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article i: Of the publick Works and Institutions for facilitating the Commerce of the Society - Adam Smith, Glasgow Edition of the Works and Correspondence Vol. 2b An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. 2 
An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. I and II, ed. R. H. Campbell and A. S. Skinner, vol. II of the Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1981).
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[V.i.d] article i
Of the publick Works and Institutions for facilitating the Commerce of the Society
And, first, of those which are necessary for facilitating Commerce in generala–a
1That the erection and maintenance of the publick works which facilitate the commerce of any country, such as good roads, bridges, navigable canals, harbours,1 &c. must require very different degrees of expence in the different periods of society, is evident without any proof. The expence of making and maintaining the publick roads of any country must evidently increase with the annual produce of the land and labour of that country, or with the quantity and weight of the goods which it becomes necessary to fetch and carry upon those roads. The strength of a bridge must be suited to the number and weight of the carriages, which are likely to pass over it. The depth and the supply of water for a navigable canal must be proportioned to the number and tunnage of the lighters, which are likely to carry goods upon it; the extent of a harbour to the number of the shipping which are likely to take shelter in it.
2It does not seem necessary that the expence of those publick works should be defrayed from that publick revenue, as it is commonly called, of which the collection and application bisb in most countries assigned to the executive power. The greater part of such publick works may easily be so managed, as to afford a particular revenue sufficient for defraying their own expence, without bringing any burden upon the general revenue of the society.
3A highway, a bridge, a navigable canal, for example, may in most cases be both made and maintained by a small toll upon the carriages which make use of them: a harbour, by a moderate port–duty upon the tunnage of the shipping which load or unload in it. The coinage, another institution for facilitating commerce, in many countries, not only defrays its own expence, but affords a small revenue or seignorage to the sovereign.2 The post–office, another institution for the same purpose, over and above defraying its own expence, affords in almost all countries a very considerable revenue to the sovereign.3
4When the carriages which pass over a highway or a bridge, and the lighters which sail upon a navigable canal, pay toll in proportion to their weight or their tunnage, they pay for the maintenance of those publick works exactly in proportion to the cwear and tearc which they occasion of them. It seems scarce possible to invent a more equitable way of maintaining such works.4 This tax or toll too, though it is advanced by the carrier, is finally paid by the consumer, to whom it must always be charged in the price of the goods. As the expence of carriage, however, is very much reduced by means of such publick works, the goods, notwithstanding the toll, come cheaper to the consumer than they could otherwise have done; their price not being so much raised by the toll, as it is lowered by the cheapness of the carriage. The person who finally pays this tax, therefore, gains by the application, more than he loses by the payment of it. His payment is exactly in proportion to his gain. It is in reality no more than a part of that gain which he is obliged to give up in order to get the rest. It seems impossible to imagine a more equitable method of raising a tax.
5 When the toll upon carriages of luxury, upon coaches, post–chaises, &c. is made somewhat higher in proportion to their weight, than upon carriages of necessary use, such as carts, waggons, &c. the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor, by rendering cheaper the transportation of heavy goods to all the different parts of the country.
6When high roads, bridges, canals, &c. are in this manner made and supported by the commerce which is carried on by means of them, they can be made only where that commerce requires them, and consequently where it is proper to make them. Their expence too, their grandeur and magnificence, must be suited to what that commerce can afford to pay. They must be made consequently as it is proper to make them. A magnificent high road cannot be made through a desart country where there is little or no commerce, or merely because it happens to lead to the country villa of the intendant of the province, or to that of some great lord to whom the intendant finds it convenient to make his court. A great bridge cannot be thrown over a river at a place where nobody passes, or merely to embellish the view from the windows of a neighbouring palace: things which sometimes happen, in countries where works of this kind are carried on by any other revenue than that which they themselves are capable of affording.5
7In several different parts of Europe the toll or lock–duty upon a canal is the property of private persons, whose private interest obliges them to keep up the canal. If it is not kept in tolerable order, the navigation necessarily ceases altogether, and along with it the whole profit which they can make by the tolls. If those tolls were put under the management of commissioners, who had themselves no interest in them, they might be less attentive to the maintenance of the works which produced them. The canal of Languedoc cost the king of France and the province upwards of thirteen millions of livres, which (at twenty–eight livres the mark of silver, the value of French money in the end of the last century) amounted to upwards of nine hundred thousand pounds sterling. When that great work was finished, the most likely method, it was found, of keeping it in constant repair was to make a present of the tolls to Riquet the engineer, who planned and conducted the work. Those tolls constitute at present a very large estate to the different branches of the family of that gentleman, who have, therefore, a great interest to keep the work in constant repair. But had those tolls been put under the management of commissioners, who had no such interest, they might perhaps have been dissipated in ornamental and unnecessary expences, while the most essential parts of the work were allowed to go to ruin.6
8The tolls for the maintenance of a high road, cannot with any safety be made the property of private persons. A high road, though entirely neglected, does not become altogether impassable, though a canal does. The proprietors of the tolls upon a high road, therefore, might neglect altogether the repair of the road, and yet continue to levy very nearly the same tolls. It is proper, therefore, that the tolls for the maintenance of such a work should be put under the management of commissioners or trustees.
9In Great Britain, the abuses which the trustees have committed in the management of those tolls, have in many cases been very justly complained of. At many turnpikes, it has been said, the money levied is more than double of what is necessary for executing, in the compleatest manner, the work which is often executed in a very slovenly manner, and sometimes not executed at all. The system of repairing the high roads by tolls of this kind, it must be observed, is not of very long standing. We should not wonder, therefore, if it has not yet been brought to that degree of perfection of which it seemsd capable. If mean and improper persons are frequently appointed trustees; and if proper courts of inspection and account have not yet been established for controuling their conduct, and for reducing the tolls to what is barely sufficient for executing the work to be done by them; the recency of the institution both accounts and apologizes for those defects, of which, by the wisdom of parliament, the greater part may in due time be gradually remedied.
10The money levied at the different turnpikes in Great Britain is supposed to exceed so much what is necessary for repairing the roads, that the savings, which, with proper œconomy, might be made from it, have been considered, even by some ministers, as a very great resource which might at some time or another be applied to the exigencies of the state. Government, it has been said, by taking the management of the turnpikes into its own hands, and by employing the soldiers, who would work for a very small addition to their pay, could keep the roads in good order at a much less expence than it can be done by trustees, who have no other workmen to employ, but such as derive their whole subsistence from their wages.7 A great revenue, half a million, perhaps* , it has been pretended, might in this manner be gained without laying any new burden upon the people; and the turnpike roads might be made to contribute to the general expence of the state, in the same manner as the post–office does at present.
11That a considerable revenue might be gained in this manner, I have no doubt, though probably not near so much, as the projectors of this plan have supposed. The plan itself, however, seems liable to several very important objections.
12First, if the tolls which are levied at the turnpikes should ever be considered as one of the resources for supplying the exigencies of the state, they would certainly be augmented as those exigencies were supposed to require. According to the policy of Great Britain, therefore, they would probably be augmented very fast. The facility with which a great revenue could be drawn from them, would probably encourage administration to recur very frequently to this resource. Though it may, perhaps, be more than doubtful, whether half a million could by any œconomy be saved out of the present tolls, it can scarce be doubted but that a million might be saved out of them, if they were doubled; and perhaps two millions, if they were tripled† . This great revenue too might be levied without the appointment of a single new officer to collect and receive it. But the turnpike tolls being continually augmented in this manner, instead of facilitating the inland commerce of the country, as at present, would soon become a very great incumbrance upon it.8 The expence of transporting all heavy goods from one part of the country to another would soon be so much increased, the market for all such goods, consequently, would soon be so much narrowed; that their production would be in a great measure discouraged, and the most important branches of the domestick industry of the country annihilated altogether.9
13Secondly, a tax upon carriages in proportion to their weight, though a very equal tax when applied to the sole purpose of repairing the roads, is a very unequal one, when applied to any other purpose, or to supply the common exigencies of the state. When it is applied to the sole purpose above mentioned, each carriage is supposed to pay exactly for the gwear and tearg which that carriage occasions of the roads. But when it is applied to any other purpose, each carriage is supposed to pay for more than that hwear and tearh and contributes to the supply of some other exigency of the state. But as the turnpike toll raises the price of goods in proportion to their weight, and not to their value, it is chiefly paid by the consumers of coarse and bulky, not by those of precious and light commodities. Whatever exigency of the state therefore this tax might be intended to supply, that exigency would be chiefly supplied at the expence of the poor, not of the rich; at the expence of those who are least able to supply it, not of those who are most able.
14Thirdly, if government should at any time neglect the reparation of the high roads, it would be still more difficult, than it is at present, to compel the proper application of any part of the turnpike tolls. A large revenue might thus be levied upon the people, without any part of it being applied to the only purpose, to which a revenue levied in this manner ought ever to be applied. If the meanness and poverty of the trustees of turnpike roads render it sometimes difficult at present to oblige them to repair their wrong; their wealth and greatness would render it ten times more so in the case which is here supposed.
15In France, the funds destined for the reparation of the high roads are under the immediate direction of the executive power. Those funds consist, partly in ia certain number ofi days labour which the country people are in most parts of Europe obliged to give to the reparation of the highways; and partly in such a portion of the general revenue of the state as the king chuses to spare from his other expences.
16By the antient law of France, as well as by that of most other parts of Europe, the jlabour of the country peoplej was under the direction of a local or provincial magistracy, which had no immediate dependency upon the king’s council. But by the present practice both the klabour of the country peoplek and whatever other fund the king may chuse to assign for the reparation of the high roads in any particular province or generality, are entirely under the management of the intendant; an officer who is appointed and removed by the king’s council, who receives his orders from it, and is in constant correspondence with it. In the progress of despotism the authority of the executive power gradually absorbs that of every other power in the state, and assumes to itself the management of every branch of revenue which is destined for any public purpose. In France, however, the great post–roads, the roads which make the communication between the principal towns of the kingdom, are in general kept in good order; and in some provinces are even a good deal superior to the greater part of the turnpike roads of England. But what we call the cross–roads, that is, the far greater part of the roads in the country, are entirely neglected, and are in many places absolutely impassable for any heavy carriage. In some places it is even dangerous to travel on horseback, and mules are the only conveyance which can safely be trusted. The proud minister of an ostentatious court may frequently take pleasure in executing a work of splendor and magnificence, such as a great highway which is frequently seen by the principal nobility, whose applauses, not only flatter his vanity, but even contribute to support his interest at court. But to execute a great number of little works, in which nothing that can be done can make any great appearance, or excite the smallest degree of admiration in any traveller, and which, in short, have nothing to recommend them but their extreme utility, is a business which appears in every respect too mean and paultry to merit the attention of so great a magistrate. Under such an administration, therefore, such works are almost always entirely neglected.
17In China, and in several other governments of Asia, the executive power charges itself both with the reparation of the high roads, and with the maintenance of the navigable canals. In the instructions which are given to the governor of each province, those objects, it is said, are constantly recommended to him, and the judgment which the court forms of his conduct is very much regulated by the attention which he appears to have paid to this part of his instructions. This branch of publick police accordingly is said to be very much attended to in all those countries, but particularly in China, where the high roads, and still more the navigable canals, it is pretended, exceed very much every thing of the same kind which is known in Europe. The accounts of those works, however, which have been transmitted to Europe, have generally been drawn up by weak and wondering travellers; frequently by stupid and lying missionaries.10 If they had been examined by more intelligent eyes, and if the accounts of them had been reported by more faithful witnesses, they would not, perhaps, appear to be so wonderful. The account which Bernier gives of some works of this kind in Indostan, falls very much short of what had been reported of them by other travellers, more disposed to the marvellous than he was.11 It may too, perhaps, be in those countries, as it is in France, where the great roads, the great communications which are likely to be the subjects of conversation at the court and in the capital, are attended to, and all the rest neglected. In China, besides, in Indostan, and in several other governments of Asia, the revenue of the sovereign arises almost altogether from a land–tax or land–rent, which rises or falls with the rise landl fall of the annual produce of the land. The great interest of the sovereign, therefore, his revenue, is in such countries mnecessarilym and immediately connected with the cultivation of the land, with the greatness of its produce, and with the value of its produce. But in order to render that produce both as great and as valuable as possible, it is necessary to procure to it as extensive a market as possible, and consequently to establish the freest, the easiest, and the least expensive communication between all the different parts of the country; which can be done only by means of the best roads and the best navigable canals. But the revenue of the sovereign does not, in any part of Europe, arise chiefly from a land–tax or land–rent. In all the great kingdoms of Europe, perhaps, the greater part of it may ultimately depend upon the produce of the land: But that dependency is neither so immediate, nor so evident. In Europe, therefore, the sovereign does not feel himself so directly called upon to promote the increase, both in quantity and value, of the produce of the land, or, by maintaining good roads and canals, to provide the most extensive market for that produce. Though it should be true, therefore, what I apprehend is not a little doubtful, that in some parts of Asia this department of the publick police is very properly managed by the executive power, there is not the least probability that, during the present state of things, it could be tolerably managed by that power in any part of Europe.
18Even those publick works which are of such a nature that they cannot afford any revenue for maintaining themselves, but of which the conveniency is nearly confined to some particular place or district, are always better maintained by a local or provincial revenue, under the management of a local and provincial administration, than by the general revenue of the state, of which the executive power must always have the management. Were the streets of London to be lighted and paved at the expence of the treasury, is there any probability that they would be so well lighted and paved as they are at present, or even at so small an expence? The expence, besides, instead of being raised by a local tax upon the inhabitants of each particular street, parish, or district in London, would, in this case, be defrayed out of the general revenue of the state, and would consequently be raised by a tax upon all the inhabitants of the kingdom, of whom the greater part derive no sort of benefit from the lighting and paving of the streets of London.
19The abuses which sometimes creep into the local and provincial administration of a local and provincial revenue, how enormous soever they may appear, are in reality, however, almost always very trifling, in comparison of those which commonly take place in the administration and expenditure of the revenue of a great empire. They are, besides, much more easily corrected. Under the local or provincial administration of the justices of the peace in Great Britain, the six days labour which the country people are obliged to give to the reparation of the highways, is not always perhaps very judiciously applied, but it is scarce ever exacted with any circumstance of cruelty or oppression. In France, under the administration of the intendants, the application is not always more judicious, and the exaction is frequently the most cruel and oppressive.12 Such Corvées, as they are called, make one of the principal instruments of tyranny by which nthose officers chastisen any parish or communeauté which has had the misfortune to fall under otheiro displeasure.
[V.i.e] a–aOf the Publick Works and Institutions which are necessary for facilitating particular Branches of Commerce
1The object of the publick works and institutions above mentioned is to facilitate commerce in general. But in order to facilitate some particular branches of it, particular institutions are necessary, which again require a particular and extraordinary expence.
2Some particular branches of commerce, which are carried on with barbarous and uncivilized nations, require extraordinary protection. An ordinary store or counting–house could give little security to the goods of the merchants who trade to the western coast of Africa. To defend them from the barbarous natives, it is necessary that the place where they are deposited, should be, in some measure, fortified. The disorders in the government of Indostan have been supposed to render a like precaution necessary even among that mild and gentle people; and it was under pretence of securing their persons and property from violence, that both the English and French East India Companies were allowed to erect the first forts which they possessed in that country. Among other nations, whose vigorous government will suffer no strangers to possess any fortified place within their territory, it may be necessary to maintain some ambassador, minister, or consul, who may both decide, according to their own customs, the differences arising among his own countrymen; and, in their disputes with the natives, may, by means of his publick character, interfere with more authority, and afford them a more powerful protection, than they could expect from any private man. The interests of commerce have frequently made it necessary to maintain ministers in foreign countries, where the purposes, either of war or alliance, would not have required any.1 The commerce of the Turkey Company first occasioned the establishment of an ordinary ambassador at Constantinople.2 The first English embassies to Russia arose altogether from commercial interests.3 The constant interference which those interests necessarily occasioned between the subjects of the different states of Europe, has probably introduced the custom of keeping, in all neighbouring countries, ambassadors or ministers constantly resident even in the time of peace. This custom, unknown to antient times, seems not to be older than the end of the fifteenth or beginning of the sixteenth century; that is, than the time when commerce first began to extend itself to the greater part of the nations of Europe, and when they first began to attend to its interests.
3It seems not unreasonable, that the extraordinary expence, which the protection of any particular branch of commerce may occasion, should be defrayed by a moderate tax upon that particular branch; by a moderate fine, for example, to be paid by the traders when they first enter into it, or, what is more equal, by a particular duty of so much per cent. upon the goods which they either import into, or export out of, the particular countries with which it is carried on. The protection of trade in general, from pirates and freebooters, is said to have given occasion to the first institution of the duties of customs. But, if it was thought reasonable to lay a general tax upon trade, in order to defray the expence of protecting trade in general, it should seem equally reasonable to lay a particular tax upon a particular branch of trade, in order to defray the extraordinary expence of protecting that branch.
4The protection of trade in general has always been considered as essential to the defence of the commonwealth, and, upon that account, a necessary part of the duty of the executive power. The collection and application of the general duties of customs, therefore, have always been left to that power. But the protection of any particular branch of trade is a part of the general protection of trade; a part, therefore, of the duty of that power; and if nations always acted consistently, the particular duties levied for the purposes of such particular protection, should always have been left equally to its disposal. But in this respect, as well as in many others, nations have not always acted consistently; and in the greater part of the commercial states of Europe, particular companies of merchants have had the address to perswade the legislature to entrust to them the performance of this part of the duty of the sovereign, together with all the powers which are necessarily connected with it.4
5These companies, though they may, perhaps, have been useful for the first introduction of some branches of commerce, by making, at their own expence, an experiment which the state might not think it prudent to make, have in the long–run proved, universally, either burdensome or useless, and have either mismanaged or confined the trade.5
6When those companies do not trade upon a joint stock, but are obliged to admit any person, properly qualified, upon paying a certain fine, and agreeing to submit to the regulations of the company, each member trading upon his own stock, and at his own risk, they are called regulated companies. When they trade upon a joint stock, each member sharing in the common profit or loss in proportion to his share in this stock, they are called joint stock companies. Such companies, whether regulated or joint stock, sometimes have, and sometimes have not exclusive privileges.
7Regulated companies resemble, in every respect, the corporations of trades, so common in the cities and towns of all the different countries of Europe; and are a sort of enlarged monopolies of the same kind.6 As no inhabitant of a town can exercise an incorporated trade, without first obtaining his freedom in the corporation, so in most cases no subject of the state can lawfully carry on any branch of foreign trade, for which a regulated company is established, without first becoming a member of that company. The monopoly is more or less strict according as the terms of admission are more or less difficult; and according as the directors of the company have more or less authority, or have it more or less in their power to manage, in such a manner as to confine the greater part of the trade to themselves, and their particular friends. In the most antient regulated companies the privileges of apprenticeship were the same as in other corporations;7 and entitled the person who had served his time to a member of the company, to become himself a member, either without paying any fine, or upon paying a much smaller one than what was exacted of other people. 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. When the law has restrained them from doing this, they have become altogether useless and insignificant.
8The regulated companies for foreign commerce, which at present subsist in Great Britain are, the antient merchant adventurers company, now commonly called the Hamburgh Company, the bRussiab Company, the Eastland Company, the Turkey Company, and the African Company.
9The terms of admission into the Hamburgh Company, are now said to be quite easy; and the directors either have it not in their power to subject the trade to any burdensome crestraintsc or regulations, or, at least, have not of late exercised that power. It has not always been so. About the middle of the last century, the fine for admission was fifty, and at one time one hundred pounds,8 and the conduct of the company was said to be extremely oppressive. In 1643, in 1645, and in 1661, the clothiers and free traders of the West of England complained of them to parliament, as of monopolists who confined the trade and oppressed the manufactures of the country.9 Though those complaints produced no act of parliament, they had probably intimidated the company so far, as to oblige them to reform their conduct. Since that time, at least, there dhasd been no complaints against them. By the 10th and 11th of William III. c. 6.10 the fine for admission into the Russian Company was reduced to five pounds; and by the 25th of Charles II. c. 7.11 that for admission into the Eastland Company, to forty shillings, while, at the same time, Sweden, Denmark and Norway, all the countries on the north–side of the Baltick, were exempted from their exclusive charter. The conduct of those companies had probably given occasion to those two acts of parliament. Before that time, Sir Josiah Child12 had represented both these and the Hamburgh Company as extremely oppressive, and imputed to their bad management the low state of the trade, which we at that time carried on to the countries comprehended within their respective charters. But though such companies may not, in the present times, be very oppressive, they are certainly altogether useless. To be merely useless, indeed, is perhaps the highest eulogy which can ever justly be bestowed upon a regulated company; and all the three companies above mentioned seem, in their present state, to deserve this eulogy.
10The fine for admission into the Turky Company, was formerly twenty–five pounds for all persons under twenty–six years of age, and fifty pounds for all persons above that age. Nobody but mere merchants could be admitted; a restriction which excluded all shop–keepers and retailers. By a bye–law, no British manufactures could be exported to Turky but in the general ships of the company; and as those ships sailed always from the port of London, this restriction confined the trade to that eexpensivee port, and the traders, to those who lived in London and in its neighbourhood. By another bye–law, no person living within twenty miles of London, and not free of the city, could be admitted a member; another restriction, which, joined to the foregoing, necessarily excluded all but the freemen of London. As the time for the loading and sailing of those general ships depended altogether upon the directors, they could easily fill them with their own goods and those of their particular friends, to the exclusion of others, who, they might pretend, had made their proposals too late. In this state of things, therefore, this company was in every respect a strict and oppressive monopoly. Those abuses gave occasion to the act of the 26th of George II. c. 18.13 reducing the fine for admission to twenty pounds for all persons, without any distinction of ages, or any restriction, either to mere merchants, or to the freemen of London; and granting to all such persons the liberty of exporting, from all the ports of Great Britain to any port of Turky, all British goods of which the exportation was not prohibited; and of importing from thence all Turkish goods, of which the importation was not prohibited, upon paying both the general duties of customs, and the particular duties assessed for defraying the necessary expences of the company; and submitting, at the same time, to the lawful authority of the British ambassador and consuls resident in Turky, and to the bye–laws of the company duly enacted. To prevent any oppression by those bye–laws, it was by the same act ordained, that if any seven members of the company conceived themselves aggrieved by any bye–law which should be enacted after the passing of this act, they might appeal to the Board of Trade and Plantations (to the authority of which, a committee of the privy council has now succeeded), provided such appeal was brought within twelve months after the bye–law was enacted; and that if any seven members conceived themselves aggrieved by any bye–law which had been enacted before the passing of this act, they might bring a like appeal, provided it was within twelve months after the day on which this act was to take place. The experience of one year, however, may not always be sufficient to discover to all the members of a great company the pernicious tendency of a particular bye–law; and if several of them should afterwards discover it, neither the Board of Trade, nor the committee of council can afford them any redress. The object, besides, of the greater part of the bye–laws of all regulated companies, as well as of all other corporations, is not so much to oppress those who are already members, as to discourage others from becoming so; which may be done, not only by a high fine, but by many other contrivances. The constant view of such companies is always to raise the rate of their own profit as high as they can; to keep the market, both for the goods which they export, and for those which they import, as much understocked as they can: which can be done only by restraining the competition, or by discouraging new adventurers from entering into the trade. A fine even of twenty pounds, besides, though it may not perhaps, be sufficient to discourage any man from entering into the Turky trade, with an intention to continue in it, may be enough to discourage a speculative merchant from hazarding a single adventure in it. In all trades, the regular established traders, even though not incorporated, naturally combine to raise profits, which are no–way so likely to be kept, at all times, down to their proper level, as by the occasional competition of speculative adventurers.14 The Turky trade, though in some measure laid open by this act of parliament, is still considered by many people as very far from being altogether free. The Turky company contribute to maintain an ambassador and two or three consuls, who, like other public ministers, ought to be maintained altogether by the state, and the trade laid open to all his majesty’s subjects. The different taxes levied by the company, for this and other corporation purposes, might afford a revenue much more than sufficient to enable the state to maintain such ministers.
11Regulated companies, it was observed by Sir Josiah Child,15 though they had frequently supported publick ministers, had never maintained any forts or garrisons in the countries to which they traded; whereas joint stock companies frequently had. And in reality the former seem to be much more unfit for this sort of service than the latter. First, the directors of a regulated company have no particular interest in the prosperity of the general trade of the company, for the sake of which, such forts and garrisons are maintained. The decay of that general trade may even frequently contribute to the advantage of their own private trade; as by diminishing the number of their competitors, it may enable them both to buy cheaper, and to sell dearer. The directors of a joint stock company, on the contrary, having only their share in the profits which are made upon the common stock committed to their management, have no private trade of their own, of which the interest can be separated from that of the general trade of the company. Their private interest is connected with the prosperity of the general trade of the company; and with the maintenance of the forts and garrisons, which are necessary for its defence. They are more likely, therefore, to have that continual and careful attention which that maintenance necessarily requires.16 Secondly, The directors of a joint stock company have always the management of a large capital, the joint stock of the company, a part of which they may frequently employ, with propriety, in building, repairing, and maintaining such necessary forts and garrisons. But the directors of a regulated company, having the management of no common capital, have no other fund to employ in this way, but the casual revenue arising from the admission fines, and from the corporation duties, imposed upon the trade of the company. Though they had the same interest, therefore, to attend to the maintenance of such forts and garrisons, they can seldom have the same ability to render that attention effectual. The maintenance of a publick minister requiring scarce any attention, and but a moderate and limited expence, is a business much more suitable both to the temper and abilities of a regulated company.
12Long after the time of Sir Josiah Child, however, in 1750, a regulated company was established, the present company of merchants trading to Africa, which was expressly charged at first with the maintenance of all the British forts and garrisons that lie between Cape Blanc and the Cape of Good Hope, and afterwards with that of those only which lie between Cape Rouge and the Cape of Good Hope. The act which establishes this company (the 23d of George II. c. 31.)17 seems to have had two distinct objects in view; first, to restrain effectually the oppressive and monopolizing spirit which is natural to the directors of a regulated company; and secondly, to force them, as much as possible, to give an attention, which is not natural to them, towards the maintenance of forts and garrisons.
13For the first of these purposes, the fine for admission is limited to forty shillings. The company is prohibited from trading in their corporate capacity, or upon a joint stock; from borrowing money upon common seal, or from laying any restraints upon 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, but who are chosen annually by the freemen of the company at London, Bristol and Liverpool; three from each place. No committee–man can be continued in office for more than three years together. Any committee–man might be removed by the Board of Trade and Plantations; now by a committee of council, after being heard in his own defence. The committee are forbid to export negroes from Africa, or to import any African goods into Great Britain. But as they are charged with the maintenance of forts and garrisons, they may, for that purpose, export from Great Britain to Africa, goods and stores of different kinds. Out of the monies which they shall receive from the company, they are allowed a sum not exceeding eight hundred pounds for the salaries of their clerks and agents at London, Bristol and Liverpool, the house rent of their office at London, and allf other expences of management, commission and agency in England. What remains of this sum, after defraying these different expences, they may divide among themselves, as compensation for their trouble, in what manner they think proper. By this constitution, it might have been expected, that the spirit of monopoly would have been effectually restrained, and the first of these purposes sufficiently answered. It would seem, however, that it had not. Though by the 4th of George III. c. 20.18 the fort of Senegal, with all its dependencies, had been vested in the company of merchants trading to Africa, yet in the year following, (by the 5th of George III. c. 44.)19 not only Senegal and its dependencies, but the whole coast, from the port of Sallee, in south Barbary, to Cape Rouge, was exempted from the jurisdiction of that company, was vested in the crown, and the trade to it declared free to all his majesty’s subjects. The company had been suspected of restraining the trade, and of establishing some sort of improper monopoly. It is not, however, very easy to conceive how, under the regulations of the 23d George II. they could do so. In the printed debates of the House of Commons, not always the most authentic records of truth, I observe, however, that they have been accused of this. The members of the committee of nine, being all merchants, and the governors and factors, in their different forts and settlements, being all dependent upon them, it is not unlikely that the latter might have given peculiar attention to the consignments and commissions of the former, which would establish a real monopoly.
14For the second of these purposes, the maintenance of the forts and garrisons, an annual sum has been allotted to them by parliament, generally about 13,000 l. For the proper application of this sum, the committee is obliged to account annually to the Cursitor Baron of Exchequer; which account is afterwards to be laid before parliament. But parliament, which gives so little attention to the application of millions, is not likely to give much to that of 13,000 l. a–year; and the Cursitor Baron of Exchequer, from his profession and education, is not likely to be profoundly skilled in the proper expence of forts and garrisons. The captains of his majesty’s navy, indeed, or any other commissioned officers, appointed by the Board of Admiralty, may enquire into the condition of the forts and garrisons, and report their observations to that board. But that board seems to have no direct jurisdiction over the committee, nor any authority to correct those whose conduct it may thus enquire into; and the captains of his majesty’s navy, besides, are not supposed to be always deeply learned in the science of fortification. Removal from an office, which can be enjoyed only for the term of three years, and of which the lawful emoluments, even during that term, are so very small, seems to be the utmost punishment to which any committee–man is liable, for any fault, except direct malversation, or embezzlement, either of the publick money, or of that of the company; and the fear of that punishment can never be a motive of sufficient weight to force a continual and careful attention to a business, to which he has no other interest to attend. The committee are accused of having sent out bricks and stones from England for the reparation of Cape Coast Castle on the coast of Guinea, a business for which parliament had several times granted an extraordinary sum of money. These bricks and stones too, which had thus been sent upon so long a voyage, were said to have been of so bad a quality, that it was necessary to rebuild from the foundation the walls which had been repaired with them. The forts and garrisons which lie north of Cape Rouge, are not only maintained at the expence of the state, but are under the immediate government of the executive power; and why those which lie south of that Cape, and which too are, in part at least, maintained at the expence of the state, should be under a different government, it seems not very easy even to imagine a good reason. The protection of the Mediterranean trade was the original purpose or pretence of the garrisons of Gibraltar and Minorca,20 and the maintenance and government of those garrisons has always been, very properly, committed, not to the Turky Company, but to the executive power. In the extent of its dominion consists, in a great measure, the pride and dignity of that power; and it is not very likely to fail in attention to what is necessary for the defence of that dominion. The garrisons at Gibraltar and Minorca, accordingly, have never been neglected; though Minorca has been twice taken, and is now probably lost for ever, that disaster was never even imputed to any neglect in the executive power. I would not, however, be understood to insinuate, that either of those expensive garrisons was ever, even in the smallest degree, necessary for the purpose for which they were originally dismembered from the Spanish monarchy. That dismemberment, perhaps, never served any other real purpose than to alienate from England her natural ally the King of Spain, and to unite the two principal branches of the house of Bourbon in a much stricter and more permanent alliance than the ties of blood could ever have united them.21
15Joint stock companies, established either by royal charter or by act of parliament, differ in several respects, not only from regulated companies, but from private copartneries.22
16First, In a private copartnery, no partner, without the consent of the company, can transfer his share to another person, or introduce a new member into the company. Each member, however, may, upon proper warning, withdraw from the copartnery, and demand payment from them of his share of the common stock. In a joint stock company, on the contrary, no member can demand payment of his share from the company; but each member can, without their consent, transfer his share to another person, and thereby introduce a new member. The value of a share in a joint stock is always the price which it will bring in the market; and this may be either greater or less, in any proportion, than the sum which its owner stands credited for in the stock of the company.
17Secondly, In a private copartnery, each partner is bound for the debts contracted by the company to the whole extent of his fortune. In a joint stock company, on the contrary, each partner is bound only to the extent of his share.23
18The trade of a joint stock company is always managed by a court of directors. The court, indeed, is frequently subject, in many respects, to the controul of a general court of proprietors. But the greater part of gthoseg proprietors seldom pretend to understand any thing of the business of the company; and when the spirit of faction happens not to prevail among them, give themselves no trouble about it, but receive contentedly such half yearly or yearly dividend, as the directors think proper to make to them. This total exemption from trouble and from risk, beyond a limited sum, encourages many people to become adventurers in joint stock companies, who would, upon no account, hazard their fortunes in any private copartnery.24 Such companies, therefore, commonly draw to themselves much greater stocks than any private copartnery can boast of. The trading stock of the South Sea Company, at one time, amounted to upwards of thirty–three millions eight hundred thousand pounds.25 The divided capital of the Bank of England amounts, at present, to ten millions seven hundred and eighty thousand pounds.26 The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. It is upon this account that joint stock companies for foreign trade have seldom been able to maintain the competition against private adventurers.27 They have, accordingly, very seldom succeeded without an exclusive privilege; and frequently have not succeeded with one. Without an exclusive privilege they have commonly mismanaged the trade. With an exclusive privilege they have both mismanaged and confined it.
19The royal African Company, the predecessors of the present African Company, had an exclusive privilege by charter;28 but as that charter had not been confirmed by act of parliament, the trade, in consequence of the declaration of rights,29 was, soon after the revolution, laid open to all his majesty’s subjects. The Hudson’s Bay Company are, as to their legal rights, in the same situation as the Royal African Company. Their exclusive charter has not been confirmed by act of parliament. The South Sea Company, as long as they continued to be a trading company, had an exclusive privilege confirmed by act of parliament; as have likewise the present United Company of Merchants trading to the East Indies.
20The Royal African Company soon found that they could not maintain the competition against private adventures, whom, notwithstanding the declaration of rights, they continued for some time to call interlopers, and to persecute as such. In 1698, however, the private adventurers were subjected to a duty of ten per cent. upon almost all the different branches of their trade, to be employed by the company in the maintenance of their forts and garrisons30 . But, notwithstanding this heavy tax, the company were still unable to maintain the competition. Their stock and credit gradually declined. In 1712, their debts had become so great, that a particular act of parliament was thought necessary, both for their security and for that of their creditors.31 It was enacted, that the resolution of two–thirds of these creditors in number and value, should bind the rest, both with regard to the time which should be allowed to the company for the payment of their debts; and with regard to any other agreement which it might be thought proper to make with them concerning those debts. In 1730, their affairs were in so great disorder, that they were altogether incapable of maintaining their forts and garrisons, the sole purpose and pretext of their institution. From that year, till their final dissolution, the parliament judged it necessary to allow the annual sum of ten thousand pounds for that purpose.32 In 1732, after having been for many years losers by the trade of carrying negroes to the West Indies, they at last resolved to give it up altogether; to sell to the private traders to America the negroes which they purchased upon the coast; and to employ their servants in a trade to the inland parts of Africa for gold dust, elephants teeth, dying drugs, &c. But their success in this more confined trade was not greater than in their former extensive one. Their affairs continued to go gradually to decline, till at last, being in every respect a bankrupt company, they were dissolved by act of parliament, and their forts and garrisons vested in the present regulated company of merchants trading to Africa.33 Before the erection of the Royal African Company, there had been three other joint stock companies successively established, one after another, for the African trade.34 They were all equally unsuccessful. They all, however, had exclusive charters which, though not confirmed by act of parliament, were in those days supposed to convey a real exclusive privilege.35
21The Hudson’s Bay Company, before their misfortunes in the late war, had been much more fortunate than the Royal African Company. Their necessary expence is much smaller. The whole number of people whom they maintain in their different settlements and habitations, which they have honoured with the name of forts, is said not to exceed a hundred and twenty persons. This number, however, is sufficient to prepare beforehand the cargo of furs and other goods necessary for loading their ships, which, on account of the ice, can seldom remain above six or eight weeks in those seas. This advantage of having a cargo ready prepared, could not for several years be acquired by private adventurers, and without it there seems to be no possibility of trading to Hudson’s Bay. The moderate capital of the company, which, it is said, does not exceed one hundred and ten thousand pounds,36 may besides be sufficient to enable them to engross the whole, or almost the whole, trade and surplus produce of the miserable, though extensive country, comprehended within their charter. No private adventurers, accordingly, have ever attempted to trade to that country in competition with them. This company, therefore, have always enjoyed an exclusive trade in fact, though they may have no right to it in law. Over and above all this, the moderate capital of this company is said to be divided among a very small number of proprietors.37 But a joint stock company, consisting of a small number of proprietors, with a moderate capital, approaches very nearly to the nature of a private copartnery, and may be capable of nearly the same degree of vigilance and attention. It is not to be wondered at, therefore, if, in consequence of these different advantages, the Hudson’s Bay Company had, before the late war, been able to carry on their trade with a considerable degree of success. It does not seem probable, however, that their profits ever approached to what the late Mr. Dobbs imagined them.38 A much more sober and judicious writer, Mr. Anderson, author of The Historical and Chronological Deduction of Commerce, very justly observes, that upon examining the accounts which Mr. Dobbs himself has given for several years together, of their exports and imports, and upon making proper allowances for their extraordinary risk and expence, it does not appear that their profits deserve to be envied, or that they can much, if at all, exceed the ordinary profits of trade.39
22The South Sea Company never had any forts or garrisons to maintain, and therefore were entirely exempted from one great expence, to which other joint stock companies for foreign trade are subject. But they had an immense capital divided among an immense number of proprietors. It was naturally to be expected, therefore, that folly, negligence, and profusion should prevail in the whole management of their affairs. The knavery and extravagance of their stock–jobbing projects are sufficiently known, and the explication of them would be foreign to the present subject. Their mercantile projects were not much better conducted. The first trade which they engaged in was that of supplying the Spanish West Indies with negroes, of which (in consequence of what was called the Assiento contract granted them by the treaty of Utrecht) they had the exclusive privilege.40 But as it was not expected that much profit could be made by this trade, both the Portugueze and French companies, who had enjoyed it upon the same terms before them, having been ruined by it, they were allowed, as compensation, to send annually a ship of a certain burden to trade directly to the Spanish West Indies. Of the ten voyages which this annual ship was allowed to make, they are said to have gained considerably by one, that of the Royal Caroline in 1731, and to have been losers, more or less, by almost all the rest. Their ill success was imputed, by their factors and agents, to the extortion and oppression of the Spanish government; but was, perhaps, principally owing to the profusion and depredations of those very factors and agents; some of whom are said to have acquired great fortunes even in one year.41 In 1734, the company petitioned the king, that they might be allowed to dispose of the trade and tunnage of their annual ship, on account of the little profit which they made by it, and to accept of such equivalent as they could obtain from the king of Spain.42
23In 1724, this company had undertaken the whale–fishery. Of this, indeed, they had no monopoly; but as long as they carried it on, no other British subjects appear to have engaged in it. Of the eight voyages which their ships made to Greenland, they were gainers by one, and losers by all the rest. After their eighth and last voyage, when they had sold their ships, stores, and utensils, they found that their whole loss, upon this branch, capital and interest included, amounted to upwards of two hundred and thirty–seven thousand pounds.43
24In 1722, this company petitioned the parliament to be allowed to divide their immense capital of more than thirty–three millions eight hundred thousand pounds, the whole of which had been lent to government, into two equal parts: The one half, or upwards of sixteen millions nine hundred thousand pounds, to be put upon the same footing with other government annuities, and not to be subject to the debts contracted, or losses incurred, by the directors of the company, in the prosecution of their mercantile projects; the other half to remain, as before, a trading stock, and to be subject to those debts and losses. The petition was too reasonable not to be granted.44 In 1733, they again petitioned the parliament, that three–fourths of their trading stock might be turned into annuity stock, and only one–fourth remain as trading stock, or exposed to the hazards arising from the bad management of their directors.45 Both their annuity and trading stocks had, by this time, been reduced more than two millions each, by several different payments from government; so that this fourth amounted only to 3,662,784l. 8s. 6d.46 In 1748, all the demands of the company upon the king of Spain, in consequence of the Assiento contract, were, by the treaty of Aix–la–Chapelle, given up for what was supposed an equivalent.47 An end was put to their trade with the Spanish West Indies, the remainder of their trading stock was turned into an annuity stock, and the company ceased in every respect to be a trading company.48
25It ought to be observed, that in the trade which the South Sea Company carried on by means of their annual ship, the only trade by which it ever was expected that they could make any considerable profit, they were not without competitors, either in the foreign or in the home market. At Carthagena, Porto Bello, and La Vera Cruz, they had to encounter the competition of the Spanish merchants, who brought from Cadiz, to those markets, European goods, of the same kind with the outward cargo of their ship; and in England they had to encounter that of the English merchants, who imported from Cadiz goods of the Spanish West Indies, of the same kind with the inward cargo. The goods both of the Spanish and English merchants, indeed, were, perhaps, subject to higher duties. But the loss occasioned by the negligence, profusion, and malversation of the servants of the company, had probably been a tax much heavier than all those duties. That a joint stock company should be able to carry on successfully any branch of foreign trade, when private adventurers can come into any sort of open and fair competition with them, seems contrary to all experience.
26The old English East India Company was established in 1600, by a charter from Queen Elizabeth. In the first twelve voyages which they fitted out for India, they appear to have traded as a regulated company, with separate stocks, though only in the general ships of the company. In 1612, they united into a joint stock.49 Their charter was exclusive, and though not confirmed by act of parliament, was in those days supposed to convey a real exclusive privilege. For many years, therefore, they were not much disturbed by interlopers. Their capital, which never exceeded seven hundred and forty–four thousand pounds,50 and of which fifty pounds was a share, was not so exorbitant, nor their dealings so extensive, as to afford either a pretext for gross negligence and profusion, or a cover to gross malversation. Notwithstanding some extraordinary losses, occasioned partly by the malice of the Dutch East India Company, and partly by other accidents, they carried on for many years a successful trade. But in process of time, when the principles of liberty were better understood, it became every day more and more doubtful how far a royal charter, not confirmed by act of parliament, could convey an exclusive privilege. Upon this question the decisions of the courts of justice were not uniform, but varied with the authority of government and the humours of the times. Interlopers multiplied upon them; and towards the end of the reign of Charles II. through the whole of that of James II. and during a part of that of William III. reduced them to great distress.51 In 1698, a proposal was made to parliament of advancing two millions to government at eight per cent. provided the subscribers were erected into a new East India Company with exclusive privileges. The old East India Company offered seven hundred thousand pounds, nearly the amount of their capital,52 at four per cent. upon the same conditions. But such was at that time the state of publick credit, that it was more convenient for government to borrow two millions at eight per cent. than seven hundred thousand pounds at four. The proposal of the new subscribers was accepted, and a new East India Company established in consequence.53 The old East India Company, however, had a right to continue their trade till 1701. They had, at the same time, in the name of their treasurer, subscribed, very artfully, three hundred and fifteen thousand pounds into the stock of the new. By a negligence in the expression of the act of parliament, which vested the East India trade in the subscribers to this loan of two millions, it did not appear evident that they were all obliged to unite into a joint stock. A few private traders, whose subscriptions amounted only to seven thousand two hundred pounds, insisted upon the privilege of trading separately upon their own stocks and at their own risk.54 The old East India Company had a right to a separate trade upon their old stock till 1701; and they had likewise, both before and after that period, a right, like that of other private traders, to a separate trade upon the three hundred and fifteen thousand pounds, which they had subscribed into the stock of the new company. The competition of the two companies with the private traders, and with one another, is said to have well nigh ruined both. Upon a subsequent occasion, in 1730, when a proposal was made to parliament for putting the trade under the management of a regulated company, and thereby laying it in some measure open, the East India Company, in opposition to this proposal, represented in very strong terms, what had been, at this time, the miserable effects, as they thought them, of this competition. In India, they said, it raised the price of goods so high, that they were not worth the buying; and in England, by over–stocking the market, it sunk their price so low, that no profit could be made by them. That by a more plentiful supply, to the great advantage and conveniency of the publick, it must have reduced, very much, the price of India goods in the English market, cannot well be doubted; but that it should have raised very much their price in the Indian market, seems not very probable, as all the extraordinary demand which that competition could occasion, must have been but as a drop of water in the immense ocean of Indian commerce. The increase of demand, besides, though in the beginning it may sometimes raise the price of goods, never fails to lower it in the long run. It encourages production, and thereby increases the competition of the producers, who, in order to undersell one another, have recourse to new divisions of labour and new improvements of art, which might never otherwise have been thought of.55 The miserable effects of which the company complained, were the cheapness of consumption and the encouragement given to production, precisely the two effects which it is the great business of political œconomy to promote. The competition, however, of which they gave this doleful account, had not been allowed to be of long continuance. In 1702, the two companies were, in some measure, united by an indenture tripartite, to which the queen was the third party; and in 1708, they were, by act of parliament56 perfectly consolidated into one company by their present name of The United Company of Merchants trading to the East Indies. Into this act it was thought worth while to insert a clause, allowing the separate traders to continue their trade till Michaelmas 1711, but at the same time empowering the directors, upon three years notice, to redeem their little capital of seven thousand two hundred pounds, and thereby to convert the whole stock of the company into a joint–stock. By the same act, the capital of the company, in consequence of a new loan to government, was augmented from two millions, to three millions two hundred thousand pounds. In 1743, the company advanced another million to government.57 But this million being raised, not by a call upon the proprietors, but by selling annuities and contracting bond–debts, it did not augment the stock upon which the proprietors could claim a dividend. It augmented, however, their trading stock, it being equally liable with the other three millions two hundred thousand pounds, to the losses sustained and debts contracted, by the company in prosecution of their mercantile projects. From 1708, or at least from 1711, this company, being delivered from all competitors, and fully established in the monopoly of the English commerce to the East Indies, carried on a successful trade, and from their profits made annually a moderate dividend to their proprietors.58 During the French war, which began in 1741, the ambition of Mr. Dupleix, the French governor of Pondicherry, involved them in the wars of the Carnatic, and in the politics of the Indian princes. After many signal successes, and equally signal losses, they at last lost Madras, at that time their principal settlement in India. It was restored to them by the treaty of Aix–la–Chapelle; and about this time the spirit of war and conquest seems to have taken possession of their servants in India, and never since to have left them. During the French war, which began in 1755, their arms partook of the general good fortune of those of Great Britain. They defended Madras, took Pondicherry, recovered Calcutta, and acquired the revenues of a rich and extensive territory, amounting, it was then said, to upwards of three millions a–year. They remained for several years in quiet possession of this revenue: But in 1767, administration laid claim to their territorial acquisitions, and the revenue arising from them, as of right belonging to the crown; and the company, in compensation for this claim, agreed to pay to government four hundred thousand pounds a–year. They had before this gradually augmented their dividend from about six to ten per cent.; that is, upon their capital of three millions two hundred thousand pounds, they had increased it by a hundred and twenty–eight thousand pounds, or had raised it from one hundred and ninety–two thousand, to three hundred and twenty thousand pounds a–year. They were attempting about this time to raise it still further, to twelve and a half per cent. which would have made their annual payments to their proprietors equal to what they had agreed to pay annually to government, or to four hundred thousand pounds a–year. But during the two years in which their agreement with government was to take place, they were restrained from any further increase of dividend by two successive acts of parliament,59 of which the object was to enable them to make a speedier progress in the payment of their debts, which were at this time estimated at upwards of six or seven millions sterling. In 1769, they renewed their agreement with government for five years more, and stipulated, that during the course of that period they should be allowed gradually to increase their dividend to twelve and a half per cent.; never increasing it, however, more than one per cent. in one year.60 This increase of dividend, therefore, when it had risen to its utmost height, could augment their annual payments, to their proprietors and government together, but by six hundred and eight thousand pounds, beyond what they had been before their late territorial acquisitions. What the gross revenue of those territorial acquisitions was supposed to amount to, has already been mentioned; and by an account brought by the Cruttenden East Indiaman in 1768, the nett revenue, clear of all deductions and military charges, was stated at two millions forty–eight thousand seven hundred and forty–seven pounds. They were said at the same time to possess another revenue, arising partly from lands, but chiefly from the customs established at their different settlements, amounting to four hundred and thirty–nine thousand pounds. The profits of their trade too, according to the evidence of their chairman before the House of Commons, amounted at this time to at least four hundred thousand pounds a–year; according to that of their accomptant, to at least five hundred thousand; according to the lowest account, at least equal to the highest dividend that was to be paid to their proprietors. So great a revenue might certainly have afforded an augmentation of six hundred and eight thousand pounds in their annual payments; and at the same time have left a large sinking fund sufficient for the speedy reduction of their debts. In 1773, however, their debts, instead of being reduced, were augmented by an arrear to the treasury in the payment of the four hundred thousand pounds, by another to the custom–house for duties unpaid, by a large debt to the bank for money borrowed, and by a fourth for bills drawn upon them from India, and wantonly accepted, to the amount of upwards of twelve hundred thousand pounds.61 The distress which these accumulated claims brought upon them, obliged them, not only to reduce all at once their dividend to six per cent.62 but to throw themselves upon the mercy of government, and to supplicate, first, a release from the further payment of the stipulated four hundred thousand pounds a–year; and, secondly, a loan of fourteen hundred thousand, to save them from immediate bankruptcy. The great increase of their fortune had, it seems, only served to furnish their servants with a pretext for greater profusion, and a cover for greater malversation, than in proportion even to that increase of fortune. The conduct of their servants in India, and the general state of their affairs both in India and in Europe, became the hsubjectsh of a parliamentary inquiry;63 in consequence of which several very important alterations were made in the constitution of their government, both at home and abroad.64 In India, their principal settlements of Madras, Bombay, and Calcutta, which had before been altogether independent of one another, were subjected to a governor–general, assisted by a council of four assessors, parliament assuming to itself the first nomination of this governor and council who were to reside at Calcutta; that city having now become, what Madras was before, the most important of the English settlements in India. The court of the mayor of Calcutta, originally instituted for the trial of mercantile causes, which arose in the city and neighbourhood, had gradually extended its jurisdiction with the extension of the empire. It was now reduced and confined to the original purpose of its institution. Instead of it a new supreme court of judicature was established, consisting of a chief justice and three judges to be appointed by the crown. In Europe, the qualification necessary to entitle a proprietor to vote at their general courts was raised, from five hundred pounds, the original price of a share in the stock of the company, to a thousand pounds. In order to vote upon this qualification too, it was declared necessary that he should have possessed it, if acquired by his own purchase, and not by inheritance, for at least one year, instead of six months, the term requisite before. The court of twenty–four directors had before been chosen annually; but it was now enacted that each director should, for the future, be chosen for four years; six of them, however, to go out of office by rotation every year, and not to be capable of being re–chosen at the election of the six new directors for the ensuing year. In consequence of these alterations, the courts, both of the proprietors and directors, it was expected, would be likely to act with more dignity and steadiness than they had usually done before. But it seems impossible, by any alterations, to render those courts, in any respect, fit to govern, or even to share in the government of a great empire; because the greater part of their members must always have too little interest in the prosperity of that empire, to give any serious attention to what may promote it. Frequently a man of great, sometimes even a man of small fortune, is willing to purchase a thousand pounds share in India stock, merely for the influence which he expects to acquire by a vote in the court of proprietors. It gives him a share, though not in the plunder, yet in the appointment of the plunderers of India; the court of directors, though they make that appointment, being necessarily more or less under the influence of the proprietors, who not only elect those directors, but sometimes over–rule the appointments of their servants in India. Provided he can enjoy this influence for a few years, and thereby provide for a certain number of his friends, he frequently cares little about the dividend; or even about the value of the stock upon which his vote is founded. About the prosperity of the great empire, in the government of which that vote gives him a share, he seldom cares at all. No other sovereigns ever were, or, from the nature of things, ever could be, so perfectly indifferent about the happiness or misery of their subjects, the improvement or waste of their dominions, the glory or disgrace of their administration; as, from irresistible moral causes, the greater part of the proprietors of such a mercantile company are, and necessarily must be.65 This indifference too was more likely to be increased than diminished by some of the new regulations, which were made in consequence of the parliamentary inquiry. By a resolution of the House of Commons, for example, it was declared, that when the fourteen hundred thousand pounds lent to the company by government should be paid, and their bond–debts be reduced to fifteen hundred thousand pounds, they might then, and not till then, divide eight per cent. upon their capital; and that whatever remained of their revenues and ineati profits at home, should be divided into four parts; three of them to be paid into the exchequer for the use of the publick, and the fourth to be reserved as a fund, either for the further reduction of their bond–debts, or for the discharge of other contingent exigencies, which the company might labour under.66 But if the company were bad stewards, and bad sovereigns, when the whole of their nett revenue and profits belonged to themselves, and were at their own disposal, they were surely not likely to be better, when three–fourths of them were to belong to other people, and the other fourth, though to be laid out for the benefit of the company, yet to be so, under the inspection, and with the approbation, of other people.
27It might be more agreeable to the company that their own servants and dependants should have either the pleasure of wasting, or the profit of embezzling whatever surplus might remain, after paying the proposed dividend of eight per cent., than that it should come into the hands of a set of people with whom those resolutions could scarce fail to set them, in some measure, at variance. The interest of those servants and dependants might so far predominate in the court of proprietors, as sometimes to dispose it to support the authors of depredations which had been committed, in direct violation of its own authority. With the majority of proprietors, the support even of the authority of their own court might sometimes be a matter of less consequence, than the support of those who had set that authority at defiance.
28The regulations of 1773, accordingly, did not put an end to the disorders of the company’s government in India. Notwithstanding that, during a momentary fit of good conduct, they had at one time collected, into the treasury of Calcutta, more than three millions sterling; notwithstanding that they had afterwards extended, either their dominion, or their depredations, over a vast accession of some of the richest and most fertile countries in India; all was wasted and destroyed. They found themselves altogether unprepared to stop or resist the incursion of Hyder Ali; and, in consequence of those disorders, the company is now (1784) in greater distress than ever; and, in order to prevent immediate bankruptcy, is once more reduced to supplicate the assistance of government.67 Different plans have been proposed by the different parties in parliament, for the better management of its affairs. And all those plans seem to agree in supposing, what was indeed always abundantly evident, that it is altogether unfit to govern its territorial possessions. Even the company itself seems to be convinced of its own incapacity so far, and seems, upon that account, willing to give them up to government.
29With the right of possessing forts and garrisons, in distant and barbarous countries, is necessarily connected the right of making peace and war in those countries. The joint stock companies which have had the one right, have constantly exercised the other, and have frequently had it expressly conferred upon them. How unjustly, how capriciously, how cruelly they have commonly exercised it, is too well known from recent experience.
30When a company of merchants undertake, at their own risk and expence, to establish a new trade with some remote and barbarous nation, it may not be unreasonable to incorporate them into a joint stock company, and to grant them, in case of their success, a monopoly of the trade for a certain number of years. It is the easiest and most natural way in which the state can recompense them for hazarding a dangerous and expensive experiment, of which the publick is afterwards to reap the benefit.68 A temporary monopoly of this kind may be vindicated upon the same principles upon which a like monopoly of a new machine is granted to its inventor, and that of a new book to its author.69 But upon the expiration of the term, the monopoly ought certainly to determine; the forts and garrisons, if it was found necessary to establish any, to be taken into the hands of government, their value to be paid to the company, and the trade to be laid open to all the subjects of the state. By a perpetual monopoly, all the other subjects of the state are taxed very absurdly in two different ways; first, by the high price of goods, which, in the case of a free trade, they could buy much cheaper; and, secondly, by their total exclusion from a branch of business, which it might be both convenient and profitable for many of them to carry on. It is for the most worthless of all purposes too that they are taxed in this manner.70 It is merely to enable the company to support the negligence, profusion, and malversation of their own servants, whose disorderly conduct seldom allows the dividend of the company to exceed the ordinary rate of profit in trades which are altogether free, and very frequently makes it fall even a good deal short of that rate. Without a monopoly, however, a joint stock company, it would appear from experience, cannot long carry on any branch of foreign trade. To buy in one market, in order to sell, with profit, in another, when there are many competitors in both; to watch over, not only the occasional variations in the demand, but the much greater and more frequent variations in the competition, or in the supply which that demand is likely to get from other people, and to suit with dexterity and judgment both the quantity and quality of each assortment of goods to all these circumstances, is a species of warfare of which the operations are continually changing, and which can scarce ever be conducted successfully, without such an unremitting exertion of vigilance and attention, as cannot long be expected from the directors of a joint stock company. The East India Company, upon the redemption of their funds, and the expiration of their exclusive privilege, have a right, by act of parliament, to continue a corporation with a joint stock, and to trade in their corporate capacity to the East Indies in common with the rest of their fellow–subjects. But in this situation, the superior vigilance and attention of private adventurers would, in all probability, soon make them weary of the trade.
31An eminent French author, of great knowledge in matters of political oeconomy, the Abbé Morellet,71 gives a list of fifty–five joint stock companies for foreign trade, which have been established in different parts of Europe since the year 1600, and which, according to him, have all failed from mismanagement, notwithstanding they had exclusive privileges. He has been misinformed with regard to the history of two or three of them, which were not joint stock companies and have not failed. But, in compensation, there have been several joint stock companies which have failed, and which he has omitted.
32 The only trades which it seems possible for a joint stock company to carry on successfully, without an exclusive privilege, are those, of which all the operations are capable of being reduced to what it called a Routine, or to such a uniformity of method as admits of little or no variation. Of this kind is, first, the banking trade; secondly, the trade of insurance from fire, and from sea risk and capture in time of war; thirdly, the trade of making and maintaining a navigable cut or canal; and, fourthly, the similar trade of bringing water for the supply of a great city.72
33Though 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: But the constitution of joint stock companies renders them in general more tenacious of established rules than any private copartnery.73 Such companies, therefore, seem extremely well fitted for this trade. The principal banking companies in Europe, accordingly, are joint stock companies, many of which manage their trade very successfully without any exclusive privilege. The Bank of England has no other exclusive privilege, except that no other banking company in England shall consist of more than six persons.74 The two banks of Edinburgh are joint stock companies without any exclusive privilege.75
34 The value of the risk, either from fire, or from loss by sea, or by capture, though it cannot, perhaps, be calculated very exactly, admits, however, of such a gross estimation as renders it, in some degree, reducible to strict rule and method. The trade of insurance, therefore, may be carried on successfully by a joint stock company, without any exclusive privilege. Neither the London Assurance, nor the Royal Exchange Assurance companies, have any such privilege.76
35When a navigable cut or canal has been once made, the management of it becomes quite simple and easy, andj is reducible to strict rule and method. Even the making of it is so, as it may be contracted for with undertakers at so much a mile, and so much a lock. The same thing may be said of a canal, an aqueduct, or a great pipe for bringing water to supply a great city. Such undertakings, therefore, may be, and accordingly frequently are, very successfully managed by joint stock companies without any exclusive privilege.
36To establish a joint stock company, however, for any undertaking, merely because such a company might be capable of managing it successfully; or to exempt a particular set of dealers from some of the general laws which take place with regard to all their neighbours, merely because they might be capable of thriving if they had such an exemption, would certainly not be reasonable. To render such an establishment perfectly reasonable, with the circumstance of being reducible to strict rule and method, two other circumstances ought to concur. First, it ought to appear with the clearest evidence, that the undertaking is of greater and more general utility than the greater part of common trades; and secondly, that it requires a greater capital than can easily be collected into a private copartnery. If a moderate capital kwask sufficient, the great utility of the undertaking would not be a sufficient reason for establishing a joint stock company; because, in this case, the demand for what it was to produce would readily and easily be supplied by private adventurers. In the four trades abovementioned, both those circumstances concur.
37The great and general utility of the banking trade, when prudently managed, has been fully explained in the second book of this inquiry.77 But a publick bank which is to support publick credit, and upon particular emergencies to advance to government the whole produce of a tax, to the amount, perhaps, of several millions, a year or two before it comes in, requires a greater capital than can easily be collected into any private copartnery.
38The trade of insurance gives great security to the fortunes of private people, and by dividing among a great many that loss which would ruin an individual, makes it fall light and easy upon the whole society. In order to give this security, however, it is necessary that the insurers should have a very large capital. Before the establishment of the two joint stock companies for insurance in London, a list, it is said, was laid before the attorney–general, of one hundred and fifty private insurers who had failed in the course of a few years.
39 That navigable cuts and canals, and the works are which sometimes necessary for supplying a great city with water, are of great and general utility; while at the same time they frequently require a greater expence, than suits the fortunes of private people, is sufficiently obvious.
40Except the four trades above mentioned, I have not been able to recollect any other in which all the three circumstances, requisite for rendering reasonable the establishment of a joint stock company, concur. The English copper company of London, the lead smelting company, the glass grinding company, have not even the pretext of any great or singular utility in the object which they pursue; nor does the pursuit of that object seem to require any expence unsuitable to the fortunes of many private men. Whether the trade which those companies carry on, is reducible to such strict rule and method as to render it fit for the management of a joint stock company, or whether they have any reason to boast of their extraordinary profits, I do not pretend to know. The mine–adventurers company has been long ago bankrupt. A share in the stock of the British Linen Company of Edinburgh78 sells, at present, very much below par, though less so that it did some years ago. The joint stock companies, which are established for the publick spirited purpose of promoting some particular manufacture, over and above managing their own affairs ill, to the diminution of the general stock of the society, can in other respects scarce ever fail to do more harm than good. Notwithstanding the most upright intentions, the unavoidable partiality of their directors to particular branches of the manufacture, of which the undertakers mislead and impose upon them, is a real discouragement to the rest, and necessarily breaks, more or less, that natural proportion which would otherwise establish itself between judicious industry and profit, and which, to the general industry of the country, is of all encouragements the greatest and the most effectual.79
[1 ]Smith describes the advantages of good transport facilities at I.xi.b.5.
[2 ]Smith comments that government is ‘properly at the expence of the coinage’ at II.ii.54.
[3 ]It is stated at V.ii.a.5 that the post office is ‘properly a mercantile project’.
[c–c]tear and wear 1
[4 ]But see below, § 12.
[5 ]See below, § 16.
[6 ]It is stated below, V.i.e.32, that the making and maintenance of a navigable canal is one of three trades suitable for management by a joint stock company without exclusive privilege.
[d]to be 1
[7 ]See above, I.x.b.48 for comment on this point.
[ee* ]Since publishing the two first editions of this book, I have got good reasons to believe that all the turnpike tolls levied in Great Britain do not produce a neat revenue that amounts to half a million; a sum which, under the management of Government, would not be sufficient to keep in repair five of the principal roads in the kingdom.e
[8 ]See below, V.ii.k.56.
[9 ]See below, V.ii.d.5, where Smith comments on the support given by the government of China to the improvement of roads and canals.
[g–g]tear and wear 1
[h–h]tear and wear 1
[i–i]the six 1
[j–j]six days labour 1
[k–k]six days labour 1
[10 ]Smith comments on the ‘wonderful accounts’ of the wealth of China at II.v.22.
[11 ]Bernier does not give an account which would justify this statement. Translated as Travels in the Mogul Empire by F. Bernier by I. Brock (London, 1826).
[m–m]necessary 4 <corrected 4e–6>
[12 ]See above, III.ii.18.
[n–n]the intendant chastises 1
[a–a]2A–6 [This includes the whole of V.i.e. In Letter 222 addressed to Thomas Cadell, dated 7 December 1782, Smith indicated that among the additions to the second edition there was ‘a short, but I flatter myself, a compleat History of all the trading companies in Great Britain’, Smith also refers to the additions in Letter 227 addressed to Strahan, dated 22 May 1783, and comments on his projected ‘short History, and, I presume, a full exposition of the Absurdity and hurtfulness of almost all our chartered trading companies’.]
[1 ]It is pointed out in LJ (B) 353, ed. Cannan 276, that permanent ambassadors only became necessary with the growth of commerce and that the first king to employ one was Ferdinand of Spain at the beginning of the seventeenth century.
[2 ]A. Anderson, Origin of Commerce (1764), i.470, quoting T. Rymer, Foedera.
[3 ]Ibid. ii.6 and 15, quoting Rymer.
[4 ]The point is frequently emphasized, see for example I.xi.p.10, and n. 12.
[5 ]LJ (A) vi.88 argues that ‘all companies, such as the East Indian, Turky and Hudson’s bay, diminish the opulence with regard to these commodities . . .’ In LJ (B) 232, ed. Cannan 179, it is stated with regard to these companies that the people engaged in them make what price they please. However, see below, § 30, where Smith defends ‘temporary’ monopolies, and cf. Steuart, Principles, II.xxx, question 8.
[6 ]See above, I.x.c.5.
[7 ]See above, I.x.c.7.
[8 ]Raised to £100 for Londoners and £50 for others in 1643. A. Anderson, Origin of Commerce (1764), ii.75.
[9 ]‘Many and loud Complaints had been made by the Merchants and Clothiers of Exeter and other Parts of the West of England, who, not being free of the Company of Merchant Adventurers of England, were by that Company stiled Interlopers; as particularly, in the Year 1638, to the House of Commons, and also in the Years 1643 and 1645. They were again complained of in Parliament in this Year 1661, by them; who, in their Remonstrance, termed that Company Monopolizers, and Obstructors of the Sale of our Woollen Goods.’ (Ibid. ii.116–18.) Details of the complaints and answers are given.
[10 ]10 William III, c. 6 (1698) in Statutes of the Realm, vii.462–3; 10 and 11 William III, c. 6 in Ruffhead’s edition.
[11 ]25 Charles II, c. 7 (1672).
[12 ]Sir Josiah Child, New Discourse of Trade (1694), chapter iii.
[13 ]26 George II, c. 18 (1753).
[14 ]But see above, II.iv.15 and note 17.
[15 ]Sir Josiah Child, New Discourse of Trade, 109.
[16 ]See below, § 18.
[17 ]23 George II, c. 31 (1749). See below § 20 for a description of the legislation governing the Royal African Company.
[18 ]4 George III, c. 20 (1764).
[19 ]5 George III, c. 44 (1765).
[20 ]Smith refers to Minorca in the course of criticizing Hume’s ‘utility’ thesis in TMS IV.i.2.11: ‘There is many an honest Englishman, who, in his private station, would be more seriously disturbed by the loss of a guinea, than by the national loss of Minorca, who yet, had it been in his power to defend that fortress, would have sacrificed his life a thousand times rather than, through his fault, have let it fall into the hands of the enemy.’
[21 ]In Letter 221 addressed to Sir John Sinclair, dated 14 October 1782, Smith remarked that it was to our possession of ‘the barren rock of Gibralter’ that ‘we owe the union of France and Spain, contrary to the natural interests and inveterate prejudices of both countries, the important enmity of Spain, and the futile and expensive friendship of Portugal’.
[22 ]Most of the information on the trading companies given in subsequent paragraphs is from A. Anderson, Origin of Commerce (1764). Apart from some specific references, a general note is given at the end of most paragraphs.
[23 ]Joint stock companies incorporated by Royal Charter or Act of Parliament were often assumed to have limited liability even when a strict legal interpretation may have led to a different conclusion. See H. A. Shannon, ‘The Coming of General Limited Liability’, Economic History, ii (1931) and R. H. Campbell, ‘The Law and the Joint–Stock Company in Scotland’, in P. L. Payne, Studies in Scottish Business History (London, 1967), chapter 6.
[24 ]This may provide some qualification to the doctrine that the ‘chance of loss is frequently undervalued’ as stated at I.x.b.28.
[25 ]A. Anderson, Origin of Commerce (1764), ii.309. It was £37,802,203 in 1720.
[26 ]Ibid. ii.379. See below, V.ii.a.4.
[27 ]See above, § 11.
[28 ]Passed the Great Seal, 1672. C. T. Carr, Select Charters of Trading Companies (Selden Society, xxviii), 186–92.
[29 ]In this paragraph Smith draws on Anderson, Origin of Commerce, ii. 148, 154, 225. On 2 William and Mary, c. 2, An Act declaring the Rights and Liberties of the Subject and Settling the Succession of the Crown, Anderson states (ii.148) that if this Act had ‘not limited the Prerogative in the Case of exclusive Charters of Privileges, this Company would doubtless be absolute in those immense Territories. But the Case, to our great Happiness, is now quite otherwise; and, since that great Establishment of our Liberties, neither the Hudson Bay, nor any other Company, not confirmed by Act of Parliament, has any exclusive right at all.’ In practice the contrast between the companies may have been less clear than Smith implies. 9 Anne, c. 15 (1710) in Statutes of the Realm, ix.428–447; 9 Anne, c. 21 in Ruffhead’s edition authorized the grant of a monopoly of trade, which was embodied in the charter of 1711, to the South Sea Company. 6 Anne, c. 71 (1707) in Statutes of the Realm, viii.824–9; 6 Anne, c. 17 in Ruffhead’s edition incorporated the East India Company. The positions of the Royal African Company and the Hudson’s Bay Company were less clear. Various statutes implied parliamentary recognition of the charters even after the Bill of Rights, e.g. 4 William and Mary, c. 15 (1692) levied duties on the stocks of the East India, African and Hudson’s Bay Companies and states that their charters will be void if the duties are not paid; and 9 William III, c. 26 (1697) settled the maintenance of forts on the Royal African Company. Modern commentators do not draw Smith’s distinction. See W. R. Scott, English, Scottish and Irish Joint Stock Companies ii.232 and K. G. Davies, The Royal African Company (London, 1957), 122–35.
[30 ]9 William III, c. 26 (1697).
[31 ]10 Anne, c. 34 (1711) in Statutes of the Realm, ix. 703. 10 Anne, c. 27 in Ruffhead’s edition.
[32 ]‘In 1744 [the sum] was increased to £20,000, but in the following year reduced to the original figure; after 1746 it was withheld entirely.’ K. G. Davies, The Royal Africa Company, 345.
[33 ]23 George II, c. 31 (1749) and 25 George II, c. 40 (1751). See above, §§ 12 and 13.
[34 ]Senegal Adventurers, 1588; Company of Adventurers of London trading to Guinea and Benin, 1618; Royal Adventurers into Africa, 1660.
[35 ]For information on the Royal African Company in this paragraph see Anderson, Origin of Commerce, ii.225, 326, 347.
[36 ]The capital was increased to £103,950 in 1720 and remained at that level until 1825. Full details are in D. MacKay, The Honourable Company (Toronto, 1938), appendix D.
[37 ]Dobbs, not the most reliable source, held that ‘. . . their Charter . . . now is confined to eight or nine private Merchants, who have ingrossed nine Tenths of the Company’s Stock, and by that Means are perpetual Directors.’ (An Account of the Countries adjoining to Hudson’s Bay in the North–West Part of America . . . with an Abstract of Captain Middleton’s Journal (London, 1744), 58.) D. MacKay states that there were 109 proprietors in 1770, The Honourable Company, 338.
[38 ]‘. . . the exorbitant Gain they take upon their Goods from the Natives of near 2,000 per Cent. Profit, taking a Beaver Skin, worth from eight to nine shillings in England, for a Quart of English Spirits, mixed with a Third Water, which probably may cost them a Groat; they also in Exchange value three Martins or Sable Skins at one Beaver, when the French give as much for a Martin as for a Beaver; so that the Natives carry all their best Furs to the French, and leave them the Refuse.’ (Dobbs, An Account of the Countries adjoining to Hudson’s Bay, 56.) But, according to William Douglass, Dobbs ‘runs much into the novel; he seems to be a wild projector, and notoriously credulous’ (British Settlements in North America, i.275).
[39 ]‘Their Gains are little to be envied.’ Anderson, Origin of Commerce ii.370. W. R. Scott considered the distribution in the half century before 1720 to be ‘only a fraction higher than economic interest’, though undivided profits were distributed as a stock bonus in 1690 and 1720. (English, Scottish and Irish Joint Stock Companies, ii.236). For information on the Hudson’s Bay Company in this paragraph, see A. Anderson, ii.147, 370, 371.
[40 ]Operated under contract by the African Company in 1713 and 1714. K. G. Davies, The Royal African Company, 152.
[41 ]The situation was more complex. See New Cambridge Modern History, vii (1957), 515–16.
[42 ]For information on the South Sea Company used in this paragraph see Anderson, Origin of Commerce, ii.262, 311, 334, 339, 347, 352.
[43 ]Anderson, Origin of Commerce, ii.339, states that the company lost considerably in all eight years.
[44 ]By 9 George I, c. 6 (1722).
[45 ]Granted by 6 George II, c. 28 (1732).
[46 ]The trading capital was reduced by two–thirds, not by three–quarters, leaving £3,662,784. P. G. M. Dickson, The Financial Revolution in England (London, 1967), 208.
[47 ]Of £100,000 in 1751.
[48 ]For information on the South Sea Company used in this paragraph see Anderson, Origin of Commerce, ii.309, 316, 331, 333, 338, 346, 349, 388, 394.
[49 ]Previously the capital for each voyage was raised separately, but in 1613 it was resolved to raise capital for four voyages and describe it as the ‘First Joint Stock’. Scott, English, Scottish and Irish Joint Stock Companies, ii.101.
[50 ]The nominal stock in 1693, when an equivalent sum was added.
[51 ]‘Although the English East–India Company’s Affairs were said at this Time to have been so prosperous, that its Profits in nine Years Time, viz. from 1676 to 1685, amounted to £963,639 yet, as Things on Earth are unstable, a Reverse of Fortune happened at this very Time.’ (Anderson, Origin of Commerce, ii.184.)
[52 ]After their existing capital of £1,574,608 had been written down to £787,304. Scott, English, Scottish and Irish Joint Stock Companies, ii.163–4.
[53 ]9 William III, c. 44 (1697).
[54 ]Subscribers of £23,000 of the £2,000,000 did not join either old or new joint–stock companies. The Company purchased their loan stock until the account outstanding was reduced to £7,200 in 1708. Scott, English, Scottish and Irish Joint Stock Companies, ii.166 and 191. They were allowed to continue trading by 6 Anne, c. 71 (1707) in Statutes of the Realm, viii.824–9; 6 Anne, c. 17 in Ruffhead’s edition.
[55 ]Cf. I.xi.o.4, I.viii.57.
[56 ]6 Anne, c. 71 (1707) in Statutes of the Realm, viii.824–9; 6 Anne, c. 17 in Ruffhead’s edition. Details of the tripartite indenture of 1702 are given in para. XI of the Act, Statutes of the Realm, viii.825–6.
[57 ]By 17 George II, c. 17 (1743), payment had to be by 29 September 1744.
[58 ]For information on the East India Company used in the paragraph see Anderson, Origin of Commerce, i.488, ii.160, 199, 174, 184, 221–4, 230, 236–8, 246, 323–6, 372–3.
[59 ]7 George III, c. 49 (1767) and 8 George III, c. 11 (1768).
[60 ]9 George III, c. 24 (1769).
[61 ]In 1771 the sum was £1,578,000. L. S. Sutherland, The East India Company in Eighteenth Century Politics (Oxford, 1952), 226.
[62 ]Which automatically relieved the Company from paying £400,000 to the government.
[63 ]The printed series Reports of Committees of the House of Commons (First Series) iii and iv are largely devoted to the inquiry of 1772–3. The activities of the East India Company are described above, IV.vii.c.101–8. In a different connection it is perhaps interesting to note that Smith was among those mentioned as a possible adviser to the East India Company. In Letter 132 addressed to William Pulteney, dated 3 September 1772, Smith wrote: ‘I think myself very much honoured and obliged to you for having mentioned me to the east India Directors as a person who could be of any use to them.’ It would appear, however, that the Company invited Sir James Steuart to advise them on the currency problems of Bengal. Principles, ed. Skinner xlix. Steuart’s report was published in 1772 as the Principles of Money Applied to the Present State of the Coin in Bengal and is reprinted in his Collected Works, v (London, 1805). For comment, see S. R. Sen, The Economics of Sir James Steuart (London, 1957), ch. 10.
[64 ]By 13 George III, c. 63 (1772).
[65 ]See above, IV.vii.c.105, 107, where Smith comments on the point that the servants of the company naturally acted as their circumstances dictated.
[i–i]nett 2A, 6
[66 ]Anderson, Origin of Commerce (1789), iv.164.
[67 ]By 22 George III, c. 51 (1782), 23 George III, c. 36 (1783), and 23 George III, c. 83 (1783).
[68 ]While deploring monopoly, Pufendorf also pointed out that it was defensible where the establishing of commercial relations with distant countries was expensive, and at the outset open to risk: ‘But in granting such privileges, a prudent government should see to it that they are allowed only in the case of commodities which are imported from very remote places, and over paths fraught with danger, and which concern not so much the necessities of life as its adornment and case.’ (De Jure, V.v.7.)
[69 ]Smith comments on the usefulness of temporary monopolies at V.i.e.5, IV.vii.c.95. It is pointed out in LJ (A) ii.31–3 that under British law the author of a new book, like the inventor of a new machine, enjoyed the fruits of his labour for a period of 14 years and that while exclusive privileges were generally detrimental, these could be defended on the ground of equity: ‘For if the legislature should appoint pecuniary rewards for the inventors of new machines, etc., they would hardly ever be so precisely proportiond to the merit of the invention as this is. For here, if the invention be good and such as is profitable to mankind, he will probably make a fortune by it; but if it be of no value he will also reap no benefit.’ Similarly with new books, Smith argued that the exclusive privilege could be regarded as ‘an encouragement to the labours of learned men’ and as beneficial since ‘if the book be a valuable one the demand for it in that time will probably be a considerable addition to his fortune. But if it is of no value the advantage he can reap from it will be very small.’ See also LJ (A) i.20 and LJ (B) 175, ed. Cannan 130.
[70 ]See above, IV.vii.c.91.
[71 ]Smith wrote to Morellet on 1 May 1786 (Letter 259). See above, IV.ix.2, n. 1.
[72 ]The trade of insurance is discussed above, I.x.b.28.
[73 ]The constitution of the joint stock company is described at V.i.e.15ff.
[74 ]6 Anne c. 50 (1707) in Statutes of the Realm, viii.772–5; 6 Anne, c. 22 in Ruffhead’s edition. See above, II.ii.79ff., where Smith considers the history of the Bank of England.
[75 ]The Bank of Scotland was incorporated by Act of Parliament in 1695. Acts of the Parliament of Scotland, ix.494–5 (1695). The Royal Bank of Scotland was incorporated by Royal Charter in 1727. See above, II.ii.41.
[76 ]They were granted a monopoly of marine insurance for 31 years against other jointstock companies (except tht East India and the South Sea Companies) but not against individuals or partnerships without a joint–stock. Charters were issued in 1720 following the passing of 6 George I, c. 18 (1719). Scott, English, Scottish and Irish Joint Stock Companies, iii.402.
[77 ]See generally II.ii, esp. 27–46.
[78 ]Still not functioning as a bank in 1776.
[79 ]For information used in this paragraph, see Anderson, Origin of Commerce, i.366, ii.197, 242–3, 250, 253. See above, IV.vii.c.61, where Smith describes the problems which arise when this ‘judicious’ balance is broken.
[ee* ]Since publishing the two first editions of this book, I have got good reasons to believe that all the turnpike tolls levied in Great Britain do not produce a neat revenue that amounts to half a million; a sum which, under the management of Government, would not be sufficient to keep in repair five of the principal roads in the kingdom.e