Book V, Chapter I, 8

Long after Sir Josiah Child’s time, however, in 1750, a regulated company was established: the present company of merchants trading to Africa. It was explicitly charged at first with maintaining all the British forts and garrisons between Cape Blanc and the Cape of Good Hope, and afterward only those between Cape Rouge and the Cape of Good Hope. The act establishing this company (the 23rd of George II. c.51 ) seems to have pursued two distinct aims: first, to restrain effectively the oppressive, monopolizing spirit natural to the directors of a regulated company; and secondly, to compel them as far as possible to give the maintenance of forts and garrisons the attention that does not come naturally to them.

To achieve the first aim, the fee for admission is limited to forty shillings. The company is forbidden to trade as a corporate body or with a joint stock, to borrow money under its common seal, or to impose any restraints on the trade, which may be conducted freely from all places by any British subjects who pay the fee. Its administration belongs to a committee of nine who meet in London but are elected annually by the company’s freemen in London, Bristol, and Liverpool, three from each city. No committeeman may serve more than three consecutive years. Any committeeman could be removed by the board of trade and plantations, and now by a committee of the council, after being heard in his own defense. The committee is forbidden to export enslaved people from Africa or import any African goods into Great Britain. Since it is responsible for maintaining forts and garrisons, however, it may export goods and supplies of various kinds from Great Britain to Africa for that purpose. From the money received from the company, the committee is allowed a sum not exceeding eight hundred pounds to pay its clerks and agents in London, Bristol, and Liverpool, rent for its London offices, and all other costs of management, commission, and agency in England. Whatever remains of this sum after those expenses may be divided among the committee members as compensation for their trouble, in whatever way they see fit. Under this constitution, one might have expected the spirit of monopoly to be effectively restrained and the first aim sufficiently achieved. It appears, however, that it was not. Although the 4th of George III. c.20 vested the fort of Senegal and all its dependencies in the company of merchants trading to Africa, the following year (by the 5th of George III. c.44) not only Senegal and its dependencies but the entire coast from the port of Sallee, in South Barbary, to Cape Rouge was removed from the company’s jurisdiction, vested in the crown, and declared open to trade by all his majesty’s subjects. The company had been suspected of restricting the trade and establishing some kind of improper monopoly. It is not easy, however, to see how it could have done so under the regulations of the 23d George II. Yet I find it accused of this in the printed debates of the house of commons, records that are not always the most reliable witnesses to truth. All nine members of the committee were merchants, and the governors and factors at the various forts and settlements depended on them. It is thus quite possible that the latter gave special attention to the former’s consignments and commissions, establishing a real monopoly.

For the second aim, maintaining forts and garrisons, parliament has allotted the company an annual sum, generally about £13,000. To account for the proper use of this sum, the committee must report annually to the cursitor baron of exchequer, and the account must then be laid before parliament. But parliament, which pays so little attention to how millions are spent, is unlikely to give much attention to £13,000 a year; and the cursitor baron of exchequer is unlikely, by profession or training, to have a deep knowledge of the proper cost of forts and garrisons. Captains of his majesty’s navy, or other commissioned officers appointed by the board of admiralty, may indeed inspect the condition of the forts and garrisons and report their findings to that board. Yet the board appears to have no direct authority over the committee or power to correct the conduct it may investigate; and naval captains, moreover, are not supposed always to be deeply versed in the science of fortification. Dismissal from an office held for no more than three years and yielding so little lawful reward even during that time seems the harshest punishment a committeeman faces for any fault short of actual misconduct or embezzlement of public or company money. Fear of dismissal can never be a strong enough motive to compel constant, careful attention to a business in which he has no other interest. The committee has been accused of sending bricks and stones from England to repair Cape Coast Castle, on the coast of Guinea, a project for which parliament had several times granted an extraordinary sum. These bricks and stones, after so long a voyage, were reportedly of such poor quality that the walls repaired with them had to be rebuilt from their foundations. The forts and garrisons north of Cape Rouge are not only maintained at the state’s expense but governed directly by the executive power. It is hard even to imagine a good reason why those south of the cape, also maintained at least in part at the state’s expense, should be governed differently. Protection of the Mediterranean trade was the original purpose, or pretext, for the garrisons of Gibraltar and Minorca, and their maintenance and governance have always properly been entrusted not to the Turkey company but to the executive power. The extent of its dominion is a principal source of that power’s pride and dignity; it is unlikely to neglect what the defense of that dominion requires. Accordingly, the garrisons at Gibraltar and Minorca have never been neglected. Although Minorca has been taken twice and is now probably lost forever, no one has attributed that disaster to neglect by the executive power. I do not, however, mean to suggest that either costly garrison was ever necessary, even in the slightest degree, for the purpose for which they were originally severed from the Spanish monarchy. That severance may have served no real purpose other than to alienate England’s natural ally, the king of Spain, and unite the two principal branches of the house of Bourbon in a far closer and more lasting alliance than blood ties could ever have forged.

Joint-stock companies established by royal charter or act of parliament differ in several respects not only from regulated companies but also from private partnerships.

First, in a private partnership no partner can transfer his share to someone else or bring a new member into the partnership without the others’ consent. Each member may, however, give proper notice, leave the partnership, and demand payment of his share of the common stock. In a joint-stock company, by contrast, no member can demand payment of his share from the company, but each may transfer it to another person without the company’s consent, bringing in a new member. A share in a joint stock is always worth whatever price it will fetch in the market; that price may be greater or less, in any proportion, than the sum credited to its owner on the company’s books.

Secondly, in a private partnership each partner is liable for debts contracted by the firm to the full extent of his fortune. In a joint-stock company, by contrast, each partner’s liability extends only to the value of his share.

The trade of a joint-stock company is always managed by a board of directors. That board is often subject in many respects to the control of a general meeting of proprietors. Most proprietors, however, seldom claim to understand anything about the company’s business; when they are not stirred by faction, they take no trouble over it, but contentedly receive whatever half-yearly or yearly dividend the directors choose to pay them. This complete freedom from trouble and from risk beyond a limited sum encourages many people to invest in joint-stock companies who would never risk their fortunes in a private partnership. Such companies therefore commonly attract much greater stocks than any private partnership can claim. The South Sea company’s trading stock at one time amounted to upwards of thirty-three millions eight hundred thousand pounds. The divided capital of the Bank of England at present amounts to ten millions seven hundred and eighty thousand pounds. Yet directors of such companies manage other people’s money rather than their own; one can hardly expect them to guard it with the anxious vigilance with which partners in a private firm often guard their own. Like the stewards of a rich man, they are inclined to think attention to small matters beneath their master’s honor and readily excuse themselves from it. Negligence and extravagance must therefore always prevail to some degree in managing such a company’s affairs. For this reason joint-stock companies trading abroad have seldom been able to compete with private adventurers. Accordingly, they have very seldom succeeded without an exclusive privilege and often have failed even with one. Without an exclusive privilege they have generally mismanaged the trade; with one they have both mismanaged and restricted it.

The Royal African company, predecessors of the present African company, had an exclusive privilege by charter. But because the charter had not been confirmed by act of parliament, the trade was opened to all his majesty’s subjects soon after the Revolution, under the declaration of rights. In their legal rights the Hudson’s Bay company stand in the same position as the Royal African company: their exclusive charter has not been confirmed by act of parliament. The South Sea company, for as long as it continued trading, had an exclusive privilege confirmed by act of parliament, as does the present united company of merchants trading to the East Indies.

The Royal African company soon discovered that it could not compete with private adventurers, whom, despite the declaration of rights, it continued for a while to call interlopers and persecute as such. In 1698, however, the private adventurers were made to pay a duty of ten per cent. on almost all the various branches of their trade, to be used by the company to maintain its forts and garrisons. Even with this heavy tax the company could not compete. Its stock and credit gradually declined. By 1712 its debts had grown so large that a special act of parliament was thought necessary to protect both the company and its creditors. The act provided that a decision made by two-thirds of those creditors in both number and value would bind the rest, both as to how much time the company would have to pay its debts and as to any other agreement deemed appropriate concerning those debts. By 1730 its affairs were in such disorder that it was utterly incapable of maintaining its forts and garrisons, the sole purpose and pretext of its establishment. From that year until its final dissolution parliament considered it necessary to grant an annual sum of £10,000 for that purpose. In 1732, after losing money for many years in the trade of carrying enslaved people to the West Indies, the company at last decided to abandon it entirely: it would sell the people it purchased on the coast to private traders bound for America, and employ its servants in trading with the interior of Africa for gold dust, elephants’ teeth, dyeing materials, etc. But it was no more successful in this narrower trade than in its earlier, more extensive one. Its affairs continued gradually to decline until, bankrupt in every respect, it was dissolved by act of parliament and its forts and garrisons vested in the present regulated company of merchants trading to Africa. Before the Royal African company was founded, three other joint-stock companies had been established in succession for the African trade. All were equally unsuccessful. All, however, held exclusive charters which, though not confirmed by act of parliament, were then supposed to convey a genuine exclusive privilege.

Before its misfortunes in the late war, the Hudson’s Bay company had been much more fortunate than the Royal African company. Its necessary expenses are far smaller. The total number of people it maintains in its various settlements and dwellings, which it has honored with the name of forts, is said to be no more than a hundred and twenty. That number, however, is enough to prepare in advance the cargo of furs and other goods needed to load its ships, which because of the ice can seldom remain in those seas for more than six or eight weeks. Private adventurers could not acquire this advantage of a prepared cargo for several years; without it, trade with Hudson’s Bay appears impossible. The company’s moderate capital, said not to exceed one hundred and ten thousand pounds, may moreover be sufficient to monopolize the whole, or almost the whole, trade and surplus produce of the poor but extensive country covered by its charter. No private adventurers, accordingly, have ever tried to trade there in competition with it. The company has therefore always enjoyed exclusive trade in fact, though it may have no legal right to it. Moreover, its moderate capital is said to be divided among a very small number of proprietors. A joint-stock company with few proprietors and moderate capital comes very close to a private partnership and may exercise nearly the same vigilance and care. It is no surprise, then, that these several advantages enabled the Hudson’s Bay company to trade with considerable success before the late war. It does not seem likely, however, that its profits ever approached the level imagined by the late Mr Dobbs. Mr Anderson, the author of the Historical and Chronological Deduction of Commerce and a much more sober and discerning writer, rightly observes that if one examines Mr Dobbs’s own accounts of the company’s exports and imports over several years and makes due allowance for its extraordinary risks and expenses, its profits appear neither enviable nor much, if at all, above the ordinary profits of trade.

Yet long after Sir Josiah Child's time, in 1750, a regulated company was established: the present company of merchants trading to Africa. At first it was explicitly made responsible for maintaining all British forts and garrisons between Cape Blanc and the Cape of Good Hope. Later it was responsible only for those between Cape Rouge and the Cape of Good Hope. The act establishing it (the 23rd of George II. c.51 ) seems to have had two separate aims. First, it tried to curb the oppressive drive toward monopoly that regulated-company directors naturally have. Secondly, it tried to make them pay as much attention as possible to maintaining forts and garrisons, something they are not naturally inclined to do.

For the first aim, the entry fee was limited to forty shillings. The company was forbidden to trade as a corporation or with joint stock, to borrow money under its common seal, or to restrict trade. Any British subject paying the fee could trade freely from anywhere. A committee of nine governed the company and met in London. Its members were elected every year by company freemen in London, Bristol, and Liverpool, three from each place. No committee member could serve more than three years in a row. The board of trade and plantations, now replaced by a council committee, could remove any member after hearing his defense. The committee was forbidden to export enslaved people from Africa or import African goods into Great Britain. But because it had to maintain forts and garrisons, it could export various goods and supplies from Great Britain to Africa for that purpose. From the money it received from the company, it could use no more than eight hundred pounds for salaries of clerks and agents in London, Bristol, and Liverpool; rent for its London offices; and all other management, commission, and agency expenses in England. The members could divide any remainder among themselves as they wished, to pay for their work. One might have expected this structure to restrain the drive toward monopoly effectively, and thus meet the first aim. Apparently it did not. Under the 4th of George III. c.20, the fort of Senegal and all its dependencies had been put under the company of merchants trading to Africa. But the next year, under the 5th of George III. c.44, Senegal and its dependencies, along with the entire coast from the port of Sallee in South Barbary to Cape Rouge, were removed from the company's control. They were placed under the crown, and trade there was declared open to all his majesty's subjects. The company had been suspected of restricting trade and setting up some improper monopoly. It is hard, though, to see how it could do so under the rules of the 23d George II. Still, the printed house of commons debates, which are not always the most reliable records of truth, do accuse it of this. All nine committee members were merchants. The governors and agents at the company's forts and settlements depended on them. Those officials may well have given special attention to shipments and commissions belonging to the committee members, creating a real monopoly.

For the second aim, maintaining the forts and garrisons, parliament allotted the company a yearly sum, generally about £13,000. The committee had to account each year to the cursitor baron of exchequer for its use of this money, and the accounts then had to go before parliament. But parliament pays so little attention to how millions are spent that it is unlikely to pay much attention to £13,000 a year. The cursitor baron of exchequer is also unlikely, given his profession and training, to know much about the proper costs of forts and garrisons. Captains of his majesty's navy or other commissioned officers appointed by the board of admiralty can inspect the forts and garrisons and report their findings to the board. But the board seems to have no direct power over the committee and no authority to correct the conduct it investigates. Besides, naval captains are not expected to know much about fortification. Unless a committee member directly misuses or steals public or company money, the worst penalty he seems to face is removal from an office held for only three years, with very small lawful earnings even during that time. Fear of losing the office cannot be a strong enough reason for someone with no other interest in the matter to pay steady, close attention to it. The committee has been accused of shipping bricks and stones from England to repair Cape Coast Castle on the coast of Guinea. Parliament had repeatedly granted extra money for this work. The bricks and stones sent on this long voyage were said to be so poor that walls repaired with them had to be rebuilt from their foundations. The state pays to maintain the forts and garrisons north of Cape Rouge, and the executive power governs them directly. Those south of the cape are also maintained at least partly at state expense. It is hard to imagine a good reason why they should be governed differently. The garrisons of Gibraltar and Minorca were originally meant, or claimed to be meant, to protect Mediterranean trade. Their maintenance and government have properly always been entrusted to the executive, not to the Turkey company. The extent of its territory is a major source of the executive power's pride and status, so it is unlikely to neglect what is needed to defend that territory. The garrisons at Gibraltar and Minorca have never been neglected. Minorca has been captured twice and is now probably lost forever, but no one has blamed those losses on executive neglect. I do not mean, however, to suggest that either expensive garrison was ever needed, even slightly, for the purpose for which the places were originally taken from the Spanish monarchy. Taking them away may have served no real purpose except to estrange England from her natural ally, the king of Spain, and to bring the two main branches of the house of Bourbon into a closer and longer-lasting alliance than family ties alone ever could.

Joint-stock companies set up by royal charter or act of parliament differ in several ways both from regulated companies and from private partnerships.

First, in a private partnership, a partner cannot transfer his share to someone else or bring in a new member without the other partners' consent. But with proper notice, each member can leave and demand that the partnership pay him his share of its common stock. In a joint-stock company, by contrast, a member cannot demand that the company pay him for his share. But he can transfer it to another person, making that person a new member, without the company's consent. The value of a share in a joint stock is always the price it will fetch on the market. That price can be greater or less, by any amount, than the sum credited to its owner in the company's stock.

Secondly, a partner in a private partnership is responsible for company debts with his entire fortune. In a joint-stock company, by contrast, each member's responsibility goes only as far as his share.

A board of directors always manages a joint-stock company's trade. In many matters, the board is often subject to oversight by a general meeting of the owners. But most owners rarely claim to understand the company's business. Unless factions are fighting among them, they do not trouble themselves about it. They simply accept whatever half-yearly or yearly dividend the directors choose to pay. Being free of work and of any risk beyond a limited sum encourages many people to invest in joint-stock companies who would never risk their fortunes in a private partnership. These companies commonly gather far larger stocks than any private partnership can. At one time, the South Sea company's trading stock amounted to more than thirty-three millions eight hundred thousand pounds. The Bank of England's divided capital currently amounts to ten millions seven hundred and eighty thousand pounds. Yet directors manage other people's money rather than their own. We cannot expect them to watch it as anxiously as partners in a private partnership often watch their own money. Like a rich man's stewards, directors tend to think that attending to small details is beneath their employer's dignity, and readily excuse themselves from doing it. Some negligence and extravagance are therefore bound to occur in managing such a company. For this reason, joint-stock companies engaged in foreign trade have rarely been able to compete against independent traders. They have rarely succeeded without an exclusive privilege and have often failed even with one. Without an exclusive privilege they have usually managed trade badly. With one they have both managed it badly and restricted it.

The Royal African company, which came before the present African company, had an exclusive privilege under its charter. But parliament had not confirmed the charter by an act. As a result of the declaration of rights, the trade was opened to all his majesty's subjects soon after the Revolution. As far as their legal rights go, the Hudson's Bay company is in the same position as the Royal African company: no act of parliament has confirmed its exclusive charter. The South Sea company had an exclusive privilege confirmed by an act of parliament while it remained a trading company. The present united company of merchants trading to the East Indies has one too.

The Royal African company soon discovered that it could not compete with independent traders. Despite the declaration of rights, for some time it continued to call them interlopers and persecute them. In 1698, however, those independent traders had to pay a ten per cent. duty on almost every branch of their trade, which the company was to use to maintain its forts and garrisons. Despite this heavy tax, the company still could not compete. Its stock and credit steadily declined. By 1712, its debts had become so large that parliament thought it necessary to pass a special act to protect the company and its creditors. The act made a decision by two-thirds of the creditors, measured both by their number and by the value of their claims, binding on the rest. This applied to the time allowed for the company to repay its debts and to any other agreement with it about those debts. By 1730, the company's affairs were in such disorder that it could not maintain its forts and garrisons, the only purpose and stated justification for creating it. From that year until its final dissolution, parliament thought it necessary to provide £10,000 a year for that purpose. In 1732, after many years of losing money on the trade of transporting enslaved Africans to the West Indies, the company finally decided to quit it. It would sell the enslaved Africans it bought on the coast to private traders bound for America, and use its servants to trade inland in Africa for gold dust, elephants' teeth, dyeing materials, etc. But it was no more successful in this smaller trade than in its earlier, wider one. Its affairs kept declining until, bankrupt in every respect, it was dissolved by act of parliament. Its forts and garrisons were transferred to the present regulated company of merchants trading to Africa. Before the Royal African company was established, three other joint-stock companies had been set up one after another for the African trade. All three were equally unsuccessful. Each had an exclusive charter which, though not confirmed by an act of parliament, was thought at the time to give a real exclusive privilege.

Before its misfortunes in the late war, the Hudson's Bay company had done much better than the Royal African company. Its necessary expenses are much smaller. It is said to maintain no more than a hundred and twenty people in all its settlements and dwellings, which it has honored with the name of forts. That number is enough to have furs and other goods ready to load onto its ships before they arrive. Because of the ice, those ships can seldom stay in those waters for more than six or eight weeks. Independent traders could not gain this advantage of a prepared cargo for several years, and without it trade to Hudson's Bay seems impossible. The company's modest capital, said to be no more than one hundred and ten thousand pounds, may also be enough to corner all or almost all the trade and surplus produce of the poor but vast country covered by its charter. No independent trader has therefore ever tried to compete there. The company has always had exclusive trade in practice, though it may have no legal right to it. Furthermore, its modest capital is said to be shared among very few owners. A joint-stock company with few owners and modest capital is quite close to a private partnership and can be almost as watchful and attentive. Given all these advantages, it is not surprising that the Hudson's Bay company was able to carry on its trade fairly successfully before the late war. It does not seem likely, though, that its profits ever came close to what the late Mr Dobbs imagined. Mr Anderson, author of the Historical and Chronological Deduction of Commerce, is a much more restrained and sensible writer. He rightly notes that Mr Dobbs's own accounts of several years of exports and imports, once adjusted for the company's unusual risks and costs, show profits that are nothing to envy. They may not be much higher, if higher at all, than the normal profits of trade.