“What does he mean when he says six million would return immediately? In so far as the £6 million have been expended in England, they exist in rails, locomotives, etc., which are shipped to India, whence they do not return; their value returns very slowly through amortisation, whereas the six million in precious metal may perhaps return very quickly in kind. In so far as the six million have been expended in wages, they have been consumed; but the money used for payment circulates in the country the same as ever, or forms a reserve. The same holds true for the profits of rail producers and that portion of the six million which replaces their constant capital. Thus, this ambiguous statement about returns is used by Newmarch only to avoid saying directly: The money has remained in the country, and in so far as it serves as loanable money-capital the difference for the money-market (aside from the possibility that circulation could have absorbed more coin) is only that it is charged to the account of A instead of B. An investment of this kind, where capital is transferred to other countries in commodities, not in precious metal, can affect the rate of exchange (but not the rate of exchange with the country in which the exported capital is invested) only in so far as the production of these exported commodities requires an additional import of other foreign commodities. This production then cannot balance out the additional import. However, the same thing happens with every export on credit, no matter whether intended for capital investment or ordinary commercial purposes. Moreover, this additional import can also call forth by way of reaction an additional demand for English goods, for instance, on the part of the colonies or the United States.” (p 581-2)
Newmarch had previously testified that British exports to India exceeded the imports, but this was not exactly true. In 1855, Britain's imports from India, were £12,670,000, whereas the exports were £10,350,000, leaving a deficit of £2,320,000. However, India House, based in London, then announced that they would make drafts on the various presidencies in India, amounting to £3,250,000 to cover its expenses, and dividends to shareholders. In other words, this amounted to simply imposing a tribute, levied on India, to cover the expenses of the East India Company/government. Thereby, a deficit was turned into a £1 million trade surplus, in Britain's favour.
According to Newmarch, in response to Sir Charles Wood, what it was being paid for here was the introduction of “good government into India.”
“Wood, as a former Minister for India, knows full well the kind of "good government" which the British import to India, and correctly replies with irony:
"1926. Then the export, which, you state, is caused by the East India drafts, is an export of good government, and not of produce."
Since England exports a good deal "in this way" for "good government" and as capital investment in foreign countries — thus obtaining imports which are completely independent of the ordinary run of business, tribute partly for exported "good government" and partly in the form of revenues from capital invested in the colonies or elsewhere, i.e., tribute for which it does not have to pay any equivalent — it is evident that the rates of exchange are not affected when England simply consumes this tribute without exporting anything in return. Hence, it is also evident that the rates of exchange are not affected when it reinvests this tribute, not in England, but productively or unproductively in foreign countries; for instance, when it sends munitions for it to the Crimea.” (p 583)