OVER-TRADING
It is an observation, indeed, of my own, but I believe it will hold true
almost in all the chief trading towns in England, that there are more
tradesmen undone by having too much trade, than for want of trade.
Over-trading is among tradesmen as over-lifting is among strong men:
such people, vain of the strengh, and their pride prompting them to put
it to the utmost trial, at last lift at something too heavy for them,
over-strain their sinews, break some of nature's bands, and are cripples
ever after.
I take over-trading to be to a shopkeeper as ambition is to a prince.
The late king of France, the great king Louis, ambition led him to
invade the dominions of his neighbours; and while upon the empire here,
or the states-general there, or the Spanish Netherlands on another
quarter, he was an over-match for every one, and, in their single
capacity, he gained from them all; but at last pride made him think
himself a match for them all together, and he entered into a declared
war against the emperor and the empire, the kings of Spain and Great
Britain, and the states of Holland, all at once. And what was the
consequence? They reduced him to the utmost distress, he lost all his
conquests, was obliged, by a dishonourable peace, to quit what he had
got by encroachment, to demolish his invincible towns, such as Pignerol,
Dunkirk, &c., the two strongest fortresses in Europe; and, in a word,
like a bankrupt monarch, he may, in many cases, be said to have died a
beggar.
Thus the strong man in the fable, who by main strength used to rive a
tree, undertook one at last which was too strong for him, and it closed
upon his fingers, and held him till the wild beasts came and devoured
him. Though the story is a fable, the moral is good to my present
purpose, and is not at all above my subject; I mean that of a tradesman,
who should be warned against over-trading, as earnestly, and with as
much passion, as I would warn a dealer in gunpowder to be wary of fire,
or a distiller or rectifier of spirits to moderate his furnace, lest the
heads of his stills fly off, and he should be scalded to death.
For a young tradesman to over-trade himself, is like a young swimmer
going out of his depth, when, if help does not come immediately, it is a
thousand to one but he sinks, and is drowned. All rash adventures are
condemned by the prudent part of mankind; but it is as hard to restrain
youth in trade, as it is in any other thing, where the advantage stands
in view, and the danger out of sight; the profits of trade are baits to
the avaricious shopkeeper, and he is forward to reckon them up to
himself, but does not perhaps cast up the difficulty which there may be
to compass it, or the unhappy consequences of a miscarriage.
For want of this consideration, the tradesman oftentimes drowns, as I
may call it, even within his depth--that is, he sinks when he has really
the substance at bottom to keep him up--and this is all owing to an
adventurous bold spirit in trade, joined with too great a gust of gain.
Avarice is the ruin of many people besides tradesmen; and I might give
the late South Sea calamity for an example in which the longest heads
were most overreached, not so much by the wit or cunning of those they
had to deal with as by the secret promptings of their own avarice;
wherein they abundantly verified an old proverbial speech or saying,
namely, 'All covet, all lose;' so it was there indeed, and the
cunningest, wisest, sharpest, men lost the most money.
There are two things which may be properly called over-trading, in a
young beginner; and by both which tradesmen are often overthrown.
1. Trading beyond their stock.
2. Giving too large credit.
A tradesman ought to consider and measure well the extent of his own
strengh; his stock of money, and credit, is properly his beginning; for
credit is a stock as well as money. He that takes too much credit is
really in as much danger as he that gives too much credit; and the
danger lies particularly in this, if the tradesman over-buys himself,
that is, buys faster than he can sell, buying upon credit, the payments
perhaps become due too soon for him; the goods not being sold, he must
answer the bills upon the strength of his proper stock--that is, pay for
them out of his own cash; if that should not hold out, he is obliged to
put off his bills after they are due, or suffer the impertinence of
being dunned by the creditor, and perhaps by servants and apprentices,
and that with the usual indecencies of such kind of people.
This impairs his credit, and if he comes to deal with the same merchant,
or clothier, or other tradesman again, he is treated like one that is
but an indifferent paymaster; and though they may give him credit as
before, yet depending that if he bargains for six months, he will take
eight or nine in the payment, they consider it in the price, and use him
accordingly; and this impairs his gain, so that loss of credit is indeed
loss of money, and this weakens him both ways.
A tradesman, therefore, especially at his beginning, ought to be very
wary of taking too much credit; he had much better slip the occasion of
buying now and then a bargain to his advantage, for that is usually the
temptation, than buying a greater quantity of goods than he can pay for,
run into debt, and be insulted, and at last ruined. Merchants, and
wholesale dealers, to put off their goods, are very apt to prompt young
shopkeepers and young tradesmen to buy great quantities of goods, and
take large credit at first; but it is a snare that many a young beginner
has fallen into, and been ruined in the very bud; for if the young
beginner does not find a vent for the quantity, he is undone; for at the
time of payment the merchant expects his money, whether the goods are
sold or not; and if he cannot pay, he is gone at once.
The tradesman that buys warily, always pays surely, and every young
beginner ought to buy cautiously; if he has money to pay, he need never
fear goods to be had; the merchants' warehouses are always open, and he
may supply himself upon all occasions, as he wants, and as his customers
call.
It may pass for a kind of an objection here, that there are some goods
which a tradesman may deal in, which are to be bought at such and such
markets only, and at such and such fairs only, that is to say, are
chiefly bought there; as the cheesemongers buy their stocks of cheese
and of butter, the cheese at several fairs in Warwickshire, as at
Atherston fair in particular, or at fair in Gloucestershire, and at
Sturbridge fair, near Cambridge; and their butter at Ipswich fair, in
Suffolk; and so of many other things; but the answer is plain: those
things which are generally bought thus, are ready money goods, and the
tradesman has a sure rule for buying, namely, his cash. But as I am
speaking of taking credit, so I must be necessarily supposed to speak of
such goods as are bought upon credit, as the linen-draper buys of the
Hamburgh and Dutch merchants, the woollen-draper of the Blackwell-hall
men, the haberdasher of the thread merchants, the mercer of the weavers
and Italian merchants, the silk-man of the Turkey merchants, and the
like; here they are under no necessity of running deep into debt, but
may buy sparingly, and recruit again as they sell off.
I know some tradesmen are very fond of seeing their shops well-stocked,
and their warehouses full of goods, and this is a snare to them, and
brings them to buy in more goods than they want; but this is a great
error, either in their judgment or their vanity; for, except in
retailers' shops, and that in some trades where they must have a great
choice of goods, or else may want a trade, otherwise a well-experienced
tradesman had rather see his warehouse too empty than too full: if it be
too empty, he can fill it when he pleases, if his credit be good, or his
cash strong; but a thronged warehouse is a sign of a want of customers,
and of a bad market; whereas, an empty warehouse is a sign of a nimble
demand.[12]
Let no young tradesman value himself upon having a very great throng of
goods in hand, having just a necessary supply to produce a choice of new
and fashionable goods--nay, though he be a mercer, for they are the most
under the necessity of a large stock of goods; but I say, supposing even
the mercer to have a tolerable show and choice of fashionable goods,
that gives his shop a reputation, he derives no credit at all from a
throng of old shopkeepers, as they call them, namely, out-of-fashion
things: but in other trades it is much more a needful caution; a few
goods, and a quick sale, is the beauty of a tradesman's warehouse, or
shop either; and it is his wisdom to keep himself in that posture that
his payments may come in on his front as fast as they go out in his
rear; that he may be able to answer the demands of his merchants or
dealers, and, if possible, let no man come twice for his money.
The reason of this is plain, and leads me back to where I began; credit
is stock, and, if well supported, is as good as a stock, and will be as
durable. A tradesman whose credit is good, untouched, unspotted, and
who, as above, has maintained it with care, shall in many cases buy his
goods as cheap at three or four months' time of payment, as another man
shall with ready money--I say in some cases, and in goods which are
ordinarily sold for time, as all our manufactures, the bay trade
excepted, generally are.
He, then, that keeps his credit unshaken, has a double stock--I mean, it
is an addition to his real stock, and often superior to it: nay, I have
known several considerable tradesmen in this city who have traded with
great success, and to a very considerable degree, and yet have not had
at bottom one shilling real stock; but by the strength of their
reputation, being sober and diligent, and having with care preserved the
character of honest men, and the credit of their business, by cautious
dealing and punctual payments, they have gone on till the gain of their
trade has effectually established them, and they have raised estates out
of nothing.
But to return to the dark side, namely, over-trading; the second danger
is the giving too much credit. He that takes credit may give credit, but
he must be exceedingly watchful; for it is the most dangerous state of
life that a tradesman can live in, for he is in as much jeopardy as a
seaman upon a lee-shore.
If the people he trusts fail, or fail but of a punctual compliance with
him, he can never support his own credit, unless by the caution I am now
giving; that is, to be very sure not to give so much credit as he takes.
By the word _so much_, I must be understood thus--either he must sell
for shorter time than he takes, or in less quantity; the last is the
safest, namely, that he should be sure not to trust out so much as he is
trusted with. If he has a real stock, indeed, besides the credit he
takes, that, indeed, makes the case differ; and a man that can pay his
own debts, whether other people pay him or no, that man is out of the
question--he is past danger, and cannot be hurt; but if he trusts beyond
the extent of his stock and credit, even _he_ may be overthrown too.
There were many sad examples of this in the time of the late war,[13]
and in the days when the public credit was in a more precarious
condition that it has been since--I say, sad examples, namely, when
tradesmen in flourishing circumstances, and who had indeed good estates
at bottom, and were in full credit themselves, trusted the public with
too great sums; which, not coming in at the time expected, either by the
deficiency of the funds given by parliament, and the parliament
themselves not soon making good those deficiencies, or by other
disasters of those times; I say, their money not coming in to answer
their demands, they were ruined, at least their credit wounded, and some
quite undone, who yet, had they been paid, could have paid all their own
debts, and had good sums of money left.
Others, who had ability to afford it, were obliged to sell their tallies
and orders at forty or fifty per cent. loss; from whence proceeded that
black trade of buying and selling navy and victualling bills and
transport debts, by which the brokers and usurers got estates, and many
thousands of tradesmen were brought to nothing; even those that stood
it, lost great sums of money by selling their tallies: but credit cannot
be bought too dear; and the throwing away one half to save the other,
was much better than sinking under the burden; like sailors in a storm,
who, to lighten the ship wallowing in the trough of the sea, will throw
the choicest goods overboard, even to half the cargo, in order to keep
the ship above water, and save their lives.
These were terrible examples of over-trading indeed; the men were
tempted by the high price which the government gave for their goods, and
which they were obliged to give, because of the badness of the public
credit at that time; but this was not sufficient to make good the loss
sustained in the sale of the tallies, so that even they that sold and
were able to stand without ruin, were yet great sufferers, and had
enough to do to keep up their credit.
This was the effect of giving over-much credit; for though it was the
government itself which they trusted, yet neither could the government
itself keep up the sinking credit of those whom it was indebted to; and,
indeed, how should it, when it was not able to support its own credit?
But that by the way. I return to the young tradesman, whom we are now
speaking about.
It is his greatest prudence, therefore, after he has considered his own
fund, and the stock he has to rest upon--I say, his next business is to
take care of his credit, and, next to limiting his buying-liberty, let
him be sure to limit his selling. Could the tradesman buy all upon
credit, and sell all for ready money, he might turn usurer, and put his
own stock out to interest, or buy land with it, for he would have no
occasion for one shilling of it; but since that is not expected, nor can
be done, it is his business to act with prudence in both parts--I mean
of taking and giving credit--and the best rule to be given him for it
is, never to give so much credit as he takes, by at least one-third
part.
By giving credit, I do not mean, that even all the goods which he buys
upon credit, may not be sold upon credit; perhaps they are goods which
are usually sold so, and no otherwise; but the alternative is before him
thus--either he must not give so much credit in quantity of goods, or
not so long credit in relation to time--for example:
Suppose the young tradesman buys ten thousand pounds' value of goods on
credit, and this ten thousand pounds are sold for eleven thousand pounds
likewise on credit; if the time given be the same, the man is in a state
of apparent destruction, and it is a hundred to one but he is blown up:
perhaps he owes the ten thousand pounds to twenty men, perhaps the
eleven thousand pounds is owing to him by two hundred men--it is scarce
possible that these two hundred petty customers of his, should all so
punctually comply with their payments as to enable him to comply with
his; and if two or three thousand pounds fall short, the poor tradesman,
unless he has a fund to support the deficiency, must be undone.
But if the man had bought ten thousand pounds at six or eight months'
credit, and had sold them all again as above to his two hundred
customers, at three months' and four months' credit, then it might be
supposed all, or the greatest part of them, would have paid time enough
to make his payments good; if not, all would be lost still.
But, on the other hand, suppose he had sold but three thousand pounds'
worth of the ten for ready money, and had sold the rest for six months'
credit, it might be supposed that the three thousand pounds in cash, and
what else the two hundred debtors might pay in time, might stop the
months of the tradesman's creditors till the difference might be made
good.
So easy a thing is it for a tradesman to lose his credit in trade, and
so hard is it, once upon such a blow, to retrieve it again. What need,
then, is there for the tradesman to guard himself against running too
far into debt, or letting other people run too far into debt to him; for
if they do not pay him, he cannot pay others, and the next thing is a
commission of bankrupt, and so the tradesman may be undone, though he
has eleven thousand pounds to pay ten with?
It is true, it is not possible in a country where there is such an
infinite extent of trade as we see managed in this kingdom, that either
on one hand or another it can be carried on, without a reciprocal credit
both taken and given; but it is so nice an article, that I am of opinion
as many tradesmen break with giving too much credit, as break with
taking it. The danger, indeed, is mutual, and very great. Whatever,
then, the young tradesman omits, let him guard against both his giving
and taking too much credit.
But there are divers ways of over-trading, besides this of taking and
giving too much credit; and one of these is the running out into
projects and heavy undertakings, either out of the common road which the
tradesman is already engaged in, or grasping at too many undertakings at
once, and having, as it is vulgarly expressed, too many irons in the
fire at a time; in both which cases the tradesman is often wounded, and
that deeply, sometimes too deep to recover.
The consequences of those adventures are generally such as these: first,
that they stock-starve the tradesman, and impoverish him in his ordinary
business, which is the main support of his family; they lessen his
strength, and while his trade is not lessened, yet his stock is
lessened; and as they very rarely add to his credit, so, if they lessen
the man's stock, they weaken him in the main, and he must at last faint
under it.
Secondly, as they lessen his stock, so they draw from it in the most
sensible part--they wound him in the tenderest and most nervous part,
for they always draw away his ready money; and what follows? The money,
which was before the sinews of his business, the life of his trade,
maintained his shop, and kept up his credit in the full extent of it,
being drawn off, like the blood let out of the veins, his trade
languishes, his credit, by degrees, flags and goes off, and the
tradesman falls under the weight.
Thus I have seen many a flourishing tradesman sensibly decay; his credit
has first a little suffered, then for want of that credit trade has
declined--that is to say, he has been obliged to trade for less and
less, till at last he is wasted and reduced: if he has been wise enough
and wary enough to draw out betimes, and avoid breaking, he has yet come
out of trade, like an old invalid soldier out of the wars, maimed,
bruised, sick, reduced, and fitter for an hospital than a shop--such
miserable havoc has launching out into projects and remote undertakings
made among tradesmen.
But the safe tradesman is he, that avoiding all such remote excursions,
keeps close within the verge of his own affairs, minds his shop or
warehouse, and confining himself to what belongs to him there, goes on
in the road of his business without launching into unknown oceans; and
content with the gain of his own trade, is neither led by ambition or
avarice, and neither covets to be greater nor richer by such uncertain
and hazardous attempts.
FOOTNOTES:
[12] [The keeping of a half empty shop will not suit the necessities of
trade in modern times. Instead of following the advice of Defoe,
therefore, the young tradesman is recommended to keep a sufficient stock
of every kind of goods in which he professes to deal. A shopkeeper can
hardly commit a greater blunder than allow himself to _be out_ of any
article of his trade. One of his chief duties ought to consist in
keeping up a _fresh stock_ of every article which there is a chance of
being sought for, and, while avoiding the imprudence of keeping too
large a stock of goods--which comes nearest to Defoe's meaning--it is
certain that, by having on hand an abundant choice, the shop gains a
name, and has the best chance of securing a concourse of customers.]
[13] [The war of the Spanish succession, concluded by the treaty of
Utrecht, 1713.]