Markets and firms
Josiah Child (1630–99)
1500s Governments grant merchants the monopoly of trade within specific regions.
1552–71 The Bourse in Antwerp and Royal Exchange in London are set up for shareholders to buy and sell stock in joint-stock companies.
1680 London stock “brokers” meet in Jonathan’s Coffee House to arrange share deals.
1844 The Joint Stock Companies Act in the UK allows firms to be incorporated more quickly and easily.
1855 The idea of limited liability protects investors in joint-stock companies from scams such as the South Sea Bubble of 1720.
Merchant ships have always raised funds for voyages by promising a share of profits. In the 1500s the rewards could be huge, but these high-risk ventures tied up money for years before a profit was realized. The answer was to share the risk, and so joint-stock companies were formed, where investors injected money into a company in return for becoming joint holders of its trading stock, and a right to a proportional share of the profits.
An early joint-stock company, formed in 1599, was the East India Company (EIC), launched to develop trade between Britain and the East Indies. Its rights to free trade were so ably defended by the “father of mercantilists,” London merchant Josiah Child, that it became a global phenomenon. By the time of his death the company had about 3,000 shareholders, subscribed to a stock of more than $14 million, and was borrowing a further $28 million on bonds. Its annual sales raised up to $10 million.
The idea of the public limited company—in which shareholders are protected from liability beyond their investment—developed from joint-stock companies. The selling of shares is an important way of raising funds. Some argue that shareholders’ power to sell shares leads to a lack of commitment, but the joint-stock company remains at the heart of capitalism.
The high-risk, high-reward potential of merchant shipping was shared by joint-stock companies. Vessels such as the John Wood, seen here in Bombay in the 1850s, brought home the goods.