Teller (yes, the quiet half of Penn and Teller) reviews The Rise of the Indian Rope Trick: How a Spectacular Hoax Became History by Peter Lamont, in the New York Times:
When John Elbert Wilkie died in 1934, he was remembered for his 14 years as a controversial director of the Secret Service, during which he acquired a reputation for forgery and skullduggery, and for masterly manipulation of the press. But not a single obituary cited his greatest contribution to the world: Wilkie was the inventor of the legendary Indian Rope Trick. Not the actual feat, of course; it does not and never did exist. In 1890, Wilkie, a young reporter for The Chicago Tribune, fabricated the legend that the world has embraced from that day to this as an ancient feat of Indian street magic.
How did a silly newspaper hoax become a lasting icon of mystery? The answer, Peter Lamont tells us in his wry and thoughtful ”Rise of the Indian Rope Trick,” is that Wilkie’s article appeared at the perfect moment to feed the needs and prejudices of modern Western culture. India was the jewel of the British Empire, and to justify colonial rule, the British had convinced themselves the conquered were superstitious savages who needed white men’s guidance in the form of exploitation, conversion and death. The prime symbol of Indian benightedness was the fakir, whose childish tricks — as the British imagined — frightened his ignorant countrymen but could never fool a Westerner.
When you’re certain you cannot be fooled, you become easy to fool. Indian street magicians have a repertory of earthy, violent tricks designed for performance outdoors — very different from polite Victorian parlor and stage magic. So when well-fed British conquerors saw a starving fakir do a trick they couldn’t fathom, they reasoned thus: We know the natives are too primitive to fool us; therefore, what we are witnessing must be genuine magic.
More here.