It is important to understand the context of Islamic belief and practice in the area now known as Indonesia at the beginning of the twentieth century, in order to perceive the intellectual currents that occurred afterwards. At the time there were three major manifestations of Islamic religious activity. The first current was widely popular in society, crossing the spectrum of commitment to Islam between nominal and committed Muslims. It consisted of visitations to the tombs of holy men to ask for blessings and intercession, involved the use of charms and amulets to ward off evil, and promoted belief in good and bad spirits, which could be controlled by use of special prayers and incantations. The second current was concerned with mysticism, i.e., spiritual searching in which trances were attained through esoteric exercises, usually reciting the names of God or some pious phrase, such as the zikir. The esoteric exercises, particularly the ratib, in which several worshippers would sit close to one another and rock their bodies back and forth in unison while chanting the zikir, were frequently used in some sectors of society where they constituted a common form of participatory worship and/or entertainment. This current was strong in the committed community and among some nominal Muslim groups. The third current was connected with the general themes of worship and behaviour as described in the Qur'an and interpreted by the legal scholars of Islam. The emphasis on formal worship was lightly used by the general population, but highly regarded by those trained to be scholars in Islam. In general, reform movements in Southeast Asian Islam attempted to diminish the impact of the first two trends and raise the importance of the third.

JUSTIFICATION OF THE HOLY WAR

In the first quarter of the twentieth century the territory known now as Indonesia was mostly under the direct or indirect control of the Netherlands and was called the Netherlands East Indies. It had been the policy of the Indies administration during the nineteenth century to bring all of the territories and ethnic groups in the archipelago under its control.

During my recent privilege leave I spent three weeks in Java, and took the opportunity of inquiring into the working of the gold standard and its effects as regards the four main classes of the country, namely: - (1) the Government; (2) the native population; (3) the merchants; and (4) the European planters.

2. On the way to Java I read carefully the collection of papers written for the Government of India in 1886 by Mr. Van den Berg, the then President of the Java Bank. These papers dealt with the financial and economical condition of Netherlands India during the previous 15 years, and specially with the effect of the currency system as finally organized in 1877. In addition, I had by me the book “Java, or how to manage a Colony,” written by Mr. Money in 1861, and a slight sketch of the history and condition of the island, entitled “Some Notes on Java.” written by Mr. H.S. Boys, late of the Indian Civil Service, after a short visit to the island in 1889. Mr. Money's book is still the standard English work on modern Java, though necessarily out of date in some important particulars, especially as regards the question of land administration. The sketch by Mr. Boys does not go into so much detail, but it substantially supports what had been said by Mr. Money nearly 30 years before regarding the great prosperity among the native population. My own time in the island was too short for an extended tour, but I visited several places in the western half of Java up to about 200 miles from Batavia, and saw much of the country and people in this section of the island. Beyond this, I had long conversations with Mr. Lavino, the Dutch Consul in Singapore; Mr. Lankester, the English Consul in Batavia; Mr. Van den Berg, a merchant in Batavia and brother of he author of the 1886 papers; Mr. Zeverijn, the present head of the Java Bank; other Dutch, English, and Italian men of business whom I met in Java; the officers of the Dutch steamers between Singapore and Batavia, and planters from Sumatra whom I came across between Penang and Singapore.

Dear Sir.

In 1873 the Government of Holland, in view of the demonetisation of silver by other European countries, suspended the free coinage of silver, and in 1875 Holland adopted a gold standard on the basis of 1 to 15.62, by permitting the free coinage of gold at that ratio and continuing the prohibition of the free coinage of silver. The adoption of similar measures has been more than once pressed on the Government of India and on the Secretary of State for India; but the decision has always been to make no change, and this decision was based partly on a consideration of the peculiar economic conditions of India, and partly on the belief that the fall in the relative value of silver was probably due to the appreciation of gold rather than to the depreciation of silver.

The Government of India has no intention of proposing any change in the monetary standard of India, but is for many reasons anxious to obtain information regarding the economic condition and progress of Java under the gold standard. The information on the subject which is available in India is extremely limited, and Lord DUFFERIN has requested me to apply to you in the hope that you may be able to assist the Government of India in this matter.

What we are specially anxious to know is the course of wages, prices, profits, imports, and exports, as well as of the public revenue and expenditure since 1870.

It is more than probable that full information on these points will not be forthcoming; but I will indicate the nature of the information required, and trust that you may at any rate be able to supply it in part.

In July 1886 the government of British India asked its consul in Batavia, N. McNeill, for a review of monetary policies and economic conditions in the Netherlands Indies. The silver-based Indian rupee had depreciated continuously against the gold-based pound sterling since 1872. The depreciation increased the burden of India's financial commitments to Great Britain to such a degree that by 1878 the government of India considered the option of basing the Indian monetary system on gold, while retaining its silver currency. The advantages of basing the rupee on gold were not obvious, because India's growing trade in Asia was largely conducted in silver. A changeover to the gold standard could create a disadvantage for Indian producers in their competition with producers in countries with a silver standard.

At that time, Netherlands India was the only country in Asia where the gold standard had been introduced, in 1877. Unlike India, colonial Indonesia did not have its own currency; it used the Dutch guilder as its standard coin. The silver standard was not just abandoned in Indonesia because the Netherlands had done so. The gold standard had in fact been introduced in the Netherlands two years earlier. It was on the ardent advice of N.P. van den Berg, the president of the Java Bank (De Javasche Bank), the central bank of colonial Indonesia, that the gold standard was also introduced in Indonesia. Van den Berg's advocacy appears to have contradicted the general opinion on monetary standards in Asian countries. All Asian countries, except Indonesia, continued to adhere to the silver standard, despite the rapid depreciation of silver.

The Indian government chose to proceed along two paths to solve its monetary problems. It participated in international conferences to achieve an international agreement about measures to stem the depreciation of silver. It also had several committees to study monetary issues and the options open to India.

It is beyond question that the paper currency established by the British Indian legislator fully answers the purpose, so far as business requires an easier means of exchange than gold or silver coins; but no connection whatever exists between the issue of the fiduciary currency and the wants of the public to have their bills and other commodities converted into a current medium of exchange. The bullion stored in the vaults of the Currency-Department is a sufficient guarantee for the public at large, that the notes in their hands can at any time be convertible into hard cash; but it docs not add in the least to the operating power of the Banks, which only can come to the rescue of trade in times of pressure, and this is the sole cause of the unexpected convulsions and sudden transitions in the money market, so utterly detrimental to business, to which British Indian trade is constantly exposed: - impediments which, as a rule, arc unknown in Netherlands India, owing to the manner in which currency and banking have been regulated here.

Not at once however did Netherlands India get the benefit of the banking system which at the present moment is working so remarkably well. Ever since the year 1828, when the Java Bank was first established, it has held the exclusive privilege of the issue of banknotes for all the possessions of the Dutch in the Eastern Archipelago; but the rules to be observed with regard to the note issue have been subject to various alterations, and it was only in 1875, after an existence of nearly fifty years, that the Java Bank was empowered to regulate its operations according to the same principles on which the Netherlands Bank in Amsterdam is working, and which for many years have proved highly beneficial to all the interests concerned.

Dear Sir,

1. Some time ago, when you handed me a letter to your address from the Private Secretary to His Excellency the Viceroy of India, dated Simla the 2nd of July last, I readily undertook to assist you as soon as possible in collecting the information the Government of India was anxious to obtain regarding the economic condition and progress of Java, but the compilation of the necessary statistics and collecting other information has required much more time than I at first anticipated. For this delay in fulfilling my promise, 1 have in the first place to express my sincere regret.

2 The information desired by the Government of India more especially applies to the island of Java. I have endeavoured to limit my researches to this portion of the Dutch dominion in the Malay Archipelago accordingly, but although separate statistics of the commercial movement of Java might be produced, still in the regard to financial statistics no separate account being kept of the expenditure for Java and the other islands, I have thought it more to the point to extend my enquiry to the whole of the Netherlands Indian dominion, of which Java, although of less area than the other islands, is the most important and conspicuous as regards population, revenue and trade, as shown by the following statement:

3. Having thus defined the scope of my enquiry in reply to the questions put by the Government of India, I shall first consider the revenue and the expenditure of our colony, of which, as desired, a full statement shall be given in as minute detail as may prove practicable within reasonable limits, at the same time drawing special attention to any increase or reduction of taxation or alteration in system, practically involving an increase or reduction of the burden of taxation.

4. A general statement of the revenue and expenditure of the Government of Netherlands India for the years 1871-1893, the last year for which accounts arc available, will be found in appendix A, and from this statement the following table of the yearly surpluses or deficits has been compiled.