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Cheap Coals or Limitation of the Vend? The London Coal Trade, 1770–1845

Published online by Cambridge University Press:  03 March 2009

William J. Hausman
William J. Hausman
Affiliation:
Associate Professor of Economics, College of William and Mary, Williamsburg, Virginia 23185
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Abstract

An econometric model is here used to estimate the price and output effect of the Limitation of the Vend, a mineowners' cartel. It is found that when a formal regulation existed the price of coal rose significantly in the London market, whereas there was little output effect. The price effect was relatively small, however, especially when compared to the per unit tax on coal. Although the cartel was deemed to be successful, the existence of substantial monopoly profits was questioned.

Type
Papers Presented at the Forty-Third Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 44 , Issue 2 , June 1984 , pp. 321 - 328
Copyright
Copyright © The Economic History Association 1984

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References

1 The Limitation was illegal during most of its existence, although it was never successfully prosecuted. Legal sanctions were removed in 1836 (6 & 7 William IV, c. 109) through legislation permitting formation of joint-stock companies, which Parliament hoped would enhance competition. British Parliamentry Papers, vol.11 (1836), xxxvii, xlii.Google Scholar

2 Sweezy, Paul, Monopoly and Competition in the English Coal Trade, 1550–1850 (Cambridge, Massachusetts, 1938), p. 153.Google Scholar

3 Prices were those paid by Greenwich Hospital for the years 1765–1829, and the annual average of a monthly price series (“best” coal) for 1807–1845. Ibid., pp. 158–63.

4 Ibid., p. 157.

5 Cromar, Peter, “Economic Power and Organization: The Development of the Coal Industry on Tyneside, 1700–1828” (Ph.D. diss., Cambridge University, 1977), p. 180.Google Scholar

6 Ibid., p. 187.

7 McCulloch, J. R., A Dictionary of Commerce (London, 1850), p. 300.Google ScholarLevy, Hermann believed that when there was no cartel “prices fell heavily.” Monopolies, Cartels and Trusts in British Industry (New York, 1968, first published, 1909), p. 134.Google Scholar For equally vague views, see Gayer, A. D., Rostow, W. W., and Schwartz, A. J., The Growth and Fluctuation of the British Economy, 1790–1850 (New York, 1975), vol. 2, pp. 848–49;Google ScholarAshton, T. S. and Sykes, Joseph, The Coal Industry of the Eighteenth Century (Manchester, 1929), p. 215;Google Scholar and Jevons, W. Stanley, The Coal Question (New York, 1965, first published 1865), p. 86.Google Scholar

8 London imports increased at a compound rate of 1.7 percent per year over the whole time period, but were accelerating. Throughout this paper all quantity figures have been converted into London chaldrons and all prices expressed in terms of shillings per London chaldron. Prior to 1831 the London chaidron was a measure of volume roughly equivalent to 25–28 hundredweight. An act of 1831 (1 & 2 William IV, c. 76) mandated that coal in London be sold by weight and fixed the London chaidron at 25.5 hundredweight. Hence I London chaldron = 1.275 tons, the value used to make all conversions in this paper.Google Scholar

9 Three price series were used to estimate the model. The retail price in London is the average price paid by four large consumers of coal. The Pool price is a wholesale price and represents the purchase of an entire shipload of coal. The final series is an f.o.b. northeast price and is the least reliable of the three, especially up to 1801. The real London price, net of tax, exhibited no trend over the whole time period, while the f.o.b. northeast price rose at a compound rate of 0.2 percent per year. See Appendix for sources.Google Scholar

10 The substitute for coal sent from the northeast was coal from Scotland, Yorkshire, or South Wales. Although mineowners were aware that excessive prices could bring forth increased supplies from these districts, as late as 1835 the combined imports from these areas totaled less than 100,000 chaldrons. British Parliamentary Papers, vol. 11 (1836), p. 203.Google Scholar

11 Ibid., p. 215.

12 See Hausman, William J., Public Policy and the Supply of Coal to London, 1700–1770 (New York, 1981), chap. 3.Google Scholar

13 For a discussion of other improvements, see Galloway, Robert L., Annals of Coal Mining and the Coal Trade, 2 vols. (Newton Abbot, 1971, first published 1898, 1904).Google Scholar

14 Levy disagreed with this assessment, as did Taylor, A. J., “Combination in the Mid- Nineteenth Century Coal Industry,” Transactions of the Royal Historical Society, 5th ser., 3 (1953), 25.CrossRefGoogle Scholar

15 There were both strategic and institutional reasons why the result might not be a short-run monopoly price. The higher the price the greater is the incentive for entry, indicating that a limit price might be more appropriate. See Ulen, Thomas, “Cartels and Regulation: Late Nineteenth Century Railroad Collusion and the Creation of the ICC” (Ph.D. diss., Stanford University, 1979), pp. 66–67.Google Scholar In addition, a price that is perceived by the authorities to be extortionate might lead to Parliamentary censure or stricter control. See Fellner, William, Competition Among the Few (New York, 1949), p. 24.Google Scholar

16 British Parliamentary Papers, vol. 10 (1800), p. 541; vol. 7 (1830), p. 235; vol. 15 (1837–1838), p. 24.Google Scholar

17 Sweezy, Monopoly, p. 60.Google Scholar

18 Flinn, M. W., The History of the British Coal Industry: Vol. II, 1700–1830: The Industrial Revolution (Oxford, forthcoming), ms. pp. 392–93.Google Scholar

19 For an excellent discussion of the role of London factors, see Smith, Raymond, Sea-Coal for London (London, 1961).Google Scholar

20 Flinn, History, ms. p. 391. In 1828 the largest of 35 Northumberland collieries exported 70,000 chaldrons, whereas Lords Durham and Londonderry each exported around 250,000 chaldrons.Google ScholarBritish Parliamentary Papers, vol. 8 (1830), p. 468.Google Scholar

21 Unreported second stage estimations indicate a price elasticity of demand of roughly —0.15 to –0.20 (significant at the 10 percent level).Google Scholar

22 When the reduced form price equations were adjusted for autocorrelation, the results were unchanged. In addition, when the Vend variable was respecified to account for uncertainty in some years, the price effect of the cartel remained significant, although its magnitude was reduced to roughly 2–5 percent. Consistent results were found when the model was estimated for the years 1802–1845. All estimations are available on request.Google Scholar