been considered as essential to the defence 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; a part, 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 sovereign, together with all the powers which are naturally 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 estate 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."

§ 5. History and Abuses of Foreign Trading
Companies: Regulated Companies.

This opinion is supported by an appeal to history. An account is given first of the old "regulated"

companies, which resembled the corporations of trades which used to be common in all the cities and towns of Europe. The foreign regulated trading companies were fashioned exactly in their likeness. To trade in a certain "sphere" a merchant must be admitted a member of the company, and gradually by raising the fees the entrance was restricted and a partial monopoly created. In these regulated companies, however, the members traded independently, subject to certain general rules and regulations. The conclusion of the history of these regulated companies is given in the famous verdict: "To be merely useless, indeed, is perhaps the highest eulogy which can ever be justly bestowed upon a regulated company; and all the three companies above mentioned seem in their present state to deserve this eulogy."

These regulated companies did not maintain forts or garrisons in the countries to which they traded; but they sometimes contributed to the expense of maintaining ambassadors or 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 [the reference is to the Turkey company] for this and other corporation purposes might afford a revenue much more than sufficient to enable a state to maintain such ministers."

§ 6. Joint-Stock Companies-East India Company.

The joint-stock companies for foreign trade, as the name implies, carried on their operations so that

each member shared in the profit or loss in proportion to the amount of his shares.

The most important of these companies was the East India Company, which began (1600) as a regulated company, but after a very short time was converted into a joint-stock company. The history of this company is part, and a very important part, of the general history of the British Empire. In this place it will suffice to quote, as illustrative of his principles, some of the comments of Adam Smith, without the detailed history on which they are based. The company constantly complained of the competition of interlopers. "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." By the aid of their monopoly the company made a fair profit during the first part of the eighteenth century, but they gradually became involved in the politics of the Indian princes, and with politics came wars. "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 (1748); 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." After the French war (1755 to 1762) we are told: "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; in consequence of which several very important alterations were made in the constitution of their government, both at home and abroad." "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 pound share in 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. . . . 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 on which it is based. About the prosperity of the great empire in the government of which that vote gives him a share, he seldom cares at all. No other sovereigns ever were or from the nature of things ever could be so perfectly indifferent about the

happiness or misery of their subjects, the improvement or waste of their dominions, the glory or disgrace of their administration, as from irresistible moral causes the greater part of the proprietors of such a mercantile company are and necessarily must be." With the mismanagement of sovereign power was associated mismanagement of trade, so that "in consequence of these disorders the company is now (1784, the date of Adam Smith's third edition) in greater distress than ever. . . . Different plans have been proposed by the different parties in Parliament for the better management of its affairs, and all those plans seem to agree in supposing what was, indeed, always abundantly evident, that it is altogether unfit to govern its territorial possessions."

§ 7. General View of Relation of Trade to

Sovereignty.

"No two characters seem more inconsistent than those of trader and sovereign.

If the trading spirit

of the English East India Company renders them very bad sovereigns, the spirit of sovereignty seems to have rendered them equally bad traders."

The present condition of India under British rule is the best commentary on the soundness of Adam Smith's judgment. The government of the millions of India by a few thousand British civilians is one of the greatest marvels in the history of civilisation; and one of the essential conditions of success is that the delegates of the sovereign have no share in the profits of the exploitation of the country. Equally