — if you want an apple pie slice with cinnamon, it would be impossible if cinnamon hadn’t been discovered yet. In practical terms, technological and scientific innovations keep adding more ‘ingredients’ to the economy. Sometimes these innovations can also lead to abundance of certain consumables through productivity gains.
This is exactly why mirrors are so much cheaper to buy today than they were 300 years ago. Because over the centuries, we’ve pushed mirror-making technology far enough for it to lead to a significant drop in scarcity of mirrors that was earlier felt. The supply-demand mismatch for mirrors has gone down as mirrors have become easier to make. Broadly speaking technological change is such a powerful force that it should be self-evident that we can do MUCH more with a few hours of labour than it was possible 200 years ago — mainly because there were fewer things that could be done 200 years ago.
To recap then there are two forces that lead to abundance — one for elites, and one for the rest of us. For the elites, capturing a similar fraction of a much bigger pie is leading to them being richer than anyone in history. Whereas for the common folk, technology innovation and productivity gains mean that we can do more with our time and money that was possible 300 years ago (for example flying from London to Mumbai in 8 hours instead of taking an eight-month long ship journey — something Clive undoubtedly had to do, even as the richest man in Europe).
Unfortunately, another question arises now: if there is so much abundance then where does our lived experience of inflation originate from? Why is it that in my own life $100 is able to buy less of the things that I wanted every year.
We make sense of that phenomenon next.
