Chap. 7J: Natural Distribution

How Stock Is Naturally Distributed To Seek Employment Advantageous To Society

172 I have shown in Book 2 that every country’s mercantile stock naturally seeks the employment most advantageous to its own country.

  • If the stock is employed in the carrying trade, its country becomes the emporium of the goods of all countries.
  • But that stock’s owner necessarily wishes to dispose as much of those goods as he can dispose at home.
    • He saves himself the trouble, risk, and cost of exportation.
    • He will be glad to sell them at home for a smaller price and profit than abroad.
    • He naturally tries to turn his carrying trade into a foreign trade of consumption.
      • If his stock is employed in a foreign trade of consumption, he will be glad to:
        • dispose of those imported goods at home as much as he can, and
        • turn his foreign trade of consumption into a home trade.
  • The country’s mercantile stock naturally:
    • courts the near employment and shuns the distant employment,
    • courts the employment where the returns are frequent and shuns that where they are distant and slow,
    • courts the employment where it can maintain the most productive labour where it belongs or where its owner resides, and
      • It shuns the employment where it can maintain the fewest.
    • courts the employment which is most advantageous ordinarily, and shuns that which is least advantageous.


Invisible Hand Part 2

173 If the profit rises higher in those distant, less advantageous employments than in the nearer employments, this superiority of profit will draw stock from the nearer employments to the distant one, until the profits of all return to their proper level.

  • This superiority of profit is a proof that:
    • those distant employments are under-stocked relative to other employments
    • the society’s stock is not distributed in the most proper manner among the employments in it
    • something is bought cheaper or sold dearer than it should be
    • some class of citizens is oppressed by paying more or by getting less than what is suitable to that equality which should take place.
      • This inequality naturally does take place among all the different classes of citizens.
  • The same capital will never maintain the same quantity of productive labour in a distant as in a near employment.
    • Yet a distant employment may be as necessary for the society’s welfare as a near one.
    • The goods from the distant employment may be necessary for maintaining the nearer employments.
  • But if the profits of those who deal in such goods are above their proper level, those goods will be sold dearer than they should naturally be.
    • All those in the nearer employments will be oppressed by this high price.
    • Their interest requires that some stock be withdrawn from those nearer employments, and turned towards that distant one, to:
      • reduce its profits to their proper level, and
      • reduce the price of those goods to their natural price.
    • In this extraordinary case, the public interest requires that some stock should be withdrawn from the nearer, more advantageous employments and turned towards the distant, less advantageous one to the public.
    • The natural interests of men in this extraordinary case coincide exactly with the public interest in ordinary cases.
    • It will lead them to withdraw stock from the near to be turned towards the distant employment.

174 Thus, the private interests naturally dispose people to turn their stocks towards the employments which ordinarily are most advantageous to society.

  • But if they turn too much of their stocks towards the more advantageous employment, their profits will fall in that employment and rise in all others.
    • It will immediately dispose them to alter this faulty distribution.
  • Therefore, without any intervention of law, people’s private interests and passions naturally lead them to divide and distribute the society’s stock among all the employments in it as nearly as possible in the proportion most agreeable to the whole society’s interest.


The Mercantile System Destroys This Natural Distribution of Stock

175 All the regulations of the mercantile system deranges this natural and most advantageous distribution of stock.

  • The mercantile regulations of the trade to America and the East Indies derange it perhaps more than any other.
    • Those great trades absorb more stock than other trades.
  • The regulations which derange those two trades are not the same.
    • Monopoly is the great engine of both.
    • But the monopoly of both trades are different.
  • Monopoly seems the sole engine of the mercantile system.

176 In the trade to America, every nation tries to engross the whole market of its own colonies by excluding other nations from any direct trade to them.

  • During the 16th century, the Portuguese managed the trade to the East Indies by claiming the sole right of sailing in the Indian seas because they first found the road to them.
  • The Dutch still continue to exclude all other European nations from any direct trade to their spice islands.
  • Monopolies of this kind are established against all other European nations.
    • Those nations are excluded from a trade which might be convenient for their stock.
    • They are obliged to buy the goods dearer than if they bought them directly from America and the Indies.

177 Since the fall of the power of Portugal, no European nation has claimed the exclusive right of sailing in the Indian seas.

  • The principal ports in India are now open to all European ships.
  • Except in Portugal and France, the trade to the East Indies has been subjected to an exclusive company in every European country.
  • Monopolies of this kind are established against the very nation which erects them.
    • Most of that nation is excluded from a trade which might be convenient for their stock.
    • They are obliged to buy the goods from that trade dearer than if it was open and free to all their countrymen.
      • For example, since the establishment of the English East India company, other Englishmen were excluded from the trade.
      • They paid in the price of the East India goods which they consumed:
        • all the extraordinary profits from the monopoly of the company, and
        • all the extraordinary waste in the fraud and abuse.
          • These are inseparable from the management such a big company.
  • The absurdity of this monopoly by exclusive company is much more manifest than the absurdity of the monopoly by country.

178 Both these monopolies derange the natural distribution of the society’s stock.

  • But they do not always derange it in the same way.

179 Monopolies by country always attract more of the society’s stock than what would go to that trade of its own accord.

180 Monopolies by exclusive company may sometimes attract stock and sometimes repel it according to different circumstances.

  • In poor countries, they naturally attract more stock than natural.
  • In rich countries, they naturally repel more stock.

181 For example, poor countries such as Sweden and Denmark, would probably have never sent a single ship to the East Indies if the trade was not subjected to an exclusive company.

  • “The establishment of such a company necessarily encourages adventurers.”
  • Their monopoly secures them against all competitors in the home market.
  • They have the same chance at foreign markets with the foreign traders.
  • Their monopoly shows them the:
    • certainty of a great profit on a considerable amount of goods, and
    • chance of a considerable profit on a great amount of goods.
  • Without such extraordinary encouragement, the poor traders of such poor countries would probably never have thought of hazarding their small capitals in a very distant and uncertain adventure as the trade to the East Indies.

182 On the contrary, a rich country such as Holland would probably send many more ships to the East Indies than it actually does, in the case of a free trade.

  • The limited stock of the Dutch East India company probably repels great mercantile capitals which would otherwise go to it.
  • Holland’s mercantile capital is so great that it is continually overflowing into:
    • the public funds of foreign countries
    • loans to private traders and adventurers of foreign countries
    • the most round-about foreign trades of consumption
    • the carrying trade.
  • All near employments are completely filled up.
    • All the capital which can be placed in them are with profit are already placed in them.
  • Holland’s capital flows towards the most distant employments.
    • If the trade to the East Indies were free, it would probably absorb most of this redundant capital.
      • The East Indies offer a bigger and wider market than Europe and America combined for:
        • European manufactures
        • American gold and silver
        • other American products.

183 Every derangement of the stock’s natural distribution is hurtful to the society where it takes place whether by:

  • repelling from a trade the stock which would otherwise go to it, or
  • attracting towards a trade, stock which would not otherwise come to it.

Holland would suffer a big loss if:

  • the exclusive Dutch company was suddenly removed and
  • the trade of Holland to the East Indies suddenly became bigger.
    • Holland’s capital would be excluded from that trade.

Sweden and Denmark would suffer a big loss if:

  • the exclusive Dutch and Swedish companies were suddenly removed and
  • the trade of Sweden and Denmark to the East Indies suddenly became less.
    • Their capital would be drawn into an unsuitable trade.
    • Better for them perhaps to buy East India goods from other nations, even if those goods would be dearer, than to employ their small capital to a very distant trade where the returns are so slow.
    • Their capital is better employed to maintain productive labour at home where productive labour is so much wanted.
      • At home there is so little done and so much to do.

184 If a country would be unable to carry on any direct trade to the East Indies without an exclusive company, it does not mean that such a company should be established there.

  • It means that such a country should not trade directly to the East Indies.
  • The Portuguese demonstrate that such exclusive companies are not necessary for trading to East India.
  • They enjoyed it for more than a century without any exclusive company.

185 It is said that no private merchant could have capital sufficient to maintain agents in the East Indies.

  • Those agents provide goods for the ships which the merchant might send there.
  • Unless he was able to maintain agents there, the difficulty of finding cargo to return might make his ships lose a season waiting.
  • The expence of a long delay would eat up the whole profit of the adventure and create a very big loss.
  • This argument that no single trade could be carried on without an exclusive company is contrary to the experience of all nations.
    • There is no great trade where the capital of any private merchant is sufficient for carrying on all the subordinate branches required by the principal branch.
  • But when a nation is ripe for any great trade, some merchants naturally turn their capitals towards the principal branch.
    • Some merchants turn their capitals towards its subordinate branches.
    • All the branches are carried on very seldomly by the capital of one private merchant.
  • If a nation is ripe for the East India trade, some of its capital will naturally divide itself among all the branches of that trade.
    • Some of its merchants will find in their interest to reside in the East Indies.
    • They will employ their capitals there to provide goods for the ships sent by other merchants who reside in Europe.
  • The European settlements in the East Indies presently belong to exclusive companies.
    • If those settlements were put under the protection of their sovereign, the residence of its merchants would be safe and easy.
  • If the capital of any country which naturally went towards the East India trade was insufficient for carrying on all its branches, it would be a proof that:
    • That country was not ripe for that trade.
    • It would be better for it to buy East India goods from other European nations even at a higher price than to import them directly from the East Indies by itself.
  • What it might lose by the high price of those goods could seldom be equal to the loss it would bring by the distraction of its capital from more necessary, useful, or suitable employments than a direct trade to the East Indies.

186 Europeans possess many considerable settlements on the coast of Africa and the East Indies.

  • But they have not yet established such numerous and thriving colonies there as those in America.
  • Africa and the East Indies are inhabited by barbarous nations.
    • They are not so weak and defenceless as the miserable and helpless native Americans.
  • Those barbarous nations were much more populous in proportion to their land’s natural fertility.
    • The most barbarous nations of Africa or the East Indies were shepherds, even the Hottentots.
    • But the American natives, except Mexico and Peru, were only hunters.
  • Given the same fertile territory, there would be much more shepherds than hunters.
  • In Africa and the East Indies, it was more difficult:
    • To displace the natives
    • To extend the European plantations
  • The genius of exclusive companies is unfavourable to the growth of new colonies.
    • It was probably the principal cause of the little progress they made in the East Indies.
  • The Portuguese carried on the trade to Africa and the East Indies without any exclusive companies.
    • Their following settlements were much depressed by superstition and bad government:
      • Congo
      • Angola
      • Benguela on the coast of Africa
      • Goa in the East Indies
    • Those settlements faintly resemble the American colonies.
    • They are partly inhabited by Portuguese who have been established there for several generations.
  • The Dutch settlements at the Cape of Good Hope and Jakarta [“Batavia”] are fortunate to presently be the biggest European colonies in Africa or the East Indies.
    • The Cape of Good Hope was inhabited by a people as barbarous and defenceless as the American natives.
      • It is the half-way house between Europe and the East Indies.
      • It is where almost every European ship makes some stay.
        • The supply alone of those ships with fresh provisions, fruit, and wine, affords a very extensive market for the surplus produce of the colonists.
    • “What the Cape of Good Hope is between Europe and the East Indies, Jakarta is between the principal countries of the East Indies.”
      • It lies on the most frequented road from India to China and Japan.
      • It is nearly mid-way on that road.
      • Almost all the ships that sail between Europe and China touch at Jakarta.
      • It is the centre and principal mart of the East Indies trade carried on by Europeans and Indians.
      • The vessels of the following countries are frequently seen in its port:
        • China
        • Japan
        • North Vietnam
        • Malaysia
        • South Vietnam
        • Indonesia
    • Such advantageous situations have enabled the Cape of Good Hope and Jakarta to surmount all the obstacles imposed by the oppressive genius of an exclusive company.
      • They enabled Jakarta to surmount the additional disadvantage of perhaps the most unwholesome climate in the world.


187 The English and Dutch companies only established those two considerable colonies.

  • Those two companies have made big conquests in the East Indies.
  • The natural genius of an exclusive company was most distinct in the way they governed their new subjects.
  • In the spice islands, the Dutch burn all the spiceries beyond what they expect to dispose of in Europe with the profit that they want.
    • In the islands where they have no settlements, they give a premium to those who collect the young blossoms and green leaves of the clove and nutmeg trees which naturally grow there.
    • This savage policy has now almost completely destroyed all those trees.
      • Even in the islands where they have settlements, they have very much reduced the number of those trees.
    • They suspect that the natives might find ways to bring their islands’ surplus produce to other nations, if it were more than what their market needed.
      • They imagine the best way to secure their monopoly is ensure that no more shall grow than what they themselves carry to market.
    • By different arts of oppression, they reduced the Moluccas population to what was needed for:
      • their own insignificant garrisons, and
      • their ships which come for the spices.
    • Those islands were in a better condition even under the Portuguese government.
  • The English company has not yet had time to establish such a perfectly destructive system in Bengal.
    • However, their government’s plan had exactly the same tendency.
    • It was common for the chief or the first clerk of a factory to order a peasant to plough up a rich field of poppies and sow it with rice.
      • The pretence was to prevent a scarcity of provisions.
      • The real reason was let the chief sell his opium at a better price.
    • On other occasions, the order was reversed.
      • A rich ricefield was ploughed up to make room for a poppy plantation when the chief foresaw that extraordinary profit could be made by opium.
    • The servants of the company attempted to establish their own monopoly of the foreign and inland trade of the country.
    • Had they been allowed to go on, they would have certainly attempted to restrain the production of the articles which usurped the monopoly.
    • They would restrain production to what they themselves could trade profitably.
    • In a century or two, the policy of the English company would have probably proved as completely destructive as that of the Dutch.


188 Those exclusive companies were considered as the sovereigns of the countries they conquered.

  • Nothing can be more directly contrary to the real interest of those companies than this destructive plan.
  • In almost all countries, the sovereign’s revenue is drawn from the people’s revenue.
    • The greater the people’s revenue, the greater their annual produce, the more they can give to the sovereign.
    • It is his interest to increase that annual produce as much as possible.
    • It is especially the interest of one whose revenue arises chiefly from a land-rent, like that of the sovereign of Bengal.
      • That rent must necessarily be proportional to the quantity and value of the produce.
      • The rent and the value of the produce must depend on the extent of the market.
      • The quantity will always be suited exactly to the consumption of those who can pay for it.
      • The price they pay will always be proportional to the eagerness of their competition.
    • It is the interest of such a sovereign:
      • To open the most extensive market for the produce of his country
      • To allow the most perfect freedom of commerce to increase as much as possible the number and competition of buyers.
      • To abolish all monopolies and all restraints on the transportation of the home produce:
        • From one part of the country to another
        • Upon its exportation to foreign countries
        • Upon the importation of goods for which it can be exchanged
    • In this way, the quantity and value of that produce is likely to increase and consequently his own share of it, or of his own revenue.




189 But a company of merchants are incapable of considering themselves as sovereigns, even after they have become such.


  • They consider their principal business to be trade.
  • By a strange absurdity, they regard being a sovereign as an appendix to that of being a merchant.
    • They regard being a sovereign as being subservient to being a merchant.
    • They use it to buy cheaper in India and sell with a better profit in Europe.
  • For this purpose, they try to keep out as much as possible all competitors from their markets.
    • They reduce the surplus produce of those countries to what is barely sufficient for selling in Europe with the profit they want.
  • Their mercantile habits perhaps insensibly:
    • draw them to prefer the monopolist’s little and transitory profit, to the sovereign’s great and permanent revenue and
    • lead them to treat the countries they govern nearly as the Dutch treat the Moluccas.
  • It is the interest of the East India company as sovereigns that:
    • the European goods sold to their Indian dominions should be as cheap as possible, and
    • the Indian goods be sold in Europe as dear as possible.
  • But the reverse of this is their interest as merchants.
    • As sovereigns, their interest is exactly the same with the country they govern.
    • As merchants their interest is directly opposite to that interest.


190 The genius of such a mercantile government is essentially and perhaps incurably faulty even in its direction in Europe.

  • The genius of its administration in India is still more faulty.
  • That administration is composed of a council of merchants.
    • It is an extremely respectable profession.
    • But it does not have the force of authority anywhere to naturally:
      • overawe the people and
      • command their willing obedience.
    • Such a council can command obedience only by its military force.
      • Their government is necessarily military and despotical.
  • Their proper business is that of merchants.
    • It is to:
      • sell, upon their masters’ account, the European goods consigned to them and
      • buy in return, Indian goods for the European market.
    • It is to:
      • sell the European goods as dear as possible, and
      • buy Indian goods as cheap as possible.
    • It is to exclude as much as possible all rivals from the market where they keep their shop.
  • Therefore, the administration’s genius on the company’s trade is the same as that of the direction.
    • It makes government subservient to the monopoly’s interest.
    • It stunts the natural growth of the country’s surplus produce to what is barely sufficient for answering the company’s demand.


191 All the administration’s members trade on their own account.

  • It is in vain to prohibit them from doing so.
  • It is completely foolish to expect that the clerks of a great counting-house 10,000 miles away should, upon a simple order from their masters:
    • immediately give up doing any business on their own account
    • forever abandon all hopes of making a fortune when they have the means to do so
    • content themselves with the moderate salaries allowed by those masters.
      • Those salaries:
        • can seldom be augmented, and
        • cannot be as large as the real profits of the company’s trade
  • Prohibiting the company servants from trading on their own account will enable the superior servants to oppress the inferior ones. under pretence of executing their master’s order.
    • The servants naturally try  to establish the same monopoly for their own private trade as of the company’s public trade.
    • If they are allowed to act as they could wish, they will establish this monopoly openly and directly.
    • They will do this by banning other people from trading in their goods.
      • This perhaps the best and least oppressive way of establishing it.
    • But if they are prohibited from doing this by an order from Europe, they will establish the same monopoly, secretly and indirectly.
      • This way is much more destructive to the country.
      • They will:
        • employ the government’s whole authority and
        • pervert the administration of justice to harass and ruin those who interfere with their commerce.
      • They might carry it on through concealed agents.
      • The servants’ private trade will naturally extend to more articles than the company’s public trade.
    • The company’s public trade extends no further than the trade with Europe.
      • European trade makes only a part of the foreign trade of the country.
    • The servants’ private trade may extend to all of its inland and foreign trade.
    • The company’s monopoly can only stunt the natural growth of its surplus produce which would be exported to Europe in a free trade.
    • The servants’ trade stunts the natural growth of all the produce they deal in.
    • The produce destined for home consumption and exportation are stunted.
    • The tradeL
      • degrades the country’s cultivation and
      • reduces its population.
        • It reduces the amount of produce and life’s necessities whenever the company servants choose to deal in them.

192 From the nature of their situation, the servants must be more disposed to support with rigorous severity their own interest against the country which they govern than their masters can be to support theirs.

  • The country belongs to their masters, not to the servants.
  • The real interest of their masters, if they could understand it, is the same with the country’s interest.
  • They oppress the country’s interest chiefly from:
    • ignorance and
    • the meanness of mercantile prejudice.
  • But the servants’ real interest is not the same with the country’s interest.
  • The most perfect information would not end their oppressions.
  • The regulations sent from Europe were weak but well-meaning.
  • More intelligence and perhaps less good-meaning has sometimes appeared in the regulations of the servants in India.
  • Every administration member wishes to get a very singular government in the country.
  • Every member then wishes to leave the government as soon as he can.
  • The day after he leaves it and carries his whole fortune with him, he is perfectly indifferent even if the country were swallowed up by an earthquake.


193 I am not saying that the servants of the East India company or any particular persons are odious.

  • I mean to censure the system of government where they are placed, and not those in it.
    • They acted as their situation naturally directed.
    • Those who clamoured the loudest against them would probably not do better themselves.
  • In war and negotiation, the councils of Madras and Calcutta acted with a resolution and decisive wisdom which would have done honour to the Roman senate in its best days.
    • However, those council members were bred to professions very different from war and polities.
    • Their situation alone formed in them the great qualities which it immediately required without:
      • education
      • experience
      • example
    • Their situation inspired them with abilities and virtues they themselves did not know they had.
    • If their situation animated them to unexpected magnanimous actions, then it should prompt others to different kinds of exploits.

194 Such exclusive companies are nuisances in every respect.

  • They are:
    • always inconvenient to the countries where they are established and
    • destructive to the countries which they govern.

Words: 4300

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