An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (ebook reader macos .TXT) 📕

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. 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 �1,400,000 lent to the company by government,

should be paid, and their bond-debts be reduced to �1,500,000,

they might then, and not till then, divide eight per cent. upon

their capital; and that whatever remained of their revenues and

neat profits at home should be divided into four parts; three of

them to be paid into the exchequer for the use of the public, 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. But

if the company were bad stewards and bad sovereigns, when the

whole of their neat 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.

It 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.

The regulations of 1773, accordingly, did not put an end to the

disorder 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 �3,000,000

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. 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.

With 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.

When a company of merchants undertake, at their own risk and

expense, 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 public is afterwards to reap the

benefit. 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. 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. 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 a 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 a private adventurer would, in all probability, soon

make them weary of the trade.

An eminent French author, of great knowledge in matters of

political economy, the Abbe Morellet, 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.

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 is 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.

Though the principles of the banking trade may appear somewhat

abstruse, the practice is capable of being reduced to strict

rules. To depart upon any occasion from those rules, in

consequence of some flattering speculation of extraordinary gain,

is almost always extremely dangerous and frequently fatal to the

banking company which attempts it. But the constitution of

joint-stock companies renders them in general, more tenacious of

established rules than any private copartnery. 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.

The two banks of Edinburgh are joint-stock companies, without any

exclusive privilege.

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.

When a navigable cut or canal has been once made, the management

of it becomes quite simple and easy, and it 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.

To 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 were 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 above mentioned, both

those circumstances concur.

The great and general utility of the banking trade, when