Conclusion of Adam Smith’s digression on joint stock companies

It’s time to wrap up my survey of Adam Smith’s digression on joint stock companies, which first appeared in his 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 (Smith 1784). In a word, to sum up our multi-part survey thus far, Adam Smith is not a big fan of joint stock companies. According to Smith, even when a joint stock company is granted monopoly rights, it is still destined fail due to the inherent conflict of interest or fundamental disconnect between the owners of the company (shareholders) and the agents who are actually running it (managers/directors). More specifically, as we saw in some of my previous post on Smith’s digression on joint stock companies (see here), this corporate principal-agent problem manifests itself in the divergent time horizons and misaligned incentives of the shareholders on the one hand, who bear the ultimate financial risk of failure, and the…