sector that is always envied and often despised—despite its being the sole source of all others.
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Abundant money, low interest rates, sound public credit, the growth of luxury—all clear signs of public prosperity—are the usual results of these sorts of establishments. They contribute in turn to that prosperity, by multiplying the various kinds of occupation for the people, their ease, their consumption, and finally the revenues of the state.
There is one case, however, in which they might be harmful: that is when dividends are distributed as shares that are traded and transferred without further formality. By this means, foreigners may elude that wise law that in civilized states prohibits non-naturalized or non-domiciled foreigners from participating in armaments companies. Thanks to these shares, peoples who have a better rate of interest than their neighbors can attract from afar all the profit from the trade of these neighbors—sometimes even ruin them, if it is in their interest. It is only then that merchants have a right to complain. Another general rule: anything that can be subject to speculation is dangerous in a nation that pays a higher rate of interest.
The usefulness of these associations to investors is much more ambiguous than to the state. Nonetheless, it is unfair to be biased against all schemes just because most of those that have been seen to hatch at various times have failed. The usual pitfalls are lack of thrift (inseparable from large operations), lavish expense on establishments before being assured of profit, impatience to see gain, hasty loss of appetite for the project, and finally, discord.
Credulity, daughter of ignorance, is imprudent, but it is contradictory to abandon an enterprise one knew to be risky simply because its risks have been unfurled. Fortune seems to take pleasure in making those who solicit her pass through trials; her largesse is not reserved for those discouraged by her first whims.
There are some general rules by which people who are not acquainted with commerce but would like to become interested in it can protect themselves: (1) At a time when a nation’s capital stock has increased among all classes of people—although with some disproportion among them—the types of commerce that have raised up great fortunes, and that sustain brisk merchant competition, never procure substantial profits; the more this competition increases, the more noticeable the disadvantage becomes. (2) In distant and risky trade, it is imprudent to employ capital whose revenue is not superfluous to subsistence. For if the stakeholders annually
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withdraw either their dividends or simply their interest (if it is at any tolerably substantial rate), any losses that might occur fall immediately on the capital. Sometimes, this capital itself is found to be already diminished by the extraordinary expenses of the first few years. Operations languish or lack boldness; the plan as conceived cannot be fulfilled, and the dividends will certainly be mediocre, even if things go well. (3) Any plan that shows only profits is drawn up by a man lacking either prudence or sincerity. (4) An excellent commercial operation is one in which, following the ordinary course of events, capital runs no risk. (5) The gains from trade are almost always proportional to the uncertainty of success; the operation is good if this proportion is very clear. (6) The selection of individuals who should be assigned the conduct of the enterprise is the most essential item in its success. The one who is capable of taking in a broad overview of things and of directing each particular operation to the common benefit will do quite poorly on the details; aptitude for the latter indicates talent, but often only that. Without understanding commerce, one can be enriched by its means. If the laws were not burdened with formalities, a skillful merchant would surely be a good judge; he would in every case be a great financier. But just because a man knows the laws, just because he has administered the public revenues well or has profited much in one type of trade, it does not follow that his judgment ought to prevail in all commercial deliberations.
There have never been so many plans and projects of this kind since the return of peace,1 and it is noteworthy that virtually everyone has turned his sights toward Cadiz, Martinique, and St. Domingue.2 That did not require much skill, and however little discussion one may have wanted to engage in, it was easy to predict the fate that the stakeholders have experienced. The result is that much more capital has left this trade than has entered into it as surplus.
If one had been busy discovering new mines or establishing solid factories in lesser-known cities such as Naples or Hamburg; if companies had employed a great deal of capital, wisely managed, in the trade of Louisiana
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or the North; if they had set up enterprises in our Antilles (which are conducive to them), as in Guadeloupe and Cayenne,3 they would soon have recognized that there are even bigger and more solid fortunes to be made in the branches of commerce that are not open than have been made up to now. Means of subsistence for the people and wherewithal for families would have doubled in less than ten years.
These details would perhaps not be suitable for an ordinary dictionary, but the purpose of the Encyclopédie is to instruct, and it is important to absolve commerce of the faults of those who have engaged in it.
Privileged companies or guilds are those that have received from the state special favors or rights for certain enterprises, to the exclusion of other subjects. They began in times of barbarism and ignorance, when the seas were covered with pirates, the art of navigation was crude and uncertain, and the use of insurance was not well known. At that time, it was necessary for those who tried their luck in the midst of so many perils to diminish these by sharing them, to engage in mutual support, and to band together in political bodies. The advantage that states derived from them led states to grant encouragements and special protection to these bodies; afterward, the needs of those states and the merchants’ greed imperceptibly perpetuated these privileges, under the pretext that trade could not be carried on otherwise.
This prejudice has not entirely dissipated as people have become more civilized and the human sciences more perfected, because it is easier to imitate than to reason. And even today, many people think that it is useful to restrict competition in certain cases.
One of these special cases that people cite is that of an enterprise that is new, risky, or costly. Everyone will no doubt agree that cases of this type require the special favor and encouragement of the state.
If these favors and encouragements are fiscal exemptions, it is clear that the state loses nothing from the fact that a larger number of subjects will profit from them, since it is a new industry that it is favoring. If it is outlays, bonuses, whatever is more certain and even indispensable, it is clear that three infallible consequences result from competition. First, a greater number
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of men are enriched; the state’s investment brings returns more surely and promptly. Second, the establishment will be brought to its perfection (which is the purpose of the outlays) to the extent that greater efforts contribute to it. Third, the outlays will cease sooner.
The reader will be better instructed on this matter if I place before him the opinions of one of England’s most skillful men of commerce. I speak of Mr. Josiah Child, ch. iii of one of his treatises entitled, Trade, and interest of money considered.4
No one is justified in flattering himself that he thinks any better; and what I will say, when supported by such an authority, will be less open to criticism. It is good to observe that the author was writing in 1669, and that many things have changed since then, but virtually all of them in extension of his principles.5
Companies of Merchants [says Mr. Child] are of two sorts, viz., Companies in joynt Stock, such as the East-India-Company, the Morea-Company (which is a Branch of the Turkey-Company) and the Greenland-Company, which
