Tuesday, April 10, 2007

What Dick Whittington's Cat Teaches Us About Royal Chartered Trading Companies

James Bond, Michigan writes a Blog with the intriguing title: Why ‘Conservatives’ Can’t Do Foreign Policy and adds a subtitle: ‘My first and Third Posts distinguish ‘conservatives’ from pseudo-conservatives; my fourth post explains why pseudo-conservatives can’t do foreign policy’ which doubly intrigues but finding his first, third and fourth posts defeats all but the most intrepid reader and the quotation marks remain a mystery.

However, here’s an extract:

I have noticed that writers like Friedrich von Hayek and Milton Friedman LOVE to denounce what they don't like in government by using the terms "collectivism" or "collectivization". I frankly can't recall reading how they define the term however. I would include the huge centralization achieved by the modern corporation as a prime example of modern collectivization. If they fail to do so I believe I'd consider that an inconsistency. Although people on the right in America LOVE to idolize Adam Smith it is a little known fact that Adam Smith was seriously concerned about corporations if not opposed to their being too frequently chartered. Why? For one rather obvious reason Smith was thoroughly serious about real competition and felt that owners of businesses should be fully responsible for their business practices and this was most likely to occur if they had something approximating face-to-face relationships with their customers as was the case with single owners and partnerships. Moreover, Smith could see the likelihood that corporations might wield disproportionate power over government and thus distort the political process. Any American who doesn't see that that has occurred in the United States really must have their head in the sand or be a died in the wool pro-corporate ideologue. (For Adam Smith's attitudes toward corporations, he called them "joint stock companies", see the 2003 Bantam Classics edition and read Alan Krueger's Introduction.)

Comment
Hayek and Friedman can answer for themselves through their intellectual heirs. James Bond must answer for himself.

Adam Smith did not write in a vacuum; he wrote in the mid-18th century when ‘merchants and manufacturers’ in the main employed of between one and twenty people.

The most common form of ‘company’ structure was the ‘co-partnery’, in which the principal(s) shared the risks of their enterprise up to the full value of everything they owned. If it failed, they went down from what they had to utter destitution. Their liabilities were total.

The 17th century's children's story about 'Dick Whittington and his Cat' illustrates how he made a fortune, and became Mayor of London from his share in a ship's cargo en route for Siam. His cat killed the rats in the King of Siam's palace and he expressed his gratitude with cases of precious stones for Dick.

Foreign trade introduced a variation in which ‘adventurers’ combined their cargoes on a ship for a single voyage. If the ship was lost to the ‘wind and the waves’, to piracy, fraud or disease, or the voyage failed to make a profit, each venturer was liable only for his own cargo. When the voyage ended successfully, the partnership and their liabilities ended. Each new voyage began with different combinations of cargoes. Without such arrangements, trade was more risky and slower growing.

The joint stock company was a variation that allowed individuals to buy shares which limited their liabilities to the value of their shares; if the company failed, they lost their share capital but had no further liabilities. The managers of a joint stock company need not be shareholders and the company was governed by a board of Governors. These joint-stock companies were set up to conduct large scale ventures abroad and because of their political importance, their immense investments and the associated risks, they sought and were awarded, if politically expedient, Royal Charters granting them territorial monopolies, renewable at the King’s pleasure. The British American colonies were all established by Royal Charters.

Royal Charters were historical instruments of state. They had been offered to towns during the feudal centuries bringing them within the protection of the monarch against the local feudal landlords, where they collected taxes from town people and local business on behalf of the sovereign, and as such were ‘incorporated’. They still exist as an instrument of state today; all institutions in Britain wishing to use the title ‘university’ must seek and be awarded a Royal Charter to do so (hence, no ‘degree-mills’ operate in the UK).

Smith severely criticised the conduct of the monopoly joint-stock Royal Chartered corporations of his day, in particular the East India Company. He criticised their behaviour, their monopoly status, and their governance, pulling no punches whatsoever. His language is sometimes transposed to modern international companies, which are subject to strict accounting and governance rules, and face international competition on a scale totally absent in the 18th century. The full glare of publicity today exposes the conduct of the modern joint stock companies, literally within minutes or hours, whereas the sea communications between Britain and India required an 18-month round trip to bring limited news of what the East India Company was doing.

Without being naïve, I think we should recognise that there are great differences between the international Royal Chartered Trading Companies that Smith wrote about and the modern international corporations. Smith’s critique of them may not apply to them and care should be taken in doing so. This does not mean that people behave differently today compared to the past; there are just more restraints on behaviour today than there were in the past.

I am still no wiser about 'conservatives' and foreign policy, but domestic US politics are not really my business. The 18th century is, however.

2 Comments:

Blogger nemo said...

Because the 18th century is your area I'd be interested to know if Smith in his writings about joint stock companies like the East India reserved any criticism for the Royal Navy of his time.

If monopoly was in his gun sight what about navy ships and Admiralty control of vessels? A bit later for Smith but, for example, did Bligh 'own' the Bounty, to all extent and purpose, so that it was his 'property' and not Christian's? I know that you have written about Bligh and Cook. Were they not 'merchant adventurers' in their own way?

6:31 p.m.  
Blogger Gavin Kennedy said...

A most interesting question. From the top of my head I cannot recollect Smith criticising the Royal Navy specifically. He did criticise ‘princes’ for fighting wars over trivial ends, and he did allude to the habits of ‘rapine’ among troops making it difficult, in theory, for them to settle down to civilian life when wars ended, but he noted that nothing like this appeared to have happened, which he thought would mean that ‘losers’ from ending monopolies from which they lost their jobs would not resort to civil disorder.

He had many relatives (uncles, cousins, etc.,) who had served in the army and spoke of the ‘noble art of war’ and praised the martial values of valour, courage and self-sacrifice. He did not treat the instruments of defence as monopolistic in the sense of it being improved by competition. His ‘first duty’ ascribed to the ‘sovereign’ (government) was the defence of the people from the depredations of foreigners (much influenced by the thousand years aftermath of the Fall of Rome in the 5th century).

Given his observations of the need for seaborne protection of merchant trades for an island community like Britain, he regarded the Navigation Acts as among the best commercial decisions of parliament, though he criticised the mercantile politics and economics that flowed from this and other Acts, especially in the American colonies. His criticism of the East India Company was severe, especially in its use of force against local people and its prohibitions, enforced by East India armed ships on other merchants wishing to compete for trade.

On Bligh and Fletcher he said nothing as the mutiny in April 1789 had hardly become news in Britain before he died in July 1790. He corresponded with Joseph Banks, Bligh’s sponsor and source of ‘interest’, but no reference to Bligh or Christian exists. The Principal of Glasgow University when Smith was a professor, was Dr Neil Campbell, a grandfather of Peter Heywood, one of the Bounty mutineers and close friend of Fletcher Christian.

Bounty was owned by the Royal Navy. No ship of the Royal Navy was ‘owned’ by anyone other than the King (‘HMS’). Ship’s Captains received the King’s Commission for the duration of their command. They were personally responsible for the ships, its contents and all of its crew and answered to court-martial for losses of any of these components (they still do). If a ship is sunk, captured by an enemy, suffers a mutiny, catches fire, etc., lost in a storm, the captain and officers are charged at a court-martial. Everything that happens daily – even the most ordinary or trivial event – is logged and the logs collected by the Admiralty. So, despite being solely in charge during a voyage, the captain’s conduct is scrutinised on return and is subject to further enquiries (or, indeed, complaints by other crew members with grievances).


Fletcher Christian was a Master’s Mate, not a commissioned officer. Bligh made him ‘Acting Lieutenant’ and logged it, but this was not recognised by the Admiralty other than as a courtesy title for the voyage, nor was he paid as such. It was not equivalent to a battlefield commission – Britain was was not at war and only an Admiral could make that appointment. Bligh was ‘captain’ of Bounty, but not a ‘Post Captain’, a commissioned rank; he was a commissioned Lieutenant, one rank down from Post Captain.

After the Bounty voyage, Bligh visited Edinburgh several times in the 1790s in command of various ships, including HMS Defiance. He passed by Edinburgh in the 1782 when Cook’s ill-fated 3rd voyage round the Orkney’s en route from Hawaii and met with James Boswell. There is no record of him meeting Smith.

In conclusion, neither Cook nor Bligh was a 'merchant adventurer' and captains of Royal Navt ships would lose their commands and careers if they acted as such against merchant ships.

Fletcher Christian was charged with 'piratical seizure of HMV Bounty' primarily, and with mutiny as a secondary charge. His conduct from the date of the mutiny was illegal however he conducted himself.

Hope this helps address your questions.

12:41 p.m.  

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