Going back to when Kanai first visited Lusibari, Nirmal tells Kanai that like in deserts, people often see mirages in the Sundarbans. This is what happened to Sir Daniel Hamilton—he saw value in the mud. Nirmal says that Sir Daniel was educated in Scotland, but he left to seek his fortune in India. He sold tickets for a shipping line, made a fortune, and became entranced by the tide country. He learned that every island has been inhabited at some point, though it's often impossible to tell. Sir Daniel returned to Calcutta and bought 10,000 acres of tide country.
Note that Nirmal's story begins by placing the natural world in a position of power: it can make people see things that aren't there, and it can erase the human trace quickly and easily. This reinforces how difficult of a place the Sundarbans are to live in, which suggests that Sir Daniel may have been entranced by the struggle between man and nature inherent to life in the tide country.
Sir Daniel gave free land to every person willing to come to the tide country to work. He abolished the caste system, and people came by the thousands. The snakes, crocodiles, and tigers killed so many people, Sir Daniel started giving out rewards to people who killed them instead. Nirmal explained that Sir Daniel wasn't after money: he was after a new society, based on cooperatives. He kept contact with Gandhi and Rabindranath Thakur. When Kanai expressed disbelief that the tide country is a real country, since there's no electricity or roads, Nirmal pointed to wires intended for phones and electricity.
Sir Daniel's experiment is vaguely communist; it does away with a ruling class and puts people on one level working for the common good, a core tenet of Communism. It's also worth noting that the person able to do this in rural India wasn't an actual Indian person, but a Scotsman. This is mostly indicative of India's colonial past, though it suggests that Sir Daniel had some privilege that Indian people may not have.
Nirmal handed young Kanai a banknote, signed by Sir Daniel himself. Nirmal explained that what Sir Daniel wanted was to build a society where nobody would be exploited. At this, Kanai laughed at the fact that Sir Daniel ended up with "rat-eaten islands." Nirmal was shocked by this cynicism, but said simply that the tide country wasn't ready yet.
Kanai's cynicism comes from his inflated sense of his own importance, which keeps him from recognizing and respecting other people’s accomplishments. Nirmal's disappointment shows just how much he admires Sir Daniel; Kanai's negative reaction is unthinkable in Nirmal's worldview.