The Simplified Wealth of Nations of Adam Smith, Book 5, Chapter 1n: The British East India Company
Chapter 1n: The British East India Company (1600-1874)
115 "The old English East India Company was established in 1600 by a charter from Queen Elizabeth."
It traded as a regulated company in its first 12 voyages to India.
It had separate stocks only in the general ships of the company.
"In 1612, it united into a joint stock."
Its charter was not confirmed by act of parliament and conveyed an exclusive privilege.
"For many years it was not much disturbed by interlopers."
Its capital never exceeded £744,000 at £50 a share.
The share price was not so exorbitant nor its dealings so extensive to cause gross negligence, profusion, gross malversation.
It had a successful trade for many years despite some extraordinary losses caused by:
the malice of the Dutch East India Company, and
But in time, when the principles of liberty were better understood, it became more doubtful how far a Royal Charter, not confirmed by act of parliament, could convey an exclusive privilege.
The decisions of the courts of justice on this question were not uniform.
They varied with:
the government's authority, and
the humours of the times.
Interlopers multiplied on the company.
From the end of the reign of Charles II to the reign of William III, they brought it great distress.
In 1698, a proposal was made to parliament to advance £2 million to government at 8%, provided the subscribers were collected 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% on the same conditions.
Public credit was such in a bad state, that it was more convenient for government to borrow £2 million at 8% than £700,000 at 4%.
The proposal of the new subscribers was accepted.
A new East India Company established.
The old East India Company could continue until 1701.
At the same time, it subscribed £315,000 very artfully into the new company's stock.
The act of parliament failed to emphasize that all subscribers of the £2 million loan were all obliged to unite into a joint stock.
A few private traders had subscriptions of only £7,200.
They insisted on the privilege of trading their own stocks separately at their own risk.
The old East India Company had a right to a separate trade on its old stock until 1701.
Like the private traders, it had a right to a separate trade on the £315,000 it had subscribed into the new company's stock.
The competition of the two companies with each other and with private traders almost ruined both.
In 1730, a proposal was made to parliament for putting its trade under a regulated company and laying it open.
The East India Company opposed this proposal.
They were very strongly against the miserable effects of this competition.
They said that:
In India, the competition raised the price of goods so high that they were not worth buying.
In England, the competition overstocked the market.
It sunk the price of goods so low that no profit could be made.
The plentiful supply undoubtedly was a great advantage and conveniency to the public.
It reduced the price of Indian goods so much in the English market.
But it did not raise the price of goods very much in the Indian market.
All the extraordinary demand that competition could bring was just a drop of water in the immense ocean of Indian commerce.
"The increase of demand though in the beginning it may sometimes raise the price of goods, never fails to lower it in the run."
It encourages production and increases the competition of the producers.
Those producers turn to new divisions of labour and improvements never thought of in order to undersell one another.
The company complained about:
the cheapness of consumption, and
the encouragement given to production.
These are precisely the two great effects promoted by political economy.
The competition they complained of was not allowed to continue for long.
In 1702, the two companies were united by an indenture tripartite, to which the queen was the third party.
In 1708, by an act of parliament, they were perfectly consolidated into one company as The United Company of Merchants trading to the East Indies.
This act had a clause which allowed the separate traders to continue their trade until September 29, 1711.
At the same time, it empowered the directors, upon three years notice, to:
redeem their little capital of £7,200, and
convert the whole stock of the company into a joint stock.
The company's capital was increased from £2 million to £3.2 million through a new loan to the government.
In 1743, the company advanced another £1 million to the government.
This million was raised by selling annuities and contracting bond-debts, not by a call on the proprietors.
It did not increase the stock on which the proprietors could claim a dividend.
It increased their trading stock.
Their trading stock was equally liable with the other £3.2 million to the losses and debts by the company.
From 1708 or 1711, this company fully established the successful monopoly of English commerce to the East Indies.
A moderate dividend was annually given to their proprietors from its profits.
The French war began in 1741.
Mr. Dupleix was the French governor of Pondicherry.
His ambition involved the French in:
the Carnatic wars and
the politics of the Indian princes.
After many extraordinary successes and losses, they lost Madras.
Madras was their principal settlement in India back then.
It was restored to the French by the treaty of Aix-la-Chapelle.
At this time, the spirit of war and conquest possessed their servants in India and never left them.
Another French war began in 1755.
The company defended Madras, took Pondicherry, and recovered Calcutta.
They acquired the revenues of more than £3 million a year from this rich and extensive territory.
In 1767, their crown laid claim to their territorial acquisitions and its revenue.
The company agreed to pay the government £400,000 a year in compensation for this claim.
Before this, they gradually increased their dividend from 6% to 10%.
From their capital of £3.2 million, they increased it by £128,000 or raised it from £192,000 to £320,000 a year.
They were attempting to raise it to 12.5%.
It would have made their annual payments to their proprietors equal to their £400,000 annual payment to government.
But during the two years when their agreement with government was to take place, they were restrained by two successive acts of parliament from increasing the dividend.
Their object was to enable the company to pay their debts faster.
Their debts were then estimated at more than £6-7 million sterling.
In 1769, the company renewed their agreement with government for five years more.
It stipulated that during those five years, it should be allowed to gradually increase its dividend to 12.5%, never increasing it more than 1% per year.
At its highest, this dividend increase could increase its annual payments to the proprietors and government only by £608,000 more than what it was before their recent territorial acquisitions.
The net revenue of those territorial acquisitions from an account by the Cruttenden East Indiaman in 1768 was £2,048,747.
At the same time, the company had another revenue of £439,000:
partly from lands, and
chiefly from the customs at their settlements.
At this time, their trade profits was:
at least £400,000 a year, according to their chairman before the House of Commons,
at least £500,000 a year, according to their accountant,
at least equal to the highest dividend that was to be paid to their proprietors, according to the lowest account.
So great a revenue might certainly have afforded an increase of £608,000 in their annual payments.
At the same time, it would have left a large sinking fund sufficient for speedy debt reduction.
In 1773, their debts increased by:
An arrear in the payment of the £400,000
Another payment to the custom-house for duties unpaid
A large debt to the bank for money borrowed
A fourth payment for bills drawn on them from India of more than £1,200,000 and wantonly accepted
These accumulated claims obliged them to:
immediately reduce their dividend to 6%, and
supplicate to government:
a release from further payment of the stipulated £400,000 a year, and
a loan of £1,400,000 to save them from immediate bankruptcy.
The great increase of their fortune only served to furnish their servants with:
a pretext for greater profusion, and
a cover for greater malversation than the increase of that fortune.
The conduct of their servants in India and their affairs in India and Europe were subjected to a parliamentary inquiry.
Several very important alternations were made in the constitution of their government at home and abroad.
In India, their principal settlements of Madras, Bombay, and Calcutta were previously independent of one another.
They were subjected to a governor-general.
He was assisted by a council of four assessors.
Parliament assumed to itself the first nomination of this governor and council who were to reside at Calcutta.
Calcutta became the most important English settlement in India, replacing Madras.
The court of Calcutta was originally instituted for mercantile cases in the city.
It gradually extended its jurisdiction with the extension of the empire.
It was now reduced and confined to its original purpose.
Instead of it, a new supreme court was established.
It had a chief justice and three judges to be appointed by the crown.
In Europe, the necessary qualification to entitle a proprietor to vote at their general courts were:
£500, which was the original share price of a stock of the company, and
at least six months ownership of this stock.
Parliament changed the qualifications by:
raising the price to £1,000,
declaring that the share should be acquired by one's own purchase and not by inheritance, and
at least one year ownership of this stock.
The court of 24 directors was before chosen annually.
Now, each director should be chosen for four years.
Six of them should go out of office by rotation every year.
They cannot be re-chosen at the election for six new directors for the ensuing year.
With these alterations, the courts of the proprietors and the courts of directors were expected to act with more dignity and steadiness than before.
But it seems impossible to render those courts fit to govern because most of their members had too little interest in the prosperity of the empire.
Frequently a man of great, sometimes even a man of small fortune, is willing to purchase £1,000 share in India stock merely for the influence it gives him by a vote in the court of proprietors.
It gives him a share in the appointment of the plunderers of India, not in the plunder.
The court of directors appoint those plunderers.
Those directors are under the influence of the proprietors.
The proprietors elect those directors and sometimes overrule the appointments of their servants in India.
If a man can enjoy this influence for a few years, then he can provide for his friends.
He frequently cares little about the dividend, or even the value of the stock his vote is founded.
He seldom cares at all about:
the prosperity of the great empire
the government of which that vote gives him a share
No other sovereigns could ever be so perfectly indifferent as most of such proprietors are about:
the happiness or misery of their subjects
the improvement or waste of their dominions
the glory or disgrace of their administration
irresistible moral causes
This indifference was more likely to be increased by some of the new regulations made by the parliamentary inquiry.
For example, a resolution of the House of Commons declared:
The company can only divide 8% on their capital when:
the £1,400,000 lent to the company by government are paid
their bond-debts are reduced to £1,500,000
Whatever remained of their revenues and neat profits at home should be divided into four parts:
Three of them are to be paid into the exchequer for public use
The fourth to be reserved as a fund for:
the further reduction of their bond-debts or
the discharge of other contingent exigencies of the company
But if the company were bad stewards and bad sovereigns when their net revenue and profits belonged to themselves, they were surely would not be better when:
3/4 of the net revenue belonged to other people
1/4 of the net revenue were to be inspected and approved by other people, for the company's benefit.
116 It might be more agreeable to the company that their own servants and dependants should be allowed to embezzle whatever surplus remains after paying the 8% dividend than letting the surplus go to other people.
This will make their servants differ with those people.
The interest of those servants and dependants might predominate in the court of proprietors to dispose it to support acts of depredation.
With the majority of proprietors, the court's authority might be reduced.
117 The regulations of 1773, accordingly, did not end the disorders of the company's government in India.
At one time, they collected more than 3 millions sterling into the Calcutta treasury during a momentary fit of good conduct.
They afterwards extended their access to some of the richest and most fertile countries in India.
All was wasted and destroyed.
They found themselves unprepared to stop the incursion of Hyder Ali.
Because of those disorders, the company is now (1784) in greater distress than ever.
To prevent immediate bankruptcy, it again is reduced to supplicate the aid of government.
Different plans have been proposed by the different parties in parliament for its better management.
All those plans agree in supposing the obvious that it is unfit to govern its territorial possessions.
Even the company itself is convinced of its own incapacity, that it is willing to give them up to government.
118 The right of making peace and war in distant and barbarous countries is connected with the right of possessing forts and garrisons there.
The joint stock companies constantly exercised the right of making war and peace and had it expressly conferred on them.
They unjustly, capriciously, and cruelly exercised this right.