When the British began to conquer India, one of the first things they did was monopolize opium production; they did this, initially, because licensing opium had been a Mughal monopoly that generated a large income for the state. In the late 18th century, the East India Company began to supply its “Bengal”-produced opium to licensed European “country traders,” who sold it in Southeast Asia in return for spices and other products not already monopolized by the East India Company (EIC). The EIC also sold some opium, in Southeast Asia, on its own account.

In Southeast Asia, the chief market for opium was the Chinese “societies” which controlled contract labor: they would cover the cost of a coolie’s migration to Southeast Asia and set him up with a job. To prevent the coolie from repaying the society, and to keep him in debt, he was offered opium to numb the pain of backbreaking work, and often to lure him into society-owned gambling dens and brothels. Thus, opium was a way of controlling laborers and maximizing profits.

Small amounts of Indian opium began to be imported into China by the Portuguese, English, Dutch, French, and others, leading to the first anti-opium edict by the Qing Dynasty in 1729. However, opium shipments more than quadrupled by 1800, and the Europeans became more nuanced about how they handled the traffic, usually selling to Chinese middle-men, who undertook the actual risk of illegal sales within China. Such sales might occur in Southeast Asia, at Macau, and at one of the foreign factories in Canton. By the late 18th century, opium had become an important medium of exchange for tea and silk.

From the perspective of the East India Company, the trade worked like this: the Company exported silver from England to India, where it purchased textiles, opium, and saltpeter (among other things). Much of what was bought in India was sold in China in exchange for tea and silk, which was then retailed in Europe for a profit. Meanwhile, much of the silver exported to India was recovered through taxation. Thus, opium played a major role in a system of import substitution.

When the East India Company’s China trade monopoly ended in 1833, the opium trade was taken over by several smaller firms. Some of these operated out of Bombay, where the Government didn’t have a monopoly on opium production, while others operated out of Calcutta, where production was controlled by the colonial state. In both ports, however, the opium production of the previous year went to auction at the beginning of the year, and began to be shipped out in small quantities.

For the shippers, the real money in the opium trade was actually made in insuring shipments rather than in shipping or selling cargo.

The Qing Dynasty tried to smash the opium trade in the late 1830s, having become aware of the huge drain it represented in terms of money, labor, trade losses, etc. When the seizure and destruction of opium imports escalated to the seizure of ships, complaints were made to the British Government, and interested MPs pushed Parliament to approve military action. For many people, it was a “bottom line” argument; the opium trade was worth about 4 million pounds to Britain every year, at least, and that was an enormous sum in the 1830s. Meanwhile, the prevailing attitude, at the time, was that there was no moral stigma to purveying drugs; the onus was on the consumer, not the capitalist.

A series of opium wars, ending in 1860, succeeded in forcing China to legalize opium sales, cede Hong Kong and other territories, and create the Treaty Ports, which enabled the foreign powers to penetrate the entire Chinese economy and establish what became known as “gunboat diplomacy” in East Asia. Perhaps inadvertently, the legalization of opium imports also gave rise to indigenous opium production, as the Chinese state decided to profit from what it could not stop.