I've been reading enough 16th-17th century history recently that now I'm wondering why joint stock companies developed when they did, and not earlier. Examples include the Muscovy Company, the Virginia Company, the VOC, the British East India Company, the South Sea Company, etc. Shouldn't entities like them have developed in the 15th century after the invention of Gutenberg's printing press and caravels? Why didn't they develop elsewhere, especially in China which had much earlier printing and well-developed sailing technologies (e.g. voyages of Zheng He)?
Earlier Joint Stock Companies?
- Thread starter Herman Gigglethorpe
- Start date
Issuing stock in companies or commercial ventures was developed at least in the the middle ages if not earlier. The reason they became prominent with companies like the Muscovy and East India Company is that governments started getting involved, realized their benefits and began issuing monopolies and support to them. They allowed governments to pursue political goals through economic projects that would have been prohibitively expensive for the government to undertake without the private sector underwriting it. The private sector meanwhile reduced risk by issuing stock and being granted monopolies. I think the idea became popular when it did because of changing ideas of economics and markets. Trade was no longer something that just happened but something to be actively captured for more than simply its tax implications.
They didn't develop in China because the most large or profitable economic activities were already under direct government monopoly. Until the 20th century China was almost entirely small family businesses or government monopolies with very little of the midsized economic activity that drove joint stock creation in Europe. China had little economic competition and so maintained profitability through monopolies rather than innovation and risky ventures that the aggressive European markets demanded. Since there were few investment opportunities and resulting little economic risk in China there was no little need for stock.
They didn't develop in China because the most large or profitable economic activities were already under direct government monopoly. Until the 20th century China was almost entirely small family businesses or government monopolies with very little of the midsized economic activity that drove joint stock creation in Europe. China had little economic competition and so maintained profitability through monopolies rather than innovation and risky ventures that the aggressive European markets demanded. Since there were few investment opportunities and resulting little economic risk in China there was no little need for stock.
They did.
This would be quite strange if it were true, because late imperial China's official : population ration was very low. Well, it's not true. The government had no monopoly on cotton, nor on tobacco, nor on sugar, nor on timber, nor on manufactured goods, nor on basic agricultural products (rice, etc)... The virtually only monopoly the High Qing state had was on salt, and even that was shaky due to widespread smuggling.
So the Huizhou or Shanxi merchant guilds were "small family businesses"? Yes, Huizhou merchant guilds were primarily composed of merchants from Huizhou, but that doesn't make it a family business because by Qing times such guilds were inclusive of at the very least most merchants from the Huizhou region regardless of familiar ties. And as time went on this regional base weakened and guilds became more professionally commercial. Besides, Chinese businesses should not be generalized as small - by the early 19th century, Shanxi lumber firms regularly employed thousands of wage workers, making them one of the largest firms in the preindustrial world. It is also worth noting that family firms were very much European as well around this time.
Little economic competition when the city of Suzhou alone had forty guilds competing for business? And logically, how could there have been little competition given the Qing state's laissez-faire attitude towards the economy and the sheer size of China?
There were. Japanese historian Imahori Seiji believes there was a "primitive form of joint-stock company" as early as the tenth century, and William Rowe has shown there were joint-stock companies in Hankou by the 19th century per Hankow: Conflict and Community in a Chinese City, 1796-1895. Some people disagree with his assessment for large firms (which they think is more like modern Chinese firms' parent-subsidiary relationships) but smaller firms definitely look like the "classic type" of joint-stock firms, to quote Rowe. Other scholars have found joint-stock elsewhere, like Madeleine Zelin in the salt industry. Chinese joint-stock firms aren't as developed or coherently organized as British joint-stock firms, to be sure, but like most supposedly unique European things it's just a matter of degree.
But on a more fundamental level, a lot of the famous joint-stock companies originate from long-distance trade firms. China lacked this dynamic, not because it didn't trade (of course it did!) but because of the monsoon system. Chinese ships found it very difficult to move against the monsoon compared to Dutch or British ships, so, to quote Kenneth Pomeranz, "a group of land-based entrepreneurs who used all the cargo space themselves or rented it for cash would have found themselves paying enormous wage to support professional sailors during long stays on shore [waiting for the monsoon to reverse]. It made more sense to make many shorter stops and have crewmembers who could and did occupy themselves in buying and selling cargo at each port." Companies like the ones that participated in overland trade with Russia looked significantly more like European firms.
Lucius Verus
Banned
Actually, in regards to market mechanism and market freedom China was ahead of Europe up to the 19th century. Mostly as a result of China's focused on experienced-based agricultural and market expertise as opposed to Europe's institutional focus on mechanics.
Now with regards to the myth of free markets and industrialization. The real reason is British revisionism along the lines of "we are rulers of the world, therefore our free market and minimalists government principals must be correct" which conveniently ignores that imperial-mercantilism was how England industrialized and that England only supported free trade only after it gained a massive competitive advantage so it can find bigger markets and snuff out potential competitors' attempts at industrialization. Free markets are great among equals and for industrialized nations to dump goods but it is contextual.
Now with regards to the myth of free markets and industrialization. The real reason is British revisionism along the lines of "we are rulers of the world, therefore our free market and minimalists government principals must be correct" which conveniently ignores that imperial-mercantilism was how England industrialized and that England only supported free trade only after it gained a massive competitive advantage so it can find bigger markets and snuff out potential competitors' attempts at industrialization. Free markets are great among equals and for industrialized nations to dump goods but it is contextual.
You need enough people to be interested in economic ventures to warrant the structure. If you only have one or two people or it is family/dynastic money, you dont need joint stock companies. So you need a healthy economic middle/upper middle class that has discretionary money to invest. I cant speak for other regions of the world but Europe wasnt really organized this way until then. Feudal lords were rarely economic actors outside of land ownership. And the Italians' wealth was largely concentrated in the hands of a few families, IIRC.
Britain industrialized because it had a vibrant middle class that wanted textiles in mass quantities. If you you only have a few nobles that want said clothes, there is no need to industrialize textile production.
That would not have been enough reason, because India was perfectly capable of meeting the demand of Britain's middle class. Britain, however, also had available investment capital, a happy disregard for comparative advantage when this didn't suit its desires, and the political means to coerce others into supplying what it wanted.
More generally, the question first of all needs to be what a joint-stock company is. Almost any developed legal system allows for joint investment in business ventures. Many developed systems by which such stakes could be traded and split. Some also worked with concepts of limited liability and/or required formal incorporation. So, how much of this needs to be in the picture before you consider something a joint stock company? If we take Early Modern European companies as our model, then they emerged in early Modern Europe. That's kind of duh, though (food historians have the same issue with 'restaurants' - the definition keeps getting refined until we find that the modern restaurant emerged in 18th century France, everything else was just places to buy and consume food).
What would meet your definition of 'joint stock company'? Once we have that fixed, we can see if Venetian sea venture partnerships, Roman collegia of publicani, private waqf or Chinese merchant associations fit the bill.
Alcsentre Calanice
Gone Fishin'
IIRC, Roman merchants knew the concept of joining their capital to fund mercantile expeditions, but these associations dissolved after the voyage and didn't evolve into joint-stock companes.
Lucius Verus
Banned
Britain industrialized because it was literally sitting on a surface seam of iron, coal, and a land of rivers whereas China in contrast had its coal in the relatively inaccessible and unsafe north relatively less river access. Now income is a difficult thing to measure since the price basket differs (that is what goods one can buy given their location) economic historians have measured the "calorie income" of workers in Britain and the Yangtze Delta during the 18th century (a region of greater population and comparative size) and concluded that they were the same (about 4000 calories worth of income a day).
With regards to contracts the Venetians and many that came before than the "third" contracts where backers typically hired a captain and paid 66% of the cost and the captain the remaining third. The main reason this didn't became permanent was that it was more flexible and more profitable from a business standpoint to be able to negotiate new contracts. Now in contrast massive international trades had two versions; the Portuguese kind that had the credibility of kings which can attract permanent investors and has the resources themselves to fund a good deal of the endeavor or joint-stock companies that needed a whole slew of laws, customs, supporting institutions, and potential markets. In the end necessity is the mother of invention, you need the desire and willingness to fund massive endeavors such as conquests, occupations, and resource extraction half a world away.
That's the supply driven explanation. While it certainly was a key factor, innovation is quite often demand driven. Someone sees an opportunity to address a problem and they develop a solution. That coal sits idle if nobody sees the need to produce textiles in significant quantity. And that requires consumer demand/middle class.
Building on this we can say prerequisites are:
1) Economic actors
2) investment capital
3) a legal system that addresses property rights
And I will add:
4) banking system/Accounting system - assets probably need to be held in custody somewhere and a developed commercial credit system is probably required. IIRC, double entry accounting didnt come until around the 14th century in Italy.