Privileged Trading Companies

A government sometimes grants to individual merchants, and much oftener to trading companies, the exclusive privilege of buying and selling specific articles such as tobacco or of trafficking with a particular country, as with India.

The privileged traders, being thus exempted from all competition by the exertion of the public authority, can raise their prices above the level that could be maintained under the operation of a free trade. This unnatural ratio of price is some-

There is another argument of more general application, and still more frequently urged; viz. that a company, having the exclusive trade of any given country, is exempt from the effects of competition, and, therefore, buys at a less price.

But, in the first place, it is not true that the exclusive privilege exempts from the effect of competition= the only competition it removes, is that of the national traders, which would be of the utmost benefit to the nation; but it excludes neither the competition of foreign companies, nor of foreign private traders. In the next place, there are many articles that would not rise in price in consequence of the competition, which some people affect to be alarmed at, though in truth it is a mere bugbear.

own price, and can command the market, especially if it be attentive to keep the market always understocked, as the English call it; that is, if the supply be just so far short of the demand, as to keep alive the competition of purchasers. 187 In this manner, trading companies not only extort exorbitant profits from the consumer, but moreover saddle him with all the fraud and mismanagement inseparable from the conduct of these unwieldy bodies, with their cumbrous organisation of directors and factors without end, dispersed from one ex- tremity of the globe to the other. The only check to the gross abuses of these privileged bodies is the smuggling or contra- band trade, which, in this point of view, may lay claim to some degree of utility.

Suppose Marseilles, Bordeaux, L’Orient, were all to fit out vessels to bring tea from China, we have no reason to believe that all their ventures together would import more tea into France, than France could consume or dispose of. All we have to fear is, that they should not import enough. Now, if they were to import no more than other merchants would have imported for them, the demand for tea in China will have been just the same in both cases; consequently, the commod- ity will not have become more scare there. Our merchants would hardly have to pay dearer for it, unless the price should rise in China itself; and what sensible effect could the pur- chases of a few merchants of France have upon the price of an article consumed in China itself, to one hundred times the amount of the whole consumption of Europe?

This analysis brings us to the point in question; are the gains of the privileged company, national gains? Undoubtedly not; for they are wholly taken from the pockets of the nation it- self. The whole excess of value, paid by the consumer, be- yond the rate at which free trade could afford the article, is not a value produced, but so much existing value presented by the government to the trader at the consumer’s expense. It will probably be urged, that it must at least be admitted, that this profit remains and is spent at home. Granted. but by whom is it spent? that is the point. Should one member of a family possess himself of the whole family income, dress himself in fine clothes, and devour the best of every thing, what conso- lation would it be to the rest of the family, were he to say, what signifies it whether you or I spend the money? the income spent is the same, so it can make no difference.

But, granting that European competition. would operate to raise the price of some commodities in the eastern market, is that a sufficient motive for excepting the trade to that part of the world from the general rules that are acted upon in all other branches of commerce? Are we to invest an exclusive company with the sole conduct of the import or export trade between Germany and France, for the sole purpose of getting our cottons and woollens from Germany at a cheaper rate? If the commerce of the East were put upon the same footing as foreign trade in general, the price of any one article of its produce could never long remain much above the cost of pro- duction in Asia; for the rise of price would operate as a stimu- lus to increased production, and the competition of sellers would soon be on a par with that of purchasers.

The exclusive as well as excessive profits of monopoly would soon glut the privileged companies with wealth, could they depend upon the good management of their concerns; but the cupidity of agents, the long pendency of distant. adventures, the difficulty of bringing factors abroad to account, and the incapacity of those interested, are causes of ruin in constant activity. Long and delicate operations of commerce require superior exertion and intelligence in the parties interested. And how can such qualities be expected in shareholders, amounting sometimes to several hundreds, all of them hav- ing other matters of more personal importance to look af- ter? 188

But, admitting the advantage of buying cheap to be as sub- stantial as it is represented, the nation at large has a right to participate ir that cheapness; the home consumers ought to buy cheap as well as the company. Whereas in practice it is just the reverse, and, for a very simple reason= the company is not exempt from competition as a purchaser, for other na- tions are its competitors= but as a seller it is exempt; for the rest of the nation can buy the articles it deals in nowhere else, the import by foreigners being wholly prohibited. It asks its Such are the consequences of privileges granted to trading companies= and these consequences, it must be observed, are in the nature of things inseparable; circumstances may re- duce their efficacy, but can never remove them altogether. The English East India Company has met with more success than the three or four French ones that at different times made the experiment. 189 This company is sovereign as well as mer- chant; and we know, by experience, that the most detestable

joyed at all, or have enjoyed at a still dearer rate. But such grants should, like patents, be limited to such duration only, as will repay and fully indemnify the adventurers for the ad- vances and risk incurred. Any thing further is a mere free gift to the company, at the expense of the nation at large, who have a natural right to get what they want wherever they can, and at the lowest possible price. governments may last for several generations; witness that of the Mamelukes in Egypt. 190

There are some minor evils also incident to commercial privi- leges. The grant of exclusive rights frequently exiles from a country a branch of industry and a portion of capital that would readily have taken root there, but are compelled to settle abroad. Towards the close of the reign of Louis XIV the French East India Company, being unable to support itself, notwith- standing its exclusive rights, transferred the exercise of its privileges to some speculators at St. Malo, in consideration of a small share in their profits. The trade began to revive under the influence of this comparative liberty, and would, on the expiration of the company’s charter, in 1714, have been as active as the then melancholy condition of France would have permitted= but the company petitioned for a renewal, and obtained one, pending the ventures of some private trad- ers. Soon afterwards, a vessel of St. Malo, commanded by a Breton of the name of Lamerville, appeared upon the French coast, on its return from the East Indies, but was refused per- mission to enter the harbour, on the plea, that it was in con- travention of the company’s rights. Consequently, he was compelled to prosecute his voyage to the nearest port in Bel- gium, and carried his vessel into Ostend, where he disposed of the cargo. The governor of the Low Countries, hearing of the enormous profits he had made, proposed to the captain a second voyage, with a squadron to be fitted out for the ex- press purpose; and Lamerville afterwards performed many similar voyages for different employers, and laid the founda- tion of the Ostend Company. 191

What has been said with respect to commercial is equally applicable to manufacturing privileges. The reason why gov- ernments are so easily entrapped into measures of this kind is, partly because they see a statement of large profits, and do not trouble themselves to inquire whence they are derived; and partly because this apparent profit is easily reduced to numerical calculation, no matter whether wrong or right, cor- rect or incorrect; whereas the loss and mischief resulting to the nation are infinitely subdivided amongst the members of the community, and operate after all in a very indirect, com- plex, and general way,.so as to escape and defy calculation. Some writers maintain arithmetic to be the only sure guide in political economy; for my part, I see so many detestable sys- tems built upon arithmetical statements, that I am rather in- clined to regard that science as the instrument of national calamity.