 Chapter 1 Part C of the Wealth of Nations, Book 5 This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org. Recording by Stephen Escalera. The Wealth of Nations by Adam Smith, Book 5, Chapter 1, Part C of the Expenses of the Sovereign or Commonwealth. Part 3 of the Expense of Public Works and Public Institutions The third and last duty of the Sovereign or Commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the prophet could never repay the expense to any individual or small number of individuals, and which it, therefore, cannot be expected that any individual or small number of individuals should erect or maintain. The performance of this duty requires two very different degrees of expense in the different periods of society. After the public institutions and public works necessary for the defense of the society and for the administration of justice, both of which have already been mentioned, the other works and institutions of this kind are chiefly for facilitating the commerce of the society and those for promoting the instruction of the people. The institutions for instruction are of two kinds, those for the education of the youth, and those for the instruction of people of all ages. The consideration of the manner in which the expense of those different sorts of public works and institutions may be most properly defrayed will divide this third part of the present chapter into three different articles. Article 1 of the Public Works and Institutions for Facilitating the Commerce of the Society, and first of those which are necessary for facilitating commerce in general, that the erection and the maintenance of the public works which facilitate the commerce of any country, such as good roads, bridges, navigable canals, harbors, etc., must require very different degrees of expense in the different periods of society is evident without any proof. The expense of making and maintaining the public roads of any country must evidently increase with the annual produce of the land and labor 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 tonnage of the lighters which are likely to carry goods upon it, the extent of a harbor, to the number of the shipping which are likely to take shelter in it. It does not seem necessary that the expense of those public works should be defrayed from that public revenue, as it is commonly called, of which the collection and application are in most countries assigned to the executive power. The greater part of such public works may easily be so managed as to afford a particular revenue, sufficient for defraying their own expense, without bringing any burden upon the general revenue of the society. A 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 harbor, by a moderate port duty upon the tonnage of the shipping which load or unload in it. The coinage, another institution for facilitating commerce, in many countries not only defrains its own expense, but affords a small revenue or a signorage to the sovereign. The post office, another institution for the same purpose, over and above defraying its own expense, affords in almost all countries a very considerable revenue to the sovereign. When 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 tonnage, they pay for the maintenance of those public works exactly in proportion to the wear and tear which they occasion of them. It seems scarce possible to invent a more equitable way of maintaining such works. 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 expense of carriage, however, is very much reduced by means of such public 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. When the toll upon carriages of luxury, upon coaches, post-shays, etc. is made somewhat higher in proportion to their weight than upon carriages of necessary use, such as carts, wagons, etc., 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. When high roads, bridges, canals, etc., 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 expense to, 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 desert 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 neighboring 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. In 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 produce them. The canal of Longdok cost the king of France and the province upwards of thirteen millions of levers, which at twenty-eight levers 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 Raquet, the engineer who planned and conducted the work. These 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 the commissioners who had no such interest, they might perhaps have been dissipated in ornamental and unnecessary expenses, while the most essential parts of the works were allowed to go to ruin. The 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. In Great Britain, the abuses which the trustees have committed in the management of these 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 completest 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 seems capable. If mean and improper persons are frequently appointed trustees, and if proper courts of inspection and account have not yet been established for controlling 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. The 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 economy, 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 expense than it can be done by trustees, who have no other workman to employ, but such as derive their whole subsistence from their wages. 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 expense of the state, in the same manner as the post office does at present. That 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. First, if the tolls which are levied at the expense 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 of the economy be saved out of the present tolls, it can scarcely 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 sumbrance upon it. The expense 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 domestic industry of the country annihilated altogether. Secondly, attacks 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 wear and tear 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 wear and tear, and contributes to the supply of some other exigencies of the state. But as the turnpike toll raises the price of goods in proportion to their weight and not their value, it is chiefly paid by the consumers of course and bulky, not by those of precious and light commodities. Whatever exigencies of the state therefore this tax might be intended to supply, that exigencies would be chiefly supplied at the expense of the poor, not of the rich, at the expense of those who are least able to supply it, not of those who are most able. Thirdly, 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. In 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 a certain number of days labor, 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 chooses to spare from his other expenses. By the ancient law of France, as well as by that of most other parts of Europe, the labor of the country people 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 labor of the country people and whatever other fund the king made choose to assign for the reparation of the high roads in any particular province or generality are entirely under the management of the attendant, 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 crossroads, 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 be safely 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 applause is 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 by appearance, or excite the smallest degree of admiration in any traveler, and which, in short, have nothing to recommend them but their extreme utility, is a business which appears in every respect, too mean and paltry, to merit the attention of so great a magistrate. Under such an administration, therefore, such works are almost always entirely neglected. In 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 public 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 than navigable canals it is pretended, exceed very much everything 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 wandering travelers, frequently by stupid and lying missionaries. 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 available. The account which Bernier gives of some works of his kind in Hindustan falls very short of what had been reported of them by other travelers, more disposed to the marvelous than he was. 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 Hindustan, and in other governments of Asia, the revenue of the sovereign arises almost all together from a land tax or land rent, which rises or falls with the rise and fall of the annual produce of the land. The great interest of the sovereign, therefore, his revenue, is in such countries necessarily 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 public 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. Even those public quirks, which are of such a nature that they cannot afford any revenue for maintaining themselves, but of which the convenience is nearly confined to some particular place or district, are always better maintained by 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 expense 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 expense? The expense, besides instead of being raised by a local tax upon the inhabitants of each particular street or district in London, would, in this case, be defrayed out of the general revenue of the state and would consequently be raised by attacks 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. The abuses, which sometimes creep into the local and provincial administration of a local and provincial revenue, how enormous however 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 labor at 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 policy or oppression. In France, under the administration of the attendants, the application is not always more judicious, and the exaction is frequently the most cruel and oppressive. Such corvées, as they are called, make one of the principal instruments of tyranny by which those officers chastise any parish or communote which has had them as fortune to fall under their displeasure. Of the public works and institution which are necessary for facilitating particular branches of commerce. The object of the public 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 expense. Some 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 pretense 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 countrymen and in their disputes with the natives may contribute to the development of the countrymen. 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. The commerce of the turkey company first occasioned the establishment of an ordinary ambassador at Constantinople. The first English embassies to Russia arose altogether from commercial interests. The constant interference with those interests, necessarily occasioned between the subjects of the different states of Europe, has probably introduced the custom of keeping in all neighboring countries, ambassadors or ministers constantly resident even in the time of peace. This custom, unknown to ancient times, seems not to be older than the end of the 15th or beginning of the 16th century, that is, then the time when they first began to attend to its interests. It seems not unreasonable that the extraordinary expense 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 percent upon the goods which they either import or export out of the particular countries with which it is carried on. The protection of trade in general from privates and free-booters 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 expense 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 expense of protecting that branch. The protection of trade in general has always been considered as essential to the defense 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. Apart, 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 persuade the legislature to entrust to them the performance of this part of the duty of the commonwealth together with all the powers which are necessarily connected with it. These companies, though they may perhaps have been useful for the first introduction of some branches of commerce, by making, at their own expense, 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. When 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. Regulated companies resemble, in every respect, the corporation 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. As no inhabitant of a town can exercise an incorporated trade without first obtaining his freedom in the incorporation, 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 ancient regulated companies, the privileges of apprenticeship were the same as in other corporations 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 in order to have a competition to as small a number of persons as possible, endeavored to subject the trade to many burdensome regulations. When the law has restrained them from doing this they have become altogether useless and insignificant. The regulated companies for foreign commerce, which at present subsist in Great Britain, are the ancient merchant adventurers company now commonly called the Humberg Company the Russia Company the Eastland Company and the African Company. The terms of admission into the Humberg Company are now said to be quite easy and the directors either have it not in their power to subject the trade to any troublesome restraint 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 50 and at one time 100 pounds 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 manufacturers of the country. 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 have been no complaints against them. By the 10th and 11th of William III C6 the fine for admission into the Russia Company was reduced to 5 pounds and by the 25th of Charles II C7 that for admission into the Eastland Company to 40 shillings. While at the same time Sweden Denmark and Norway all the countries on the north side of the Baltic 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 Child had represented both these and the Homburg 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. The fine for admission into the Turkey Company was formally 25 pounds for all persons under 26 years of age and 50 pounds for all persons above that age. Nobody but mere merchants could be admitted to this restriction which excluded all shopkeepers and retailers. By a bylaw no British manufacturers could be exported to Turkey 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 expensive port and the traders to those who lived in London and its neighborhood. By another bylaw no person living within 20 miles of London and not free of the city did a member, another restriction which joined to the foregoing necessarily excluded all but the free men 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 strict and oppressive monopoly. Those abuses gave occasion to the act of the 26th of George II C.18 reducing the fine for admission to 20 pounds for all persons without any distinction of ages or any restriction either to mere merchants or to the free men of London and granting to all such persons the liberty of exporting from all the ports of Great Britain to any port in Turkey all British goods of which the exportation was not prohibited upon paying both the general duties of customs and the particular duties assessed for deferring the necessary expenses of the company and submitting at the same time to the lawful authority of the British ambassador and consuls resident in Turkey and to the bylaws of the company duly enacted. To prevent any oppression by those bylaws it was by the same act ordained that if any seven members of the company conceived themselves aggrieved by any bylaw 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 private council has now succeeded. Provided such appeal was brought within 12 months after the bylaw was enacted and that if any seven members conceived themselves aggrieved by any bylaw which had been enacted before the passing of this act they might bring a like appeal provided it was within 12 months 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 bylaw 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 bylaws 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 under stock as they can which can be done only by restraining the competition and 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 turkey 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 combined to raise profits which are no way so likely kept at all times down to their proper level as by the occasional competition of speculative adventurers. The turkey 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 turkey 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 a state to maintain such ministers. Regulated companies it was observed by Sir Josiah Child though they had frequently supported public ministers had never maintained any forts or garrisons in the countries to which they traded whereas joint stock companies probably had. And in reality the former seemed 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 by 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 defense. They are likely therefore to have that continual and careful attention which that maintenance necessarily requires. 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 and 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 option 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 have 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 public minister requiring scarce any attention and but a moderate and limited expense is a business much more suitable both to the and abilities of a regulated company. Long 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 23rd of George II C-51 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. For the first of these purposes the fine for admission is limited to 40 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 US, London, Bristol and Liverpool three from each place. No committeemen can be continued in office for more than three years together. Any committeemen might be removed by the Board of Trade and Plantations, now by a committee of counsel, after being heard in his own defense. The committee are forbidden 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 800 pounds for the salaries of their clerks and agents at London, Bristol and Liverpool, the house rent of their offices at London and all other expenses of management, commission and agency in England. What remains of this sum after defraying these different expenses will 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 Fourth of George III, C. XX, the Fort of Senegal with all its dependencies had been invested in the Company of Merchants trading to Africa, yet in the year XXI, by the Fifth of George III, C. XXIV, not only Senegal and its dependencies, but the whole coast from the port of Salih and 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, easy to conceive how, under the regulations of the XXIII of George II they could do so. In the printed debates of the House of Commons, not always the most authentic record 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 former which would establish a real monopoly. For 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 pounds. For the proper application of this sum, the committee is obliged to account annually to the Cursator Baron of Exchequer, which account is afterwards to be laid before Parliament. But Parliament, which gives so little attention to the publication of millions, is not likely to give much to that of 13,000 pounds a year, and the Cursator Baron of Exchequer, from his profession and education, is not likely to be profoundly skilled in the proper expense of forts and garrisons. The captains of His Majesty's Navy, indeed, or any other commissioned officers, appointed by the Board of Admiralty, may inquire into the condition of the forts and garrisons and report their observations to that Board, but that Board seems to have no direct jurisdiction over the committee nor any authority to correct those whose conduct it may thus inquire 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 emulguments, even during that term, are so very small, seems to be the utmost punishment to which any committeeman is liable to take malversation or embezzlement either of the public money or of that of the company, and the fear of the 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 respect to 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 expense of the state, but are under the immediate government of the executive power, and why those which lie south of that Cape, and which, to are at the expense 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 pretense of the garrisons of Gibraltar and Manorca, and the maintenance and government of those garrisons have always been very properly committed not to the Turkey company, but to the executive power. In the extent of its dominion consists, in a great measure, the pride and dignity of the power, and it is not very likely to fail in attention to what is necessary for the defense of that dominion. The garrisons at Gibraltar and Manorca, accordingly, have never been neglected. Though Manorca has been twice taken, and is now probably lost forever, that disaster has never been 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 country, 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. Chapter 1 Part C Chapter 1 Part D of The Wealth of Nations Book 5 This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org Recording by Stephen Escalera The Wealth of Nations by Adam Smith. Book 5 Chapter 1 Part D of The Expenses of the Sovereign or Commonwealth. Joint stock companies, established either by royal charter or by active parliament, are different in several respects, not only from regulated companies, but from private co-partneries. First, in a private co-partnery, 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 co-partnery and demand payment from them of his 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. Secondly, in a private co-partnery, 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. The trade of a joint stock company is always managed by a court of directors. This court, indeed, is frequently subject, in many respects, to the control of a general court of proprietors. But the greater part of these proprietors seldom pretend to understand anything 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 co-partnery. Such companies, therefore, commonly draw to themselves much greater stocks than any private co-partnery can boast of. The trading stock of the South Sea Company at one time amounted to upwards of 33,800,000 pounds. The dividend capital of the Bank of England amounts, at present, to 10,780,000 pounds. 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 co-partnery 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 honor 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 of foreign trade have seldom been able to maintain the competition against private adventurers. 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. The Royal African Company, the predecessors of the present African company, had an exclusive privilege by charter. But as that charter had not been confirmed by active parliament, the trade in consequence of the Declaration of Rights 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 active parliament. The South Sea Company, as long as they continued to be a company, had an exclusive privilege confirmed by active parliament, as have likewise the present United Company of merchants trading to the East Indies. The Royal African Company soon found that they could not maintain the competition against private adventurers, whom, not withstanding the Declaration of Rights, they continued for some time to call interlopers and to persecute as such. In 1698 however, the private adventurers were subject to a duty of 10% upon almost all the different branches of their trade, to be employed by the company in the maintenance of their forts and garrisons. But, not withstanding 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 active parliament was thought necessary, both for their security and for that of their creditors. It was enacted that the resolution of the words of these creditors and 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 payment judged it necessary to allow the annual sum of ten thousand pounds for that purpose. 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 the trade to the inland parts of Africa for gold dust, elephants teeth, dying drugs, etc. 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 active parliament and their forts and garrisons vested in the present regulated company of merchants trading to Africa. Before the erection of the Royal African Company, there had been three other joint stock companies successfully established, one after another, and they were all equally unsuccessful. They all, however, had exclusive charters which, though not confirmed by active parliament, were in those days supposed to convey a real exclusive privilege. The Hudson's Bay Company, before their misfortunes in the late war, had been much more fortunate than the Royal African Company. Their necessary expense is much smaller. The whole number of people whom they maintain in their different settlements and habitations which at the name of forts is said not to exceed 120 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 110,000 pounds, 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. 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 co-partnery, and may be capable of nearly the same degree of vigilance and detention. It is not to be wondered at, therefore, if in consequence of these different advantages the Hudson's 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 approach to what the late Mr. Dobbs imagined them. 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 expense, 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. The South Sea Company never had any forts or garrisons to maintain, and therefore were entirely exempted from one great expense, 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 navery 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 the Aciento contract granted them by the Treaty of Utrecht. They had the exclusive privilege. But as it was not expected that much profit could be made by this trade, both the Portuguese 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 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 perfusion and depredations of those very factors and agents, some of whom are said to have acquired great fortunes, even in one year. In 1734 the company petitioned the King that they might be allowed to dispose of the trade and tonnage 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. In 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 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 237,000 pounds. In 1722, this company petitioned the Parliament to be allowed to divide their immense capital of more than 33,800,000 pounds, the whole of which had been lent to government into two equal parts. The one half or upwards of 16,900,000 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 permitted. 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. 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 3,662,784 pounds eight shilling sixpence. In 1748 all the demands of the company upon the king of Spain in consequence of the Asiento contract were by the treaty of Aix-la-Chapelle given up for what was supposed an equivalent. 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. It 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, Portobello, and at La Veta 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. The 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 appeared 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. Their charter was exclusive and, though not confirmed by active 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 744,000 pounds, and of which 50 pounds was a share was not so exorbitant, nor their dealings so extensive as to afford either a pretext for post-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 active 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 humors 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. In 1698 a proposal was made to parliament of advancing two millions to government at 8% provided the subscribers were erected into a new East India Company with exclusive privileges. The old East India Company offered £700,000 nearly the amount of their capital at 4% upon the same conditions. But such was at that time the state of public credit that it was more convenient for government to borrow two millions at 8% than £700,000 at 4%. The proposal of the new subscribers was accepted and a new East India Company established in consequence. 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 £315,000 into the stock of the new by a negligence in the expression of the act of parliament which vested the East India trade and the subscribers to this loan of two millions it did not appear evident that they were all obliged to unite with a few private traders whose subscriptions amounted only to £7,200 insisted upon the privilege of trading separately upon their own stocks and at their own risks. The old East India Company had a right to a separate trade upon their own 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 £315,000 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 1750 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 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 overstocking 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 convenience of the public 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 the price of goods 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 the new divisions of labor and new improvements of art which might never otherwise have been thought of 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 economy 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 active parliament 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 worthwhile 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 but this million being raised not by a call upon the proprietors 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 during the French war which began in 1741 the ambition of Mr. Duplex 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 the revenues of a rich and extensive territory amounting it was then said to upwards of 3 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 400,000 pounds a year and before this gradually augmented their dividend from about 6 to 10% that is upon their capital of 3,200,000 pounds they had increased it by 128,000 pounds or had raised it from 192,000 to 320,000 pounds a year they were attempting about this time to raise it still further to 12.5% which would have made their annual payments equal to what they had agreed to pay annually to government or to 400,000 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 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 6 or 7 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 12.5% never increasing it however more than 1% in one year 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 680,000 pounds beyond what they had been before the state 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 Crutenden East Indiemen in 1769 the neat revenue clear of all deductions and military charges was stated at 2,048,747 pounds they were said at the same time to possess another revenue arising partly from lands the customs established at their different settlements amounting to 439,000 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 400,000 pounds a year according to that of their accountant to at least 500,000 pounds 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 680,000 pounds in their annual payments and at the same time have left a large sinking fund sufficient for the speedy reduction of their debt in 1773 however their debts instead of being reduced were augmented by an a rear to the treasury in the payment of the 400,000 pounds by another to the custom house for duties unpaid by a large debt to the bank for money borrowed bills drawn upon them from India and wantonly accepted to the amount of upwards of 1200,000 pounds the distress which these accumulated claims brought upon them ablines them not only to reduce all at once their dividend to 6% but to throw themselves upon the mercy of government and to supplicate first a release from the further payment of the stipulated 400,000 pounds a year and secondly a loan of 1400,000 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 subject of a parliamentary inquiry and consequence of which several very important alterations were made in the constitution of their government both at home and abroad 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 neighborhood 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 appointed by the crown in Europe the qualification necessary to entitle a proprietor to vote at their general courts was raised from 500 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 of the four the court of 24 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 be capable of being rechosen 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 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 of 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 overrule the appointments of their 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 and 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 one million four hundred thousand pounds lent to the company by government should be paid and their bond debts be reduced to one million five hundred thousand pounds they might then and not till then divide eight percent 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 for the fund either for the further reduction of their bond debts or for the discharge of other contingent exigencies which the company might labor under but if the company were bad stewards and bad sovereigns when the whole of their neat revenue and profits belong to themselves and were at their own disposal they would 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 so under the inspection and with the approbation of other people it might be more agreeable to the company that their own servants and dependents should have either the pleasure of wasting or the profit of embezzling whatever surplus might remain after paying the proposed dividend of eight percent then 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 dependents 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 seventeen seventy three accordingly did not put an end to the disorder of the company's India not withstanding that during a momentary fit of good conduct they had at one time collected into the treasury of Calcutta more than three million pounds sterling not withstanding 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 seventeen eighty four 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 all together unfit to govern its 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 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 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 and 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 active parliament to continue a corporation with a joint stock and to trade in their corporate capacity to the East Indies and 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 imminent French author of great knowledge and matters of political economy the Ab Mourlet gives a list of 55 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 for mismanagement not withstanding 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 capturing time of war thirdly the trade of making and maintaining 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 co-partnery such companies therefore seem extremely well fitted for this trade the principle 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 neighbors 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 to other circumstances ought to occur 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 co-partnery 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 prudently managed has been fully explained in the second book of this inquiry but a public bank which is to support public credit and upon particular emergencies to advance to government the whole produce of attacks 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 co-partnery the trade of insurance gives greater 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 has said was laid before the attorney general of one hundred private users who had failed in the course of a few years that navigable cuts and canals and the works which are 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 expense than suits the fortunes of private people is sufficiently obvious except 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 expense 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 Edinburgh sells at present very much below par though less so than it did some years ago the joint stock companies which are established for the public 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 failed to do more harm than good not withstanding 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 end of book five chapter one part d