{"id":15695,"date":"2016-09-18T12:40:17","date_gmt":"2016-09-18T04:40:17","guid":{"rendered":"http:\/\/maddruid.com\/?p=15695"},"modified":"2016-09-20T14:27:27","modified_gmt":"2016-09-20T06:27:27","slug":"2833-the-meandering-history-of-joint-stock-company","status":"publish","type":"post","link":"https:\/\/maddruid.com\/?p=15695","title":{"rendered":"[2833] The meandering history of joint-stock company"},"content":{"rendered":"

I read a nice little\u00a0article on the New York Times<\/em> today on\u00a0the history of British foreign trade policy during Elizabeth I. Here is an excerpt:<\/p>\n

Elizabeth\u2019s Islamic policy held off a Catholic invasion, transformed English taste and established a new model for joint stock-investment that would eventually finance the Virginia Company, which founded the first permanent North American colony. [Jerry Brotton. England’s Forgotten Muslim History<\/a>. New York Times<\/em>. September 17 2016]<\/p><\/blockquote>\n

There is more to the part where the author writes “established a new model for joint stock-investment that would eventually finance the Virginia Company, which founded the first permanent North American colony…”<\/p>\n

Before that, we need a digression:<\/p>\n

[youtube]f5vFWonjgnw[\/youtube]<\/p>\n

On to business.<\/p>\n

I think I\u00a0would\u00a0trace the evolution of joint-stock company up to 500s-600s Arabia, where the model was innovated in the\u00a01000s-1300s by early Renaissance era Italian cities, and later improved in England (and in the Netherlands?) by\u00a0the 1500s-1600s.<\/p>\n

The development\u00a0was\u00a0not random. They had a common origin in Arabia. The Italians imported the model through their trades with the Arab world, and later, the Italian way became the northern European law.<\/p>\n

Arab traders formed temporary partnerships to finance long-distance trade. This preceded Islam. Muhammad participated in several\u00a0before he became a prophet. It was\u00a0especially a venture capitalist-merchant partnership. While this kind of economic cooperation\u00a0probably happened elsewhere too, in Arabia it was\u00a0\u00a0a common successful institution and that distinguished it from other common partnerships that might have existed in the 500s-600s or earlier elsewhere.<\/p>\n

Italian merchants made the partnerships more permanent in the 1000s-1300s. Theirs\u00a0was\u00a0a merchant partnership although these merchants later became bankers themselves. Again, there was nothing extraordinary about such partnership except for one key feature: this was the first time in the world that a company could outlive the lifespan of its partners, leading to the possibility of intergenerational capital accumulation<\/a>. Previous partnerships would usually dissolve once a\u00a0partner quit or died.\u00a0This very idea, commonplace now, was revolutionary and one of several components that gave birth to\u00a0modern finance directly. Proof:\u00a0when calculating the value of a company through its long-term dividend, we will take the timeline as going infinitely into the future. The method is called the discounted dividend model.\u00a0We use\u00a0the geometric\u00a0series \u2014 ‘1\/(1-r)’, an\u00a0infinite series \u2014 to calculate the present value of dividend streams.<\/p>\n

The English later refined it by introducing the\u00a0joint-stock company, the first true company\u00a0in the modern sense, taking to heart the Arabic and the Italian traditions and making ownership of wealth more democratic. I can recommend two books to\u00a0explain the evolution. Kocka’s Capitalism<\/em> and Koehler’s Early Islam and the Birth of Capitalism<\/em>.<\/p>\n

I like\u00a0this article because\u00a0it sets the context and explains why England needed a joint-stock company law: the monarch had no money to finance trade with the Ottomans and Morocco to bypass Catholic lands. Funny how history ties its ends. It meanders so violently.<\/p>\n

And, British involvement in these Ottoman lands would escalate beyond trade one or two centuries later.<\/p>\n

The same kind of law \u2014 company \u2014 did not evolve in China until much later during modern times. All Chinese foreign trades were done and financed by the Chinese emperor. There was no room for private initiative that much (that only changed several decades before the Opium War, and that company was (largely?) the East India Company, a British joint-stock company).<\/p>\n

I’m unsure about company history\/tradition in India or other places though. But we all know, the EIC ruled India for a long time.<\/p>\n","protected":false},"excerpt":{"rendered":"

I read a nice little\u00a0article on the New York Times today on\u00a0the history of British foreign trade policy during Elizabeth I. Here is an excerpt: Elizabeth\u2019s Islamic policy held off a Catholic invasion, transformed English taste and established a new model for joint stock-investment that would eventually finance the Virginia Company, which founded the first […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10,20],"tags":[1792,163,1791,1767,1790,473],"class_list":["post-15695","post","type-post","status-publish","format-standard","hentry","category-economics","category-history-heritage","tag-benedikt-koehler","tag-capitalism","tag-elizabeth-i","tag-jurgen-kocka","tag-joint-stock-company","tag-ottoman-empire"],"_links":{"self":[{"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/posts\/15695","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/maddruid.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=15695"}],"version-history":[{"count":16,"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/posts\/15695\/revisions"}],"predecessor-version":[{"id":15711,"href":"https:\/\/maddruid.com\/index.php?rest_route=\/wp\/v2\/posts\/15695\/revisions\/15711"}],"wp:attachment":[{"href":"https:\/\/maddruid.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=15695"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/maddruid.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=15695"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/maddruid.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=15695"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}