Book V, Chapter I, 7

The abuses that sometimes enter the local or provincial management of local or provincial revenue, however enormous they may seem, are in fact almost always trivial beside those commonly found in the management and expenditure of a great empire’s revenue. They are also much easier to correct. Under the local or provincial administration of the justices of the peace in Great Britain, the six days of labor rural people must provide for highway repairs may not always be used very wisely, but they are scarcely ever demanded with cruelty or oppression. In France, under the intendants, the labor is not always used more wisely, and its exaction is often exceedingly cruel and oppressive. These corvées, as they are called, are among the principal instruments of tyranny with which those officers punish any parish or community unfortunate enough to incur their displeasure.

On the Public Works and Institutions Necessary to Facilitate Particular Branches of Commerce.

The public works and institutions mentioned above are intended to facilitate commerce in general. To facilitate certain particular branches of commerce, however, particular institutions are needed, and these in turn require particular and extraordinary expense.

Some branches of commerce conducted with peoples regarded as barbarous and uncivilized require extraordinary protection. An ordinary warehouse or countinghouse could offer little security for the goods of merchants trading on the western coast of Africa. To defend these goods from the inhabitants, the place where they are stored must be fortified to some extent. Disorder in the government of Indostan has been thought to make the same precaution necessary even among that mild and gentle people; it was under the pretext of securing their persons and property against violence that the English and French East India companies were permitted to build their first forts there. In other nations whose vigorous governments allow no foreigner to hold a fortified place within their territory, it may be necessary to maintain an ambassador, minister, or consul. Such an officer can both settle disputes among his own countrymen according to their customs and, in disputes with the inhabitants, intervene with the authority of his public office and give them stronger protection than any private person could. Commercial interests have often made it necessary to maintain ministers abroad where neither war nor alliance would have required them. The Turkey company’s commerce first brought about the appointment of a permanent ambassador at Constantinople. The first English embassies to Russia arose entirely from commercial interests. The continual interference with those interests that inevitably occurred among subjects of the different European states probably introduced the custom of keeping ambassadors or ministers permanently resident in all neighboring countries, even in peacetime. Unknown in antiquity, this custom seems no older than the end of the fifteenth or the beginning of the sixteenth century: the time when commerce first began to spread among most European nations and they first began to attend to its interests.

It seems reasonable that the extraordinary cost of protecting a particular branch of commerce should be met by a moderate tax on that branch: for instance, a moderate fee paid by traders when they first enter it; or, more equitably, a particular duty of so much per cent. on the goods they import into, or export from, the countries with which they trade. Protection of trade in general from pirates and marauders is said to have given rise to customs duties in the first place. But if a general tax on trade was thought reasonable to meet the cost of protecting trade as a whole, a particular tax on a particular branch seems equally reasonable to meet the extraordinary cost of protecting that branch.

The protection of trade in general has always been considered essential to the defense of the commonwealth and therefore a necessary duty of the executive power. The collection and use of general customs duties have consequently always been left to that power. But protecting a particular branch of trade is part of protecting trade in general, and therefore part of that power’s duty. If nations always acted consistently, the particular duties levied to provide that particular protection would also always have been left at its disposal. In this, as in many other matters, nations have not always been consistent; in most commercial states of Europe, particular companies of merchants have contrived to persuade the legislature to entrust them with this part of the sovereign’s duty and all the powers necessarily attached to it.

These companies may perhaps have helped to introduce some branches of commerce by undertaking at their own expense an experiment the state might have judged it imprudent to undertake. In the long run, however, they have universally proved burdensome or useless, and have either mismanaged or restricted the trade.

When such companies do not trade with a joint stock, but must admit anyone properly qualified who pays a certain fee and agrees to obey their rules, with each member trading on his own stock and at his own risk, they are called regulated companies. When they trade with a joint stock and each member shares in the common profit or loss according to his share of it, they are called joint-stock companies. Companies of either kind sometimes have exclusive privileges and sometimes do not.

Regulated companies resemble in every respect the trade corporations so common in the cities and towns of the various European countries; they are enlarged monopolies of the same kind. Just as no resident of a town can practice a trade governed by a corporation without first obtaining membership in it, so in most cases no subject of a state can lawfully engage in a branch of foreign trade governed by a regulated company without first becoming its member. The monopoly is more or less strict according to how difficult admission is and how much authority the directors have—or how much scope they have to conduct affairs so as to reserve most of the trade for themselves and their particular friends. In the oldest regulated companies, apprenticeship brought the same privileges as in other corporations: a person who had served his time under a member could become a member himself, either without a fee or on payment of a much smaller one than others were charged. The customary corporate spirit prevails in every regulated company wherever the law does not restrain it. Left to their natural inclinations, these companies have always tried to confine competition to the fewest possible people by imposing many burdensome rules on the trade. When the law has stopped them doing so, they have become wholly useless and insignificant.

The regulated companies for foreign commerce now existing in Great Britain are the ancient merchant-adventurers company, now commonly called the Hamburgh company, the Russia company, the Eastland company, the Turkey company, and the African company.

Admission to the Hamburgh company is now said to be quite easy; its directors either lack the power to burden the trade with troublesome restraints or regulations or, at least, have not recently used that power. This was not always so. Around the middle of the last century, the admission fee was fifty pounds, and at one point one hundred pounds, and the company’s conduct was said to be extremely oppressive. In 1643, in 1645, and in 1661, the clothiers and independent traders of western England complained to parliament that the company was monopolizing the trade and oppressing the country’s manufacturers. Though these complaints produced no act of parliament, they probably frightened the company into reforming its conduct. Since then, at least, there have been no complaints against it. By the 10th and 11th of William III. c.6, the admission fee for the Russia company was reduced to five pounds; by the 25th of Charles II. c.7, the Eastland company’s was reduced to forty shillings. At the same time Sweden, Denmark, and Norway—all the countries along the north side of the Baltic—were released from its exclusive charter. The conduct of these companies probably prompted the two acts of parliament. Earlier, Sir Josiah Child had described both companies and the Hamburgh company as extremely oppressive, and had blamed their bad management for the poor state of our trade with the countries covered by their respective charters. But although such companies may not be very oppressive today, they are certainly entirely useless. Indeed, mere uselessness is perhaps the highest praise that can ever justly be given to a regulated company; and all three companies just mentioned seem in their present state to deserve it.

Admission to the Turkey company formerly cost twenty-five pounds for anyone under twenty-six years of age and fifty pounds for anyone older. Only merchants as such could join, a restriction that excluded shopkeepers and retailers. A bylaw prohibited the export of British manufactures to Turkey except aboard the company’s general ships. Since those ships always sailed from London, this rule confined the trade to that costly port and to traders living in or near London. Another bylaw excluded from membership anyone living within twenty miles of London who was not a freeman of the city; combined with the first, this necessarily excluded everyone except London freemen. Since the directors alone decided when the general ships would be loaded and would sail, they could easily fill them with their own goods and those of their particular friends, excluding others on the pretext that their applications had come too late. In this condition the company was in every respect a strict and oppressive monopoly. These abuses prompted the act of the 26th of George II. c. 18, which reduced the admission fee to twenty pounds for everyone, without distinctions of age or restrictions either to merchants as such or to freemen of London. It also allowed all such persons to export from any British port to any Turkish port any British goods whose export was not forbidden, provided they paid both the general customs duties and the particular duties imposed to meet the company’s necessary expenses, and obeyed the lawful authority of the British ambassador and consuls resident in Turkey and the company’s duly enacted bylaws. To prevent oppression through these bylaws, the same act provided that any seven members who felt aggrieved by a bylaw enacted after the act’s passage might appeal to the board of trade and plantations (whose authority a committee of the privy council has now inherited), so long as they appealed within twelve months of the bylaw’s enactment. If any seven members felt aggrieved by a bylaw enacted before the act’s passage, they could make the same appeal within twelve months of the date the act was to take effect. A year’s experience, however, may not always be enough to reveal to all the members of a large company the harmful tendency of a particular bylaw; if several discover it afterward, neither the board of trade nor the council committee can give them any remedy. Besides, most bylaws of regulated companies, like those of other corporations, aim less to oppress existing members than to deter others from joining, something that can be achieved through many devices besides a high admission fee. These companies constantly seek to raise their own rate of profit as high as possible and to keep the market as short of both their exports and their imports as possible. They can do this only by restricting competition or discouraging new adventurers from entering the trade. Even a fee of twenty pounds, though perhaps not enough to deter a man who intends to trade regularly with Turkey, may deter a speculative merchant from risking a single venture there. In every trade, the established traders naturally combine to raise profits even if they are not incorporated; nothing is so likely to keep those profits at their proper level at all times as occasional competition from speculative adventurers. Though this act of parliament opened the Turkey trade to some degree, many still regard it as far from entirely free. The Turkey company contributes to maintaining an ambassador and two or three consuls. Like other public ministers, these officers ought to be maintained entirely by the state, and the trade opened to all his majesty’s subjects. The various taxes imposed by the company for this and its other corporate purposes could provide far more than enough revenue for a state to maintain such ministers.

Sir Josiah Child observed that regulated companies, although they had often supported public ministers, had never maintained forts or garrisons in the countries with which they traded, whereas joint-stock companies often had. Regulated companies do indeed seem much less suited to this service than joint-stock companies. First, the directors of a regulated company have no particular interest in the prosperity of the company’s general trade, for whose sake the forts and garrisons are maintained. The decline of that general trade can often benefit their own private trade: fewer competitors may allow them both to buy more cheaply and to sell more dearly. Directors of a joint-stock company, by contrast, have only their share of the profits from the common stock entrusted to their management; they have no private trade whose interests can diverge from those of the company’s general trade. Their private interest is tied to the prosperity of that general trade and to maintaining the forts and garrisons necessary for its defense. They are thus more likely to give their maintenance the constant, careful attention it requires. Secondly, directors of a joint-stock company always manage a large capital—the company’s joint stock—part of which they can often properly spend on building, repairing, and maintaining the necessary forts and garrisons. Directors of a regulated company, by contrast, manage no common capital. They have no fund for this purpose except the incidental revenue from admission fees and corporate duties imposed on the company’s trade. Even if they had the same interest in maintaining forts and garrisons, therefore, they would seldom have the same ability to make their attention effective. Maintaining a public minister requires little attention and only a moderate, limited expense, and is much better suited to both the disposition and the means of a regulated company.

Local and provincial officials sometimes abuse local and provincial revenue. Their abuses may look enormous, but they are almost always tiny compared with the abuses common in spending the revenue of a great empire. They are also much easier to correct. In Great Britain, local or provincial justices of the peace manage the six days of labor that rural people must give to road repairs. The work may not always be used wisely, but it is hardly ever demanded with cruelty or oppression. In France, under the intendants, the work is not always used more wisely, and it is often demanded with extreme cruelty and oppression. These compulsory labor duties, called corvees, are among the chief tools of tyranny. Intendants use them to punish any parish or community unfortunate enough to displease them.

On the public works and institutions needed to help particular branches of commerce.

The public works and institutions discussed above aim to help commerce as a whole. But some particular branches need particular institutions, which in turn call for special additional expense.

Some branches of commerce with peoples considered barbarous and uncivilized need unusual protection. An ordinary warehouse or trading office would offer little security for the goods of merchants trading on Africa's west coast. To protect them against the local inhabitants, the place where the goods are stored must be fortified to some degree. Disorder in Indostan's government has been thought to require a similar precaution even among its mild and gentle people. The English and French East India companies were allowed to build their first forts there on the pretext of protecting their people and property from violence. In other countries, strong governments will not allow foreigners to hold any fortified place within their borders. There it may be necessary to keep an ambassador, minister, or consul. He can settle disputes among his countrymen according to their own customs. In disputes with local people, his official status lets him intervene with more authority and offer more protection than any private person could. Commerce has often made it necessary to keep ministers in foreign countries where war or alliances would not require them. The Turkey company's commerce first led to a permanent ambassador at Constantinople. The first English embassies to Russia arose entirely from commercial interests. Constant conflicts involving those interests among the subjects of Europe's different states probably led to the practice of keeping resident ambassadors or ministers in every neighboring country, even in peacetime. Ancient peoples did not know this custom. It seems to date only from the end of the fifteenth or the beginning of the sixteenth century, when commerce first spread to most European nations and they first paid attention to its interests.

It seems reasonable to pay the extra cost of protecting a particular branch of commerce with a moderate tax on that branch. This could be a moderate entry fee for traders or, more fairly, a specified percentage duty on the goods they import into or export from the countries involved. Customs duties are said to have first arisen to pay for protecting trade in general against pirates and raiders. If a general tax on trade is reasonable for protecting trade in general, a special tax on one branch of trade should be equally reasonable for paying its extra protection costs.

Protecting trade in general has always been seen as essential to defending the commonwealth and therefore a necessary duty of the executive power. For this reason, it has always been left to the executive to collect and spend general customs duties. Protecting any one branch of trade is part of protecting trade as a whole, and therefore also part of the executive's duty. If nations were consistent, they would also always leave the special duties that pay for this protection under its control. But nations have not always acted consistently in this or in many other matters. In most of Europe's commercial states, particular merchant companies have managed to persuade lawmakers to hand them this part of the sovereign's duty along with all the powers that come with it.

These companies may have helped introduce some branches of commerce by trying something at their own expense that the state did not think wise to try. In the long run, though, they have always proved either burdensome or useless. They have either managed trade badly or restricted it.

Some companies do not trade with a joint stock. Instead, they must admit anyone who meets the qualifications, pays a set fee, and agrees to the company's rules. Each member trades with his own stock and at his own risk. These are called regulated companies. Others trade with a joint stock. Each member shares the common profit or loss according to his share of that stock. These are called joint-stock companies. Both types may or may not have exclusive privileges.

Regulated companies closely resemble the trade corporations found in cities and towns across Europe. They are larger monopolies of the same kind. A town resident cannot legally practice a trade controlled by a corporation without first joining it. In the same way, in most cases a subject cannot legally engage in foreign trade covered by a regulated company without first becoming a member. The monopoly is stricter when admission is harder. It is also stricter when directors have more power to arrange matters so that most of the trade goes to themselves and their particular friends. In the oldest regulated companies, apprenticeship brought the same rights as in other corporations. A person who had served his apprenticeship under a member could become a member himself, either for no fee or for a much lower fee than other people paid. Wherever the law does not restrain it, the usual corporate attitude prevails in every regulated company. Left to themselves, these companies have always tried to limit the number of competitors as much as possible by burdening the trade with many rules. When law prevents them from doing so, they become wholly useless and unimportant.

The regulated foreign-trade companies still operating in Great Britain are the ancient merchant-adventurers company, now usually called the Hamburgh company, the Russia company, the Eastland company, the Turkey company, and the African company.

Joining the Hamburgh company is now said to be quite easy. Its directors either cannot impose burdensome restrictions or rules on trade, or at least have not used that power recently. This was not always true. Around the middle of the last century, the entry fee was fifty pounds, and at one point one hundred pounds. The company was said to act with extreme oppression. In 1643, in 1645, and in 1661, cloth makers and independent traders in western England complained to parliament. They said the company was a monopoly that restricted trade and oppressed the country's manufactures. Parliament passed no law in response, but the complaints probably frightened the company enough to change its behavior. At least no one has complained about it since. The 10th and 11th of William III. c.6 reduced the Russia company's entry fee to five pounds. The 25th of Charles II. c.7 reduced the Eastland company's fee to forty shillings. At the same time, Sweden, Denmark, and Norway, and all the countries on the north side of the Baltic, were excluded from the company's exclusive charter. These two acts of parliament were probably prompted by the companies' behavior. Earlier, Sir Josiah Child had described both companies and the Hamburgh company as extremely oppressive. He blamed their bad management for the poor state of our trade with the countries covered by their charters. Even if such companies are not very oppressive today, they are certainly useless. Indeed, being merely useless may be the highest praise a regulated company can justly receive. All three companies just mentioned seem to deserve that praise in their present condition.

The Turkey company's entry fee used to be twenty-five pounds for anyone under twenty-six years of age, and fifty pounds for anyone older. Only merchants could join, excluding all shopkeepers and retailers. One company rule allowed British manufactures to be exported to Turkey only in the company's general ships. Because these ships always sailed from London, the rule confined the trade to that expensive port and to traders living in or near London. Another rule barred anyone living within twenty miles of London who lacked the freedom of the city. Together with the first rule, it effectively left only London's freemen eligible. The directors alone set the times when the general ships would be loaded and would sail. They could easily fill the ships with their own goods and those of particular friends, shutting out others by claiming their requests had come too late. The company was therefore a strict and oppressive monopoly in every respect. These abuses led to the act of the 26th of George II. c. 18. It cut the entry fee to twenty pounds for everyone, regardless of age, and removed restrictions limiting membership to merchants or London freemen. It also allowed all such people to export any British goods not prohibited from export from any British port to any Turkish port. They had to pay both ordinary customs duties and special duties to cover the company's necessary expenses. They also had to submit to the lawful authority of the British ambassador and consuls living in Turkey and to the company's legally enacted rules. To prevent oppression by those rules, the same act allowed any seven members who felt harmed by a rule passed after the act to appeal to the board of trade and plantations, whose powers now belong to a privy council committee. They had to appeal within twelve months of the rule's enactment. Any seven members harmed by an earlier rule could also appeal, but only within twelve months after the act took effect. Yet one year's experience may not be enough for every member of a large company to see the harm a particular rule might cause. If several discover it later, neither the board of trade nor the council committee can help them. Besides, most rules of regulated companies and other corporations aim less to oppress current members than to discourage new ones. A high fee is not the only way to do that. Such companies always aim to push up their own rate of profit as high as possible. They try to keep the markets for both their exports and imports as undersupplied as possible. They can do this only by limiting competition or discouraging newcomers. Even a twenty-pound fee might not stop someone who plans to stay in the Turkey trade, but it could stop a merchant who wants to risk a single speculative venture. In every trade, established traders naturally join forces to raise profits, even if they are not incorporated. Nothing is as likely to keep those profits at a proper level at all times as occasional competition from merchants making speculative ventures. Many people still believe that the Turkey trade is far from completely free, even though this act opened it to a degree. The Turkey company helps pay for an ambassador and two or three consuls. Like other public ministers, they ought to be paid for wholly by the state, and the trade should be open to all his majesty's subjects. The company's taxes for this and other corporate purposes could provide the state with far more revenue than it needs to pay for these ministers.

Sir Josiah Child observed that regulated companies had often supported public ministers but had never maintained forts or garrisons in the countries where they traded. Joint-stock companies, by contrast, often had. Regulated companies really do seem much less suited to this work. First, their directors have no special interest in the success of the company's trade as a whole, for whose sake the forts and garrisons are maintained. A decline in that general trade may even help their own private businesses. Fewer competitors let them buy more cheaply and sell at higher prices. Directors of a joint-stock company, by contrast, receive only their share of the profits on the common stock they manage. They have no separate private trade whose interests can conflict with those of the company as a whole. Their own interest depends on the success of its general trade and on maintaining the forts and garrisons needed to defend it. They are therefore more likely to give that maintenance the constant, careful attention it requires. Secondly, joint-stock directors manage the company's large common capital. They can often properly spend part of it on building, repairing, and maintaining necessary forts and garrisons. Directors of a regulated company manage no common capital. Their only funds for this purpose are the irregular revenue from entry fees and the company duties charged on its trade. Even if they were equally interested in maintaining forts and garrisons, they would rarely be equally able to do it effectively. Supporting a public minister takes little attention and only a moderate, limited expense. It suits both the inclinations and abilities of a regulated company much better.