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Economic Histories of the Opium Trade

Siddharth Chandra, University of Pittsburgh

The history of opium has attracted the attention of historians for decades, and in a way that the history of few other commodities has. Because a lot has already been written on the opium trade in various parts of the world (for a sampling, see the citations at the end of this article), this piece will focus on the history of the opium trade through the lens of the economic historian. In other words, it will address the question “Why is opium of special interest to economic historians?” Following a brief background of the opium trade, a discussion of this question is provided with a focus on Asia and with references to more detailed and case-specific sources.

Opium: A Brief Background

Opium is produced from the opium poppy. The primary narcotic agent in opium is morphine. The morphine-rich sap of the poppy is derived from incisions made in the bulbous portion of the flower. The harvesting of the sap is an extremely labor-intensive process. The sap is then boiled down (or gradually dried to about ten percent of its original water content) to make opium.

Opium belongs to the narcotic class of drugs, which also includes its modern derivatives such as morphine and heroin. To quote the United Nations Office on Drugs and Crime (formerly the UN Drug Control Program), “sought-after effects” include a “sense of well being by reducing tension, anxiety and depression; euphoria, in large doses warmth, contentment, relaxed detachment from emotional as well as physical distress,” and “relief from pain (analgesia).”1 “Long-term effects” include, among a host of other things, “rapid development of tolerance and physical and psychological dependence” and, in the case of “abrupt withdrawal,” “moderate to severe withdrawal syndrome which is generally comparable to a bout of influenza (with cramps, diarrhea, running nose, tremors, panic, chills and sweating, etc.).”2 Current research has begun to show how opium affects the human brain through neural pathways, and how the addict’s brain is different from that of the non-addict.

Key production centers of raw opium in the nineteenth and early twentieth centuries included China, India, the Levant (Eastern Mediterranean), and Persia. While Chinese-grown opium was used entirely for domestic consumption, raw opium from the other production centers was often exported to feed the growing worldwide demand for the drug during this period. By the early twentieth century, in some colonies, the processing of this raw opium had been taken over by the state. The Dutch, for example, invested in a state-of-the-art opium-processing factory in Batavia (now Jakarta) in the Netherlands East Indies (now Indonesia). Similarly, the British set up their own opium factories in India. Interestingly, the British colonial facilities (at Neemuch and Ghazipur in India) are still being used to produce opium, which is now legally exported to the United States and other countries for medicinal purposes; the morphine derived from this opium is used worldwide as a painkiller of last resort in patients, especially those who are terminally ill.

Opium and its derivatives have been and continue to be consumed in many forms. Historically, opium was eaten, drunk, or smoked. At present, in addition to these means of consumption, opium derivatives can also be injected, as in the case of heroin. Opium was also often mixed with other ingredients to create popular products. For example, tobacco was mixed with the drug to make madak, one of the most widely used forms of opium in parts of late-nineteenth century India.

Why Is Opium of Special Interest to Economic Historians?

What differentiates opium from other tradable commodities, such as rubber and sugar, for example, is its highly addictive nature. Because of the physical and psychological dependence that it is capable of creating in significant numbers of its users, as a commodity, opium possesses a potential for economic gain (especially for producers) and loss (especially for consumers) that surpasses the potential of most commodities.

At least three broad themes dominate research on the economic history of opium. The first is the repeated use of opium in the accumulation of power and wealth, especially at the state level. The second is the clash between economic and ethical interests in determining the role of opium in society. The third is the (in)effectiveness of different regimes and drug control strategies in reducing the negative health and social consequences of widespread opium consumption, with its implications for the present-day management of the consumption of addictive substances in general and opium and its derivatives in particular.

Opium as an Instrument of State Power

While there are many examples of the use of opium as an instrument of state power, perhaps the two most well-known examples are the role of opium in trade relations, and the use of opium as a source of revenue for the state. Between 1856 and 1860, Britain fought China (in the Second Opium War) over the right to trade with China. The British victory ensured that European powers would have continued access to the Chinese market for opium. More importantly for Britain, the victory ensured that it would continue to sell the one good in China that had the potential to reduce or even eliminate its burgeoning trade deficit with China. In exchange for tea, silk, and other non- (or less-) addictive commodities, China would receive opium. A consequence of the Second Opium War was the gradual but significant increase in the prevalence of opium consumption in China. Not coincidentally, the British trade deficit with China also fell.

Across nineteenth and early twentieth century Asia, the use of opium to generate excise revenues for states, and especially colonial powers, gradually became standard practice. Britain (in India and Malaya, for example), the Netherlands (in the Netherlands East Indies), Japan (in Taiwan), and France (in French Indochina) all used different forms of state intervention to ensure that a portion of the sizeable proceeds from the sale of opium ended up in state coffers. In some cases, the revenue accounted for well over ten percent of all state revenues. Table 1 shows the contribution of revenues from opium to the Netherlands Indies budget over the period 1914-1940. Because of the low cost of production of opium, for every Guilder of cost that the state incurred, it made close to four Guilders in profit!

Table 1
Contribution of the Opium Regie to the Government Budget in the Netherlands Indies

Year Opium
Opium %
of Total
Profit as
% of Opium
1914 35.0 281.7 13.5 26.7 76
1915 32.6 309.7 11.2 25.2 77
1916 35.3 343.1 10.8 28.4 80
1917 38.2 360.1 11.4 30.4 80
1918 38.8 399.7 10.2 30.1 78
1919 42.5 543.1 8.2 33.2 78
1920 53.6 756.4 7.5 41.6 78
1921 53.3 791.8 7.1 42.1 79
1922 44.2 752.6 6.2 34.5 78
1923 37.6 650.4 6.1 30.1 80
1924 35.3 717.9 5.1 28.1 80
1925 36.6 753.8 5.2 28.7 78
1926 37.7 807.9 5.2 29.1 77
1927 40.6 779.1 5.7 31.4 77
1928 42.8 835.9 5.7 34.6 81
1929 40.9 848.5 5.3 32.7 80
1930 34.5 755.6 5.3 27.1 79
1931 25.3 652.0 4.6 19.0 75
1932 17.3 501.8 4.5 12.3 71
1933 12.7 460.6 3.7 8.6 68
1934 11.1 455.2 3.2 7.2* 65*
1935 9.5 466.7 2.6 6.1* 64*
1936 8.9 537.8 2.2 5.7* 64*
1937 11.5 575.4 2.5 7.7* 67*
1938 11.9 597.1 2.6 8.0* 67*
1939 11.5 663.4 1.7 8.6* 75*
1940 11.7 N.A N.A 8.5* 72*

Sources: For opium, the source data are Dutch East Indies Opiumregie, Verslag betreffende den Dienst der Opiumregie (Batavia: Landsdrukkerij, 1915-1933) and Dutch East Indies Opium- en Zoutregie, Verslag betreffende de Opium- en Zoutregie en de Zoutwinning (Batavia: Landsdrukkerij, 1934-1940). For total revenue, the source data are P. Creutzberg, Changing Economy in Indonesia: A Selection of Statistical Source Material from the Early Nineteenth Century up to 1940. Volume 2: Public Finance 1816-1939, (The Hague: Martinus Nijhoff, 1976), p.43-44. The latter source contains data only until 1939. This table was also published in Chandra (2000), p.104.

In millions of current (i.e., not adjusted for inflation) Guilders.

*These figures are derived from the combined accounts of the Opium and Salt Regie. They were computed by subtracting from opium revenue all elements of cost which were totally or partially attributable to the opium section of the Opium and Salt Regie. The numbers, therefore, underestimate the profitability of opium.

Economic vs. Ethical Interests

Because of its addictive nature and the relative insensitivity (inelasticity) of consumption to small or moderate fluctuations in its price, opium was an especially reliable source of revenue for governments in general and colonial governments in Asia in particular. The fact that it was addictive, and in many cases strongly so, however, raised ethical questions about its suitability as a target of taxation and, more broadly, as a legal commodity. Framed simplistically, the ethical questions were (i) should a state rely for revenue on the sale of a good that is demonstrably causing the physical and economic ruin of some of its subjects? and (ii) even if the state is not a direct financial beneficiary of the sale of opium, should it permit the use of such a substance by its subjects? By the early twentieth century, these ethical concerns had led to the development of a widespread anti-opium movement in Europe. This clash of ethical and economic interests led to lively debates both in Europe and in Asia, and a number of states moved to accommodate (or at least ostensibly accommodate) the ethical interests by instituting changes in opium regimes.

Opium Regimes

There is widespread agreement among historians that opium consumption increased worldwide (and in most cases at the country-level as well) in the second half of the nineteenth century. As the ethical debate intensified in the early twentieth century, however, states voluntarily instituted changes in their opium regimes ostensibly aimed at reducing the opium problem in their colonies and at home. The Netherlands, for example, moved to take complete control of the manufacture and sale of opium across the Netherlands Indies. The Opium Regie, as the system came to be called, was modeled on the French system in French Indochina. Whether there was ever any intention to reduce the drug problem in the Netherlands Indies is questionable. Clearly, in the first decade in which the Regie was in operation, opium sales increased substantially, netting the government enormous profits.

Most statistics do, however, show a marked decline (albeit in many cases not a steady one) in opium consumption between 1900 and 1936. These statistics are used to argue that (i) the regime changes that were instituted were actually intended to reduce opium consumption and (ii) the regime changes were successful in combating the opium problem. In fact, the use of 1936 as the reference year is rather unfortunate. The effects of the Great Depression, which began in 1929, were being felt as late as 1936, especially in the trade-oriented economies of Asia. Because of the precipitous drop in incomes during the Depression and the inflexibility of official opium prices in many economies, the ability of opium consumers to purchase legal opium fell drastically, contributing to a precipitous drop in the consumption of legal opium. Figure 1 demonstrates this phenomenon in the Netherlands East Indies. To the extent that this drop in legal opium consumption was not countered by increases in the consumption of contraband opium (which is not measured), the Great Depression deserves far more credit than it has received to date for the decline in opium consumption between 1900 and 1936.


The addictive nature of opium makes it a particularly interesting candidate for study by economic historians. The three broad areas of interest discussed above are of direct or indirect relevance to contemporary problems. In the area of drugs and state power, after opium and heroin were banned in the first half of the twentieth century, in a number of instances, criminal syndicates took the trade over from the states that had once controlled it. Like their predecessors, they have since used it to accumulate vast fortunes and power. In some cases, they have even come to pose a credible threat to the states themselves. In the area of ethics vs. economics, debates continue to rage over government intervention in markets for intoxicating or addictive substances and activities, including hard drugs, marijuana, tobacco, alcohol, and gambling. Should these activities be legal? Should the government tax them, and if so, how heavily? In the area of regimes, what regimes are likely to yield optimal outcomes for the management of addictive substances and activities?

Just as the issues illuminated by the study of the economic history of opium are hotly debated, so too does the consumption of opium and its derivatives continue unabated to this day. And, because accurate information about opium is extremely difficult to come by in the present regime because the drug is illegal, historical data dating back to a time when opium was consumed legally and openly is of particular importance in the debates surrounding the history and management of the problem of addiction.


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1 For a brief but informative description of opium and opiates, see the United Nations Office on Drugs and Crime at (accessed May 4, 2004) and especially the files on opium under the link “Drug Abuse and Demand Reduction.”

2 UNODC, (Accessed May 4, 2004). See also Crothers (1892) for medical accounts of the “opium disease.”

Preparation of this piece was assisted by grants from the Robert Wood Johnson Foundation Substance Abuse Policy Research Program and the National Institute on Drug Abuse (NIDA BSTART grant 1R03DA014322), National Institutes of Health.

Citation: Chandra, Siddharth. “Economic Histories of the Opium Trade”. EH.Net Encyclopedia, edited by Robert Whaples. February 10, 2008. URL