Lessons from the rise and fall of the East India Company: Adam Smith’s Catch-22

If you are looking for any further evidence that Adam Smith is, deep down, a pragmatist, then check out paragraph 30 of the last part of Smith’s 1784 pamphlet, Additions and Corrections to the First and Second Editions of Dr. Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations. The first three sentences of this paragraph describe three examples of temporary monopolies that are perfectly justified: copyrights, patents, and … wait for it … overseas trading companies like the East India Company! Or in the immortal words of Adam Smith: “When a company of merchants undertake, at their own risk and expense, to establish a new trade with some remote and barbarous nation, it may not be unreasonable to incorporate them into a joint stock company, and to grant them, in case of their success, a monopoly of the trade for a certain number of years. It is the easiest and most natural way in which the state can recompense them for hazarding a dangerous and expensive experiment,…