He was the second son of Sir Francis Macnaghten, Bart., judge of the supreme courts of Madras and Calcutta, and was educated at Charterhouse. He went to Madras as a cadet in 1809, but in 1816 joined the Bengal Civil Service. He displayed a talent for languages, and published several treatises on Hindu and Islamic law. His political career began in 1830 as secretary to Lord William Bentinck; and in 1837 he became one of the most trusted advisers of the governor-general, Lord Auckland, with whose policy of supporting Shah Shuja against Dost Mahommed Khan, the reigning amir of Kabul, Macnaghten became closely identified.
He was created a baronet in 1840, and four months before his death was nominated to the governorship of Bombay. As a political agent at Kabul he came into conflict with the military authorities and subsequently with his subordinate Sir Alexander Burnes. Macnaghten attempted to placate the Afghan chiefs with heavy subsidies, but when the drain on the Indian exchequer became too great, and the allowances were reduced, this policy led to an outbreak. Burnes was murdered on November 2, 1841; and under the elderly General Elphinstone, the British army in Kabul degenerated into a leaderless mob.
Macnaghten tried to save the situation by negotiating with the Afghan chiefs and, independently of them, with Dost Mahommed's son, Akbar Khan, by whom he was assassinated on December 23, 1841; the disastrous retreat from Kabul and the massacre of the British army in the Kurd Kabul Pass followed. These events threw doubt on Macnaghten's capacity for dealing with the problems of Indian diplomacy, though his fearlessness and integrity were unquestioned.
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