An Excellent Example from "Division of Labour"

From “Division of Labour”, in the premier division of economics’ Blogs (www.divisionoflabour.com), 5 September 2005

It’s not often an entire Blog entry deserves the widest publicity, but today’s posted by Lawrence H. White, a regular contributor at Division of Labour, is among those that you should read.

It incorporates an approach practised at ‘Lost Legacy’ (correcting nonsense put out by people uninformed about the work and ideas of Adam Smith, or distorting them when they should know better – in Bollywood's case, it is more likely to be the former) with some positive points to make about Adam Smith on the difference between Mercantile companies, like the East India Company, and free market organisations operating in free smithian markets, not State-sanctioned monopolies and their murderous and destructive history.

I reproduce as much as I dare, with no intention of infringing copyright; hence it is edited in places (my comments, editing, etc., are in [square brackets]).

“Absurd Economics of Mangal Pandey – The Rising” by Lawrence H. White:

I [saw] one of the summer Bollywood blockbusters, Mangal Pandey – The Rising. Count me among the disappointed.

In the film [there] is a gratuitous slap at free-market economics that is so out of place, it’s absurd. Mangal Pandey is a sepoy, an Indian soldier in the private army of the East India Company in the 1850s. An English officer explains to him how the East India Company works, then adds with a sneer: “And they call it the free market.” Excuse me? They – at least those in the know – called it mercantilism. The company operated under a legally rigged monopoly franchise, not in a free competitive market.

[Film script writers, directors and producers often take anti-market stances and deride and denounce profits, as if it is theft. The fact that these same people are among the most grasping, cynically exploitative of the people who work for them, and entirely focused on making ‘profitable’ movies for their own gain, should not escape the notice of customers. They are great organizers of successful entertainment, but extremely poor historians or economists. Perhaps they bash profit in compensation or by way of apology for being so good, and determined, at doing so?]

Adam Smith … was a relentless critic of the [East India] Company. He contrasted the bad deal the Company offered Indian workers with the beneficial results of the relatively free market that the British allowed in North America. Smith wrote [Wealth of Nations, I.viii.26; Cannan 1937 edition: p 73]:

‘The difference between the genius of the British constitution which protects and governs North America, and that of the mercantile company which oppresses and domineers in the East Indies, cannot perhaps be better illustrated than by the different state of those countries’.

[Smith’s critical account of the policies pursued by the British and Dutch Mercantile companies in the East Indies is in Book IV.vii.c pp 626-41 [Cannan, 1937 edition: 590-606]. He concludes, after reviewing their nefarious policies, and those of their employees and the consequences:

“Such exclusive companies, therefore, are nuisances in every respect; always more or less inconvenient to the countries in which they are established, and destructive to those which have the misfortune to fall under their government.”

Congratulations to Lawrence for his vigilance and let's give thanks that they never tried to develop America with a State-sanctioned Mercantile Company.