Chap. 1e: Public Works and Institutions

Public Works and Institutions Necessary for Particular Branches of Commerce

90 Particular institutions are necessary to facilitate particular branches of commerce.

  • These require a particular and extraordinary costs.

91 The commerce done with uncivilized nations needs extraordinary protection.

  • An ordinary counting-house gives little security to the goods of the merchants trading to the African west coast.
    • Their warehouses should be fortified against the barbarous natives.
  • The Indian government’s disorders rendered such fortifications necessary even among that mild and gentle people.
    • The English and French East India Companies were allowed to build their first forts in India under pretence of securing their persons and property from violence.
  • Other governments are vigorous enough to prevent strangers from having any forts within their territory.
    • In such nations, it may be necessary to maintain an ambassador.
      • He may decide, according to their own customs:
        • the differences among his own countrymen, and
        • their disputes with the natives.
      • By his public character, he will be able to:
        • interfere with more authority, and
        • better protect his countrymen, than any private man.
  • Commercial interests made it necessary to maintain ministers in foreign countries.
    • The Turkey Company’s commerce first established an ambassador at Constantinople.
    • The first English embassies to Russia arose from commercial interests.
  • There was constant interference of commercial interests among the European states.
    • It probably introduced the custom of keeping permanent ambassadors in neighbouring countries.
      • This custom was unknown in ancient times.
      • It seems not older than the end of the 15th or the start of the 16th century.
        • This was when:
          • commerce first extended itself to most European nations, and
          • European nations first attended to commercial interests.

92 The extraordinary cost of protecting any particular branch of commerce should be defrayed by a moderate tax on that branch.

  • For example:
    • a moderate fine to be paid by the traders when they first enter the trade, and
    • a percentage duty on the goods they export or import to or from the country where protection is needed.
  • This tax is more equal than the moderate fine.
  • The protection from pirates and free-booters created the first customs duties.
  • If it were reasonable to lay a general trade tax to pay for the protection of the general trade, it would be equally reasonable to lay a particular trade tax for the protection of that particular trade.

93 The protection of general trade was always:

  • essential to national defence and
  • the executive power’s duty.
    • The collection and use of the general customs duties was always left to the executive power.
  • The protection of any particular trade is a part of the protection of the general trade.
    • Therefore, it is a part of the executive power’s duty.
    • It should always be left to the executive.
  • However, in most European commercial countries, particular companies of merchants have persuaded the legislature to fully entrust this duty to them.

Regulated Companies and Joint Stock Companies

94 These companies might have been useful to introduce some commerce.

  • They made an experiment at their own expence which the state did not think it prudent to make.
    • But in the long-run, they proved universally burdensome or useless.
    • They mismanaged or confined the trade.

95 Regulated companies are companies which:

  • do not trade on a joint stock,
  • are obliged to admit any qualified person who:
    • pays a certain fine
    • agrees to submit to company regulations, and
  • has each member trading on his own stock at his own risk.

Joint stock companies are companies which:

  • trade on a joint stock
  • has each member sharing in the common profit or loss in proportion to his share in this stock

Regulated and joint stock companies sometimes have, sometimes do not have, exclusive privileges.

96 Regulated companies resemble the corporations of trades.

  • Such corporations are so common in all European cities.
    • Regulated companies are enlarged monopolies of the same kind.
  • No one can:
    • exercise an incorporated trade without first obtaining his freedom from the corporation.
    • lawfully carry on foreign trade without first becoming a member of the regulated company for foreign trade.
  • The monopoly is more or less strict:
    • as the terms of admission are more or less difficult, and
    • as the company directors have more or less power to confine the trade to themselves and their friends.
  • In the most ancient regulated companies, the privileges of apprenticeship were the same as in other corporations.
    • Apprenticeships entitled the apprentice to become a member after serving his time to a member of the company:
      • without paying any fine or
      • upon paying a much smaller fine.
  • “The usual corporation spirit, wherever the law does not restrain it, prevails in all regulated companies.”
    • “When they have been allowed to act according to their natural genius, they have always, in order to confine the competition to as small a number of persons as possible, endeavoured to subject the trade to many burdensome regulations.”
    • They have become altogether useless and insignificant when the law has restrained them from doing this.

97 The regulated companies for foreign commerce presently in Great Britain are:

  • Hamburgh Company or the ancient merchant adventurers company
  • The Russian Company
  • The Eastland Company
  • The Turkey Company
  • The African Company

The Hamburgh Company

98 The terms of admission into the Hamburgh Company are now quite easy.

  • The directors have not yet subjected the trade to any burdensome regulations.
  • It was not always so.
    • In the mid-17th century, the fine for admission was £50.
    • At one time it was £100.
    • The company’s conduct was extremely oppressive.
  • In 1643, 1645, and 1661, the clothiers and free traders west of England complained them to parliament as monopolists who:
    • confined the trade and
    • oppressed the country’s manufactures.
  • Those complaints produced an act of parliament.
    • They probably intimidated the company so far to oblige them to reform their conduct.
    • Since that time, there were no more complaints against them.
  • By the 10th and 11th of William III. c. 6, the fine for admission into the Russia Company was reduced to £5.
  • By the 25th of Charles II. c. 7, the fine for admission into the Eastland Company was reduced to 40 shillings.
    • At the same time, Sweden, Denmark, and Norway were exempted from their exclusive charter.
  • The conduct of those companies probably created those two acts of parliament.

Sir Josiah Child

  • Before that time, Sir Josiah Child complained the following companies as extremely oppressive:
    • The Hamburgh Company
    • The Russia Company
    • The Eastland Company
  • He imputed to their bad management the low state of the trade with the countries in their charters.
  • Presently, those companies are not very oppressive.
    • However, they are certainly altogether useless.
  • “To be merely useless is perhaps the highest eulogy which can ever justly be bestowed upon a regulated company.”
    • All those three companies presently deserve this eulogy.

The Turkey Company (1581-1825)

A Turkey Company merchant, Francis Levett

A Turkey Company merchant, Francis Levett

99 The fine for admission into the Turkey Company was formerly:

  • £25 for all persons under 26 years old, and
  • £50 for all persons above 26 years old.

Only mere merchants could be admitted.

  • This restriction excluded all shop-keepers and retailers.
  • By a bylaw, no British manufactures could be exported to Turkey except in the company’s ships.
    • Those ships always sailed from the expensive port of London.
    • This restriction confined the trade to London and its traders.
  • By another bylaw, the following could not be admitted as a member:
    • persons living within 20 miles of London, and
    • persons not free of the city.
  • These two restrictions excluded all but the freemen of London.
  • The time for the loading and sailing of those ships depended on the directors.
    • They could easily fill them with the goods of their own and their friends.
    • Others were excluded as making their proposals too late.
  • This company was a strict and oppressive monopoly.
  • Those abuses created the act of the 26th of George II. c. 18.
    • It reduced the fine for admission to £20 for all persons without:
      • any age distinction, and
      • any restriction to mere merchants or freemen of London
    • It granted to all such persons the liberty of:
      • exporting permitted British goods from all British ports to any Turkish port
      • importing all permitted Turkish goods from Turkey after:
        • paying general customs duties, and
        • paying the particular duties for defraying the company’s costs
        • submitting to:
          • the authority of the British ambassador and consuls in Turkey, and
          • the company’s bylaws
  • To prevent any oppression by those bylaws, the same act ordained that if seven company members were aggrieved by any bylaw enacted after this act was passed:
    • they can appeal to the Board of Trade and Plantations (now a privy council) provided such appeal was brought within 12 months after the bylaw was enacted
    • they can bring a like appeal, provided it was within 12 months after the day this act was to take place.
  • One year may not always be enough to reveal the pernicious tendency of a bylaw to all the members of a big company.
    • If they discover it, the Board of Trade and the committee of council cannot give them any redress.
  • The object of most of the bylaws of all regulated companies and all other corporations, is not so much to oppress existing members.
    • Its object is more to discourage others from becoming members.
    • This may be done through a high fine and many other contrivances.
  • The constant view of such companies is always:
    • to raise their own profit rate as high as they can, and
    • to keep the market as understocked with goods as much as possible.
  • These can only be done:
    • by restraining the competition, or
    • by discouraging new adventurers from entering the trade.
      • A fine even of £20 might be insufficient to discourage anyone from entering the Turkey trade with an intention to continue in it.
      • It might be enough to discourage a speculative merchant.
  • In all trades, the regular established traders, even those not incorporated, naturally combine to raise profits.
    • Their profits are most likely to be kept down to their proper level at all times by speculative competition.
  • The Turkey trade was somewhat laid open by this act.
    • It is still very far from being free.
  • The Turkey Company maintains an ambassador and two or three consuls.
    • Those ministers should be maintained by the state like other public ministers.
  • The trade should be laid open to all.
  • The taxes levied by the Turkey company might afford a revenue to enable the state to maintain such ministers.

100 Sir Josiah Child observed that regulated companies frequently supported public ministers.

  • Those companies never maintained any forts or garrisons in the countries where they traded.
  • On the other hand, joint stock companies frequently maintained forts.
  • In reality, regulated companies seem more unfit for maintaining forts than joint stock companies.
  1. The directors of a regulated company have no interest in the prosperity of the company’s general trade which maintains such forts.
  • The decay of that general trade may even be advantageous to their own private trade.
    • It would:
      • lessen their competitors and
      • enable the directors to buy cheaper and sell dearer.
  • On the contrary, the directors of a joint stock company only have their share in the profits made on the common stock they manage.
    • They have no private trade which can interfere with the company’s general trade.
    • Their private interest is connected with:
      • the prosperity of the company’s general trade, and
      • the maintenance of the forts and garrisons necessary for its defence
        • They are more likely to have that continual and careful attention which that maintenance requires.
  1. The directors of a joint stock company always manage a large capital.
  • They may properly employ part of this large capital in building, repairing, and maintaining such forts and garrisons.
  • But the directors of a regulated company have no common capital to manage.
    • They have no other fund to use for forts and garrisons other than the casual revenue from:
      • the admission fines, and
      • the corporation duties on the company trade.
    • Though they had the same interest to maintain such forts and garrisons, they can seldom have the same ability to do so.
  • The maintenance of a public minister requires no attention and only a moderate and limited expence.
    • It is much more suitable for a regulated company.

The African Company of Merchants (1752-1821)

101 Long after the time of Sir Josiah Child, in 1750, a regulated company was established, the present company of merchants trading to Africa.

  • The 23rd of George II. c. 31 established this company.
  • It had two objects:
    1. To restrain the oppressive and monopolizing spirit natural to the directors of a regulated company, andand
    2. To force them to be attentive in maintaining forts and garrisons, something unnatural to them
  • At first, it was expressly charged with the maintenance of all the British forts and garrisons between Cape Blanc and the Cape of Good Hope.
    • Afterwards, it maintained only those between Cape Rouge and the Cape of Good Hope.

102 For the first purpose, the fine for admission is limited to 40 shillings.

  • The company is prohibited from:
    • trading in their corporate capacity or on a joint stock,
    • borrowing money on common seal, and
    • laying any restraints on the trade which may be carried on freely from all places, and by all persons being British subjects, and paying the fine.
  • The government is in a committee of nine persons who meet at London.
    • They are chosen annually by the freemen of the company at London, Bristol, and Liverpool, three from each place.
    • No committee member can be in office for more than three years.
  • After being heard in his own defence, any committee member can be removed by the Board of Trade and Plantations.
    • They are now removed by a committee council.
  • The committee is forbidden from:
    • exporting negroes from Africa, and
    • importing any African goods into Great Britain.
  • They are charged with the maintenance of forts and garrisons.
    • They may export goods from Great Britain to Africa for that purpose.
    • They are allowed to receive from the company:
      • up to £800 for the salaries of their clerks and agents at London, Bristol, and Liverpool,
      • the house-rent of their office at London, and
      • all other expences of management, commission, and agency in England.
        • What remains of this sum after defraying these expences may be divided among themselves as compensation.
  • These rules were expected to restrain the spirit of monopoly of the directors.
    • It did not.
  • By the 4th of George III. c. 20. the fort of Senegal with all its dependencies was vested in the company of merchants trading to Africa.
    • In the next year (by the 5th of George III. c. 44.), Senegal, its dependencies and the whole coast from the port of Salé in Morocco to Cape Rouge was exempted from the jurisdiction of that company.
    • Those areas were vested in the crown.
    • The trade to them was declared free to all his Majesty’s subjects.
  • The company was suspected of restraining the trade and establishing some improper monopoly.
    • It is not very easy to conceive how they could do so under the regulations of the 23rd of George II.
    • The printed debates of the House of Commons are not always the most truthful records.
      • In those debates, the company was accused of this monopoly.
  • The members of the committee of nine were all merchants.
    • Their governors and factors in their forts and settlements were all dependent on them.
    • It is likely that the governors and factors gave peculiar attention to the consignments and commissions of the committee to establish a real monopoly.

103 The act’s second purpose was the maintenance of forts and garrisons.

  • Around £13,000 was allotted to the company by parliament.
    • The committee is obliged to account this sum annually to the Cursitor Baron of Exchequer.
    • Its account is afterwards laid before Parliament.
      • But Parliament gives so little attention to the application of millions.
        • It is not likely to give much attention to £13,000 a year.
  • The profession and education of a Cursitor Baron of Exchequer is not likely to be skilled in the proper expence of forts and garrisons.
  • The captains of his Majesty’s navy or any commissioned officers appointed by the Board of Admiralty may:
    • inquire into the condition of the forts and garrisons, and
    • report their observations to that board.
      • But that board has no direct jurisdiction over the committee.
        • It has no authority to correct the committee’s conduct.
  • The captains of his Majesty’s navy are not experts in fortifications.
  • The committee’s term can only last for three years.
    • Its lawful emoluments are very small.
  • Removal from this office is the utmost punishment for any committee member for any fault except direct malversation or embezzlement of money.
    • The fear of that punishment can never be a sufficient motive to force a continual and careful attention to a business he has no interest in.
  • The committee is accused of sending out bricks and stones from England to repair the Cape Coast Castle on the coast of Guinea.
    • Parliament granted an extraordinary sum of money for that purpose several times.
    • These bricks and stones were sent on a long voyage.
      • They were of so bad quality that it was necessary to rebuild the walls repaired with them.
  • The forts and garrisons north of Cape Rouge are maintained at the expence of the state and governed by it.
    • There seems no good reason why the forts and garrisons south of Cape Rouge maintained at state expence should be under a different government.
  • The protection of the Mediterranean trade was the original purpose of the Gibraltar and Minorca garrisons.
    • The maintenance and government of those garrisons was always very properly committed to the executive power, not to the Turkey Company.
  • The executive power takes pride and dignity in the extent of its dominion.
    • It is not very likely to fail in attention for the defence of that dominion.
  • The Gibraltar and Minorca garrisons have never been neglected.
    • Minorca was twice taken and is now probably lost forever.
      • That disaster was never imputed to any neglect by the executive power.
  • I do not insinuate that those expensive garrisons was ever necessary for their separation from the Spanish monarchy.
    • The only real purpose for that separation was:
      • to unite the two branches of the house of Bourbon in a much stricter and more permanent alliance than blood ties could unite
      • to alienate the King of Spain from England
        • The King of Spain is England’s natural ally.

Private Copartnery
104 Joint stock companies, established by royal charter or by act of parliament, differ from regulated companies and private copartneries.

  1. 105 In a private copartnery, no partner without the consent of the company can:
  • transfer his share to another person
  • introduce a new member into the company

Upon proper warning, each member may:

  • withdraw from the copartnery
  • demand payment for his share of the common stock from the copartnery

In a joint stock company, on the contrary:

  • No member can demand payment for his share from the company
  • Each member can, without the company’s consent:
    • transfer his share to another person, and
    • introduce a new member.
  • The value of a share in a joint stock is always its market price.
    • This is different from the stated value in the stock of the company.
  1. 106 In a private co-partnery, each partner is bound for the debts of the company to the extent of his fortune.
  • “In a joint stock company, on the contrary, each partner is bound only to the extent of his share.”

107 The joint stock company’s trade is always managed by a court of directors.

  • The court of directors is frequently subject to a court of proprietors.
    • But most of those proprietors seldom pretend to understand the company’s business.
      • When the spirit of faction does not prevail among them, they give no trouble about it.
      • They are content to receive yearly dividends as the directors think proper to give to them.
      • This total exemption from trouble and risk, beyond a limited sum, encourages many people to become adventurers in joint stock companies.
        • They would never hazard their fortunes in any private co-partnery.
  • Joint stock companies draw more stocks than any private co-partnery.
    • The South Sea Company’s trading stock at one time amounted to more than £33,800,000.
    • The Bank of England’s divided capital is presently £10,780,000.
  • The directors of such companies are the managers of other people’s money.
    • They cannot be expected to watch over it with the same vigilance as the partners in a private co-partnery.
    • They are like the stewards of a rich man.
      • They think that attending to small matters are not for their master’s honour.
        • They very easily exempt themselves from attending to such matters.
  • “Negligence and profusion, must always prevail, more or less, in the management of the affairs of such a company.”
  • Joint stock companies for foreign trade seldom were able to compete against private adventurers.
    • They very seldom succeeded without an exclusive privilege.
    • They frequently have not succeeded even with an exclusive privilege.
    • Without an exclusive privilege they commonly mismanaged the trade.
    • With an exclusive privilege they both mismanaged and confined it.

Royal African Company (1660-1752)

108 The Royal African Company is the predecessor of the present African Company.

  • It had an exclusive privilege by charter which was not confirmed by an act of parliament.
  • After the declaration of rights after the revolution, the trade was opened to all his majesty’s subjects.
  • The Hudson’s Bay Company is in the same situation as the Royal African Company in their legal rights.
    • Their exclusive charter was not confirmed by an act of parliament.
  • The following had an exclusive privilege confirmed by act of parliament as long as they were a trading company:
    • The South Sea Company
    • The United Company of Merchants trading to the East Indies.

109 The Royal African Company soon found that they could not compete against private adventurers.

  • It continued to persecute them as interlopers despite the Declaration of Rights.
  • In 1698, the private adventurers were subjected to a 10% duty on almost all their trades.
    • This tax was to be used by the company to maintain their forts and garrisons.
  • Despite this heavy tax, the company was still unable to maintain the competition.
    • “Their stock and credit gradually declined.”
  • In 1712, their debts became so great that an act of parliament was necessary to secure the company and their creditors.
    • It was enacted that the resolution of 2/3 of these creditors in number and value should bind the rest, with regard:
      • to the time for the company to pay its debts, and
      • to any other agreement on those debts.
  • The sole purpose and pretext of their institution was to maintain their forts and garrisons.
    • In 1730, the company was in so great disorder that they could not even do this.
    • From 1730 until its final dissolution, the parliament allowed £10,000 annually for that purpose.
  • For many years, it was a loser in the negro slave trade to the West Indies.
    • In 1732, it finally gave up the slave trade.
      • It sold its negroes to the private traders to America.
      • It employed its servants in a trade to the inland parts of Africa for gold dust, elephants’ teeth, dyeing drugs, etc.
        • Its success in this more confined trade was not greater than their success in their old extensive slave trade.
  • Its affairs continued to gradually decline.
    • It went bankrupt and was dissolved by act of parliament.
    • Its forts and garrisons were vested in the regulated company of merchants trading to Africa.
  • Before the Royal African Company’s establishment, there were three other joint stock companies successively established for the African trade.
    • They were all equally unsuccessful.
    • They all had exclusive charters not confirmed by act of parliament.
    • Those charters conveyed a real exclusive privilege.

Hudson’s Bay Company

110 Before their misfortunes in the recent war, the Hudson’s Bay Company was much more fortunate than the Royal African Company.

  • “Their necessary expence is much smaller.”
  • They maintained up to 120 persons in their settlements and habitations, which they named as forts.
    • 120 persons are sufficient to prepare the cargo of furs and other goods for their ships beforehand.
  • Their ships can seldom remain more than eight weeks in those seas because of the ice.
  • For several years, private adventurers could not have this advantage of having a cargo ready prepared.
    • Without this advantage, it was impossible to trade to Hudson’s Bay.
  • The company’s moderate capital does not exceed £110,000.
    • It might be enough to enable them to engross the whole trade and surplus produce of that miserable but extensive country.
  • No private adventurers have ever attempted to compete with them.
  • This company always enjoyed an exclusive trade even if they may have no legal right to it.
  • Its moderate capital was divided among very few proprietors.
  • But a joint stock company with a moderate capital and a few proprietors are almost like a private copartnery.
    • “It may be capable of nearly the same degree of vigilance and attention.”
  • It is no wonder that the Hudson’s Bay Company was able to carry on their trade successfully before the recent war.
  • Their profits probably never approached to what the late Mr. Dobbs imagined them.
  • Mr. Anderson is a much more sober and judicious writer and author of The Historical and Chronological Deduction of Commerce.
    • He very justly observes the accounts Mr. Dobbs received of its exports and imports.
    • He made the proper allowances for their extraordinary risk and expence.
    • He revealed that its profits do not much exceed ordinary profits.

The South Sea Company
111 The South Sea Company never had any forts or garrisons to maintain.

  • It was entirely exempted from a great expence.
  • But they had an immense capital divided among so many proprietors.
  • Folly, negligence, and profusion naturally prevailed in their management.
    • “The knavery and extravagance of their stock-jobbing projects are sufficiently known.”
    • Explaining those projects would be off-topic.
  • “Their mercantile projects were not much better conducted.”
  • Their first trade was supplying negroes to the Spanish West Indies.
    • They had exclusive privilege of that trade because of the Assiento contract granted by the treaty of Utrecht.
    • Not much profit was expected by this trade.
    • The Portuguese and French companies which enjoyed it before the South Sea Company were ruined by it.
  • As compensation, they were allowed to annually send a ship to trade directly to the Spanish West Indies.
    • Of the 10 voyages made, they gained considerably only by the Royal Caroline voyage in 1731.
      • They were losers by almost all the rest.
  • Their factors and agents imputed their failure to the Spanish government’s extortion and oppression.
    • But perhaps it was principally due to the profusion and depredations of those very factors and agents.
    • Some of them acquired great fortunes in a year.
  • In 1734, the company petitioned the king that they might be allowed to:
    • dispose of the trade and tonnage of their annual ship because of the little profit which they made by it, and
    • accept such equivalent as they could obtain from the king of Spain.

112 In 1724, this company entered the whale-fishery which they had no monopoly of.

  • No other British subjects engaged in it.
  • Of the eight voyages their ships made to Greenland, they gained by one and lost by all the rest.
  • After their 8th and last voyage, they sold their ships, stores, and utensils.
  • They found that their whole loss including the capital and interest amounted to more than £237,000.

113 In 1722, this company petitioned parliament to be allowed to divide their immense capital of more than £33,800,000.

  • All of it was lent to government, into two equal parts.
    • The first half of more than £16,900,000 was to be put on the same footing with other government annuities.
      • It was not to be subject to the debts contracted or losses incurred by the company directors.
    • The second half was to remain as a trading stock.
      • It was to be subject to those debts and losses.
  • The petition was too reasonable not to be granted.
  • In 1733, they again petitioned parliament that 3/4 of their trading stock might be turned into annuity stock.
    • Only 1/4 was to remain as trading stock.
    • This stock was under the bad management of their directors.
    • By this time, their annuity and trading stocks were reduced by more than 2 million each, by several payments from government.
    • This 1/4 amounted only to £3,662,784 8s. 6d.
  • In 1748, all the company’s demands on the king of Spain because of the Assiento contract were given up by the Treaty of Aix-la-Chapelle.
    • Their trade with the Spanish West Indies was ended.
  • The remainder of their trading stock was turned into an annuity stock.
  • The company ceased to be a trading company.

114 The South Sea Company’s trade on its annual ship was the only trade it was expected to profit from.

  • It had competition in foreign and home markets.
    • They competed with Spanish merchants at Carthagena, Porto Bello, and La Vera Cruz.
      • Those merchants imported from Cadiz the same European goods the company imported.
    • They competed with English merchants in England.
      • Those merchants imported the same goods of the Spanish West Indies imported by the company.
  • The goods of the Spanish and English merchants were perhaps subject to higher duties.
  • But the loss from the negligence, profusion, and malversation of the servants of the company probably was a tax much heavier than all those duties.
  • It seems contrary to all experience that a joint stock company should be successful in foreign trade when they compete openly and fairly with private adventurers.

The British East India Company (1600-1874)
115 “The old English East India Company was established in 1600 by a charter from Queen Elizabeth.”

  • It traded as a regulated company in its first 12 voyages to India.
  • It had separate stocks only in the general ships of the company.
  • “In 1612, it united into a joint stock.”
  • Its charter was not confirmed by act of parliament and conveyed an exclusive privilege.
  • “For many years it was not much disturbed by interlopers.”
  • Its capital never exceeded £744,000 at £50 a share.
    • The share price was not so exorbitant nor its dealings so extensive to cause gross negligence, profusion, gross malversation.
  • It had a successful trade for many years despite some extraordinary losses caused by:
    • the malice of the Dutch East India Company, and
    • other accidents.
  • But in time, when the principles of liberty were better understood, it became more doubtful how far a Royal Charter, not confirmed by act of parliament, could convey an exclusive privilege.
    • The decisions of the courts of justice on this question were not uniform.
    • They varied with:
      • the government’s authority, and
      • the humours of the times.
  • Interlopers multiplied on the company.
    • From the end of the reign of Charles II to the reign of William III, they brought it great distress.
  • In 1698, a proposal was made to parliament to advance £2 million to government at 8%, provided the subscribers were collected into a new East India Company with exclusive privileges.
    • The old East India Company offered £700,000, nearly the amount of their capital, at 4% on the same conditions.
    • Public credit was such in a bad state, that it was more convenient for government to borrow £2 million at 8% than £700,000 at 4%.
  • The proposal of the new subscribers was accepted.
    • A new East India Company established.
    • The old East India Company could continue until 1701.
      • At the same time, it subscribed £315,000 very artfully into the new company’s stock.
  • The act of parliament failed to emphasize that all subscribers of the £2 million loan were all obliged to unite into a joint stock.
    • A few private traders had subscriptions of only £7,200.
      • They insisted on the privilege of trading their own stocks separately at their own risk.
      • The old East India Company had a right to a separate trade on its old stock until 1701.
        • Like the private traders, it had a right to a separate trade on the £315,000 it had subscribed into the new company’s stock.
  • The competition of the two companies with each other and with private traders almost ruined both.
  • In 1730, a proposal was made to parliament for putting its trade under a regulated company and laying it open.
    • The East India Company opposed this proposal.
      • They were very strongly against the miserable effects of this competition.
      • They said that:
        • In India, the competition raised the price of goods so high that they were not worth buying.
        • In England, the competition overstocked the market.
          • It sunk the price of goods so low that no profit could be made.
  • The plentiful supply undoubtedly was a great advantage and conveniency to the public.
    • It reduced the price of Indian goods so much in the English market.
    • But it did not raise the price of goods very much in the Indian market.
    • All the extraordinary demand that competition could bring was just a drop of water in the immense ocean of Indian commerce.
  • “The increase of demand though in the beginning it may sometimes raise the price of goods, never fails to lower it in the run.”
    • It encourages production and increases the competition of the producers.
      • Those producers turn to new divisions of labour and improvements never thought of in order to undersell one another.
  • The company complained about:
    • the cheapness of consumption, and
    • the encouragement given to production.
  • These are precisely the two great effects promoted by political economy.
  • The competition they complained of was not allowed to continue for long.
    • In 1702, the two companies were united by an indenture tripartite, to which the queen was the third party.
    • In 1708, by an act of parliament, they were perfectly consolidated into one company as The United Company of Merchants trading to the East Indies.
    • This act had a clause which allowed the separate traders to continue their trade until September 29, 1711.
    • At the same time, it empowered the directors, upon three years notice, to:
      • redeem their little capital of £7,200, and
      • convert the whole stock of the company into a joint stock.
  • The company’s capital was increased from £2 million to £3.2 million through a new loan to the government.
  • In 1743, the company advanced another £1 million to the government.
    • This million was raised by selling annuities and contracting bond-debts, not by a call on the proprietors.
      • It did not increase the stock on which the proprietors could claim a dividend.
      • It increased their trading stock.
        • Their trading stock was equally liable with the other £3.2 million to the losses and debts by the company.
  • From 1708 or 1711, this company fully established the successful monopoly of English commerce to the East Indies.
    • A moderate dividend was annually given to their proprietors from its profits.
  • The French war began in 1741.
    • Mr. Dupleix was the French governor of Pondicherry.
    • His ambition involved the French in:
      • the Carnatic wars and
      • the politics of the Indian princes.
    • After many extraordinary successes and losses, they lost Madras.
      • Madras was their principal settlement in India back then.
      • It was restored to the French by the treaty of Aix-la-Chapelle.
    • At this time, the spirit of war and conquest possessed their servants in India and never left them.
  • Another French war began in 1755.
    • The company defended Madras, took Pondicherry, and recovered Calcutta.
    • They acquired the revenues of more than £3 million a year from this rich and extensive territory.
  • In 1767, their crown laid claim to their territorial acquisitions and its revenue.
    • The company agreed to pay the government £400,000 a year in compensation for this claim.
    • Before this, they gradually increased their dividend from 6% to 10%.
    • From their capital of £3.2 million, they increased it by £128,000 or raised it from £192,000 to £320,000 a year.
    • They were attempting to raise it to 12.5%.
    • It would have made their annual payments to their proprietors equal to their £400,000 annual payment to government.
  • But during the two years when their agreement with government was to take place, they were restrained by two successive acts of parliament from increasing the dividend.
    • Their object was to enable the company to pay their debts faster.
      • Their debts were then estimated at more than £6-7 million sterling.
  • In 1769, the company renewed their agreement with government for five years more.
    • It stipulated that during those five years, it should be allowed to gradually increase its dividend to 12.5%, never increasing it more than 1% per year.
    • At its highest, this dividend increase could increase its annual payments to the proprietors and government only by £608,000 more than what it was before their recent territorial acquisitions.
  • The net revenue of those territorial acquisitions from an account by the Cruttenden East Indiaman in 1768 was £2,048,747.
    • At the same time, the company had another revenue of £439,000:
      • partly from lands, and
      • chiefly from the customs at their settlements.
    • At this time, their trade profits was:
      • at least £400,000 a year, according to their chairman before the House of Commons,
      • at least £500,000 a year, according to their accountant,
      • at least equal to the highest dividend that was to be paid to their proprietors, according to the lowest account.
  • So great a revenue might certainly have afforded an increase of £608,000 in their annual payments.
    • At the same time, it would have left a large sinking fund sufficient for speedy debt reduction.
  • In 1773, their debts increased by:
    1. An arrear in the payment of the £400,000
    2. Another payment to the custom-house for duties unpaid
    3. A large debt to the bank for money borrowed
    4. A fourth payment for bills drawn on them from India of more than £1,200,000 and wantonly accepted
  • These accumulated claims obliged them to:
    • immediately reduce their dividend to 6%, and
    • supplicate to government:
      • a release from further payment of the stipulated £400,000 a year, and
      • a loan of £1,400,000 to save them from immediate bankruptcy.
  • The great increase of their fortune only served to furnish their servants with:
    • a pretext for greater profusion, and
    • a cover for greater malversation than the increase of that fortune.
  • The conduct of their servants in India and their affairs in India and Europe were subjected to a parliamentary inquiry.
    • Several very important alternations were made in the constitution of their government at home and abroad.
    • In India, their principal settlements of Madras, Bombay, and Calcutta were previously independent of one another.
      • They were subjected to a governor-general.
        • He was assisted by a council of four assessors.
      • Parliament assumed to itself the first nomination of this governor and council who were to reside at Calcutta.
      • Calcutta became the most important English settlement in India, replacing Madras.
        • The court of Calcutta was originally instituted for mercantile cases in the city.
          • It gradually extended its jurisdiction with the extension of the empire.
          • It was now reduced and confined to its original purpose.
          • Instead of it, a new supreme court was established.
            • It had a chief justice and three judges to be appointed by the crown.
  • In Europe, the necessary qualification to entitle a proprietor to vote at their general courts were:
    • £500, which was the original share price of a stock of the company, and
    • at least six months ownership of this stock.
  • Parliament changed the qualifications by:
    • raising the price to £1,000,
    • declaring that the share should be acquired by one’s own purchase and not by inheritance, and
    • at least one year ownership of this stock.
  • The court of 24 directors was before chosen annually.
  • Now, each director should be chosen for four years.
    • Six of them should go out of office by rotation every year.
    • They cannot be re-chosen at the election for six new directors for the ensuing year.
  • With these alterations, the courts of the proprietors and the courts of directors were expected to act with more dignity and steadiness than before.
    • But it seems impossible to render those courts fit to govern because most of their members had too little interest in the prosperity of the empire.
    • Frequently a man of great, sometimes even a man of small fortune, is willing to purchase £1,000 share in India stock merely for the influence it gives him by a vote in the court of proprietors.
      • It gives him a share in the appointment of the plunderers of India, not in the plunder.
        • The court of directors appoint those plunderers.
          • Those directors are under the influence of the proprietors.
            • The proprietors elect those directors and sometimes overrule the appointments of their servants in India.
      • If a man can enjoy this influence for a few years, then he can provide for his friends.
        • He frequently cares little about the dividend, or even the value of the stock his vote is founded.
        • He seldom cares at all about:
          • the prosperity of the great empire
          • the government of which that vote gives him a share
  • No other sovereigns could ever be so perfectly indifferent as most of such proprietors are about:
    • the happiness or misery of their subjects
    • the improvement or waste of their dominions
    • the glory or disgrace of their administration
    • irresistible moral causes
  • This indifference was more likely to be increased by some of the new regulations made by the parliamentary inquiry.
    • For example, a resolution of the House of Commons declared:
      • The company can only divide 8% on their capital when:
        • the £1,400,000 lent to the company by government are paid
        • their bond-debts are reduced to £1,500,000
  • Whatever remained of their revenues and neat profits at home should be divided into four parts:
    • Three of them are to be paid into the exchequer for public use
    • The fourth to be reserved as a fund for:
      • the further reduction of their bond-debts or
      • the discharge of other contingent exigencies of the company
  • But if the company were bad stewards and bad sovereigns when their net revenue and profits belonged to themselves, they were surely would not be better when:
    • 3/4 of the net revenue belonged to other people
    • 1/4 of the net revenue were to be inspected and approved by other people, for the company’s benefit.


116 It might be more agreeable to the company that their own servants and dependants should be allowed to embezzle whatever surplus remains after paying the 8% dividend than letting the surplus go to other people.

  • This will make their servants differ with those people.
  • The interest of those servants and dependants might predominate in the court of proprietors to dispose it to support acts of depredation.
  • With the majority of proprietors, the court’s authority might be reduced.


117 The regulations of 1773, accordingly, did not end the disorders of the company’s government in India.

  • At one time, they collected more than 3 millions sterling into the Calcutta treasury during a momentary fit of good conduct.
    • They afterwards extended their access to some of the richest and most fertile countries in India.
      • All was wasted and destroyed.
Hyder Ali

Hyder Ali

  • They found themselves unprepared to stop the incursion of Hyder Ali.
    • Because of those disorders, the company is now (1784) in greater distress than ever.
    • To prevent immediate bankruptcy, it again is reduced to supplicate the aid of government.
  • Different plans have been proposed by the different parties in parliament for its  better management.
    • All those plans agree in supposing the obvious that it is unfit to govern its territorial possessions.
    • Even the company itself is  convinced of its own incapacity, that it is willing to give them up to government.

118 The right of making peace and war in distant and barbarous countries is connected with the right of possessing forts and garrisons there.

  • The joint stock companies constantly exercised the right of making war and peace and had it expressly conferred on them.
    • They unjustly, capriciously, and cruelly exercised this right.

Intellectual Property

119 When a mercantile company establishes a new trade with a barbarous nation at their own risk and expence, it may be reasonable to:

  • incorporate them into a joint stock company, and
  • grant them a monopoly for a certain number of years in case of their success.

It is the easiest and most natural way the state can recompense them for hazarding a dangerous and expensive experiment.

  • The public will afterwards reap the benefit of their experiment.
  • This kind of temporary monopoly may be vindicated on the same principles of:
    • a monopoly of a new machine granted to its inventor, and
    • a monopoly of a new book granted to its author.
  • But after the term’s expiration:
    • the forts and garrisons should be transferred to the government, and
    • their value should be paid to the company.
  • The trade should be laid open to all the state’s subjects.
  • By a perpetual monopoly, everyone else is taxed very absurdly in two ways:
    1. By the high price of goods which could be cheaper in a free trade
    2. By their total exclusion from a business which might be convenient and profitable for them
  • “It is for the most worthless of all purposes, too, that they are taxed in this manner.”
    • “It is merely to enable the company to support the negligence, profusion, and malversation of their own servants,”
      • Their disorderly conduct seldom allows the company’s dividends to exceed the ordinary profit rate in free trades.
      • They even make the company’s dividends fall much below that rate.
  • Without a monopoly, a joint stock company cannot long carry on any foreign trade.
  • Free trade is a species of warfare:
    • which aims to buy in one market to sell with profit in another while taking into account:
      • the occasional variations in the demand of both markets
      • the competitors in both markets
      • the much greater and more frequent variations in that competition
      • the quantity and quality of goods suitable to all these circumstances
    • where the operations:
      • are continually changing
      • require dexterity, judgment, and unremitting exertion of vigilance and attention.
  • These qualities cannot be long expected from the directors of a joint stock company.
  • Upon the redemption of their funds and the expiration of their exclusive privilege, the East India Company, by an act of parliament, has a right:
    • to continue a corporation with a joint stock
    • to trade in their corporate capacity to the East Indies with the rest of their fellow-subjects
  • But in this situation, the superior vigilance and attention of private adventurers would probably soon make them weary of the trade.

120 Abbé Morellet is an eminent French expert in the political economy.


André Morellet

  • He lists 55 joint stock companies for foreign trade established in Europe since 1600.
  • According to him, these have all failed from mismanagement despite having exclusive privileges.
  • He was misinformed with regard to the history of two or three of them.
    • These were not joint stock companies and have not failed.
    • He omitted several joint stock companies which have failed.

121 The only trades which seems possible for a joint stock company to do successfully without an exclusive privilege are those where all the operations are routine or where all operations are so uniform that it has little or no variation.

  • These trades are:
    • Banking
    • Insurance
    • Building and maintaining a navigable canal
    • The similar trade of bringing water for a great city

122 “Though the principles of the banking trade may appear somewhat abstruse, the practice is capable of being reduced to strict rules.”

  • “To depart upon any occasion from those rules, in consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous, and frequently fatal, to the banking company which attempts it.”
  • The constitution of joint stock companies renders them more tenacious of rules than any private copartnery.
    • Such companies seem extremely well fitted for banking.
  • The principal banking companies in Europe, accordingly, are joint stock companies.
    • Many of them manage their trade very successfully without any exclusive privilege.
  • The only exclusive privilege of the Bank of England is that no other English banking company shall have more than six persons.
  • The two banks of Edinburgh are joint stock companies without any exclusive privilege.

123 The value of the risk from fire, loss by sea or by capture perhaps cannot be calculated very exactly.

  • It is capable however of a gross estimation.
    • This renders it reducible to strict rule and method.
  • Insurance, therefore, may be carried on successfully by a joint stock company without any exclusive privilege.
    • The London Assurance and the Royal Exchange Assurance companies do not have any such privilege.

124 The management of the following becomes simple and easy after they have been made:

  • a navigable canal
  • an aqueduct
  • a great pipe for supplying water to a great city

It is reducible to strict rule and method.

  • Even making a canal is so reducible that each mile and lock may be contracted to undertakers.
  • Such undertakings may be and frequently are managed very successfully by joint stock companies without any exclusive privilege.

125 It would certainly unreasonable to:

  • establish a joint stock company merely because it might be able to successfully manage an undertaking
  • exempt particular dealers from some general laws which affect all dealers so that those particular traders may thrive

Aside from its operations being reducible to strict rule and method, two other circumstances are needed to make the establishment of a joint stock company perfectly reasonable:

  1. It should have the clearest evidence that its undertaking is of greater and more general utility than most common trades
  2. It should require more capital than can easily be collected into a private co-partnery
  • If a moderate capital were sufficient, a joint stock company would not be needed because private adventures would be able to supply the little demand the company produced for.
  • In the four trades above mentioned, both those circumstances concur.

126 Book 2 explained banking’s great and general utility, when prudently managed.

  • But a public bank requires more capital than any private co-partnery when it:
    • supports public credit, and
    • advances to government on emergencies the total tax of millions per year before it comes in.

127 The insurance business gives great security to private fortunes.

  • It divides among many the loss which would ruin an individual.
    • It makes that loss fall light and easy on the whole society.
  • The insurers should have a very large capital to give this security.
  • Before the establishment of the two joint stock insurance companies in London, a list was laid before the attorney-general of 150 private insurers who had failed within a few years.

128 That navigable canals and the works which supply a great city with water are of great and general utility.

  • They frequently require more expence than what private people are capable of.

129 Except for the four trades mentioned, I cannot remember any other trade which would justify the establishment of a joint stock company.

  • The goals of the English copper company of London, the lead smelting company, the glass grinding company do not even have:
    • any great or singular utility, and
    • do not require any expence beyond what the fortunes of many private men are capable of.
  • I do not know:
    • whether the operations of those companies are reducible to such strict rule and method, or
    • why those companies boast of their extraordinary profits.
  • The mine-adventurers company has been bankrupt long ago.
  • A share in the British Linen Company of Edinburgh presently sells very much below par, though less than it did some years ago.
  • The joint stock companies established for the public-spirited purpose of promoting some manufacture does more harm than good over and above mismanaging their own affairs.
    • They reduce the society’s general stock.
    • Despite the most upright intentions, their directors are unavoidably partial towards particular manufactures.
    • Their undertakers mislead those directors and impose on them, discouraging other manufactures.
    • They break that natural proportion which would otherwise establish itself between judicious industry and profit.
      • That natural proportion is the greatest and most effectual encouragement to the country’s general industry.

Words: 8,444

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