An eminent French author, of great knowledge in matters of political economy, the Abbe Morellet, gives a list of fifty-five joint stock companies for foreign trade which have been established in different parts of Europe since the year 1600, and which, according to him, have all failed from mismanagement, notwithstanding they had exclusive privileges.He has been misinformed with regard to the history of two or three of them, which were not joint stock companies and have not failed.But, in compensation, there have been several joint stock companies which have failed, and which he has omitted.
The only trades which it seems possible for a joint stock company to carry on successfully without an exclusive privilege are those of which all the operations are capable of being reduced to what is called a Routine, or to such a uniformity of method as admits of little or no variation.Of this kind is, first, the banking trade; secondly, the trade of insurance from fire, and from sea risk and capture in time of war; thirdly, the trade of ****** and maintaining a navigable cut or canal; and, fourthly, the similar trade of bringing water for the supply of a great city.
Though the principles of the banking trade may appear somewhat abstruse, the practice is capable of being reduced to strict rules.To depart upon any occasion from those rules, in consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous, and frequently fatal, to the banking company which attempts it.But the constitution of joint stock companies renders them in general more tenacious of established rules than any private copartnery.Such companies, therefore, seem extremely well fitted for this trade.The principal banking companies in Europe, accordingly, are joint stock companies, many of which manage their trade very successfully without any exclusive privilege.The Bank of England has no other exclusive privilege except that no other banking company in England shall consist of more than six persons.The two banks of Edinburgh are joint stock companies without any exclusive privilege.
The value of the risk, either from fire, or from loss by sea, or by capture, though it cannot, perhaps, be calculated very exactly, admits, however, of such a gross estimation as renders it, in some degree, reducible to strict rule and method.The trade of insurance, therefore, may be carried on successfully by a joint stock company without any exclusive privilege.Neither the London Assurance nor the Royal Exchange Assurance companies have any such privilege.
When a navigable cut or canal has been once made, the management of it becomes quite ****** and easy, and it is reducible to strict rule and method.Even the ****** of it is so as it may be contracted for with undertakers at so much a mile, and so much a lock.The same thing may be said of a canal, an aqueduct, or a great pipe for bringing water to supply a great city.Such undertakings, therefore, may be, and accordingly frequently are, very successfully managed by joint stock companies without any exclusive privilege.
To establish a joint stock company, however, for any undertaking, merely because such a company might be capable of managing it successfully; or to exempt a particular set of dealers from some of the general laws which take place with regard to all their neighbours, merely because they might be capable of thriving if they had such an exemption, would certainly not be reasonable.To render such an establishment perfectly reasonable, with the circumstance of being reducible to strict rule and method, two other circumstances ought to concur.
First, it ought to appear with the clearest evidence that the undertaking is of greater and more general utility than the greater part of common trades; and secondly, that it requires a greater capital than can easily be collected into a private copartnery.If a moderate capital were sufficient, the great utility of the undertaking would not be a sufficient reason for establishing a joint stock company; because, in this case, the demand for what it was to produce would readily and easily be supplied by private adventures.In the four trades above mentioned, both those circumstances concur.
The great and general utility of the banking trade when prudently managed has been fully explained in the second, book of this Inquiry.But a public bank which is to support public credit, and upon particular emergencies to advance to government the whole produce of a tax, to the amount, perhaps, of several millions, a year or two before it comes in, requires a greater capital than can easily be collected into any private copartnery.
The trade of insurance gives great security to the fortunes of private people, and by dividing among a great many that loss which would ruin an individual, makes it fall light and easy upon the whole society.In order to give this security, however, it is necessary that the insurers should have a very large capital.
Before the establishment of the two joint stock companies for insurance in London, a list, it is said, was laid before the attorney-general of one hundred and fifty private insurers who had failed in the course of a few years.
That navigable cuts and canals, and the works which are sometimes necessary for supplying a great city with water, are of great and general utility, while at the same time they frequently require a greater expense than suits the fortunes of private people, is sufficiently obvious.