Capitalists gained also in another way, for they were enabled by association to share the risks of an enterprise. A man who put all his money into one ship or cargo ran the risk of being ruined; the dangers in the path of commerce were by no means slight. By distributing his capital in a number of enterprises, however, as could easily be done if he entered into association with others, he could hope to make up for any probable loss by the profits of his successful ventures, and can be regarded as insuring himself. We find, in fact, that the shipping business was for the most part carried on in this way.

Commercial association took, ordinarily the form of a "commenda" (Latin commendare, entrust). The "commendator" çcntributed capital in the form of money, wares, or a ship, while the other party, called the "tractator," contributed only his personal services to the enterprise; of the profits one fourth went to the tractator and the remainder to the commendator. The tractator who saved his earnings could in time also contribute capital, and was given a greater share of the profits and more freedom in conducting the business.

The commenda, corresponding to a "silent partnership," was older and of more importance in commercial undertakings than the ordinary partnership of the present day; but the latter form of association grew up also at this time, and was used in commerce as well as in industry. The joint-stock corporation belongs in its important applications to a later period.

The different forms of partnership developed especially in Italy in the last few centuries of the Middle Ages, when the growth of commerce was most rapid, and they became extraordinarily extensive and important. From Italy the practice of association spread to the North of Europe, and it became practically universal in commercial undertakings.

We have now to study the rise of great companies which form a connecting link with the corporations and trusts of the present day.

Among the reasons for the rise of great commercial companies the following are to be noted: (1) Distant commerce was exposed constantly to armed attack. It was essentially military in character, and required for successful prosecution greater military force than a small group of men could afford. (2) Partly because of dangers suggested above, partly because of the natural perils of the sea under the conditions of navigation at the time, partly because of the very novelty of the trade, distant commerce was very hazardous. If five men sent out a ship they might make a great fortune, but they might lose

everything. If they associated themselves with ninety-five others and together sent out twenty ships they were pretty sure to lose some of these, but they were pretty sure to make from the other ships enough to return large profits.

It was natural, under the circumstances, that associations of men should spring up for carrying on commerce in distant parts. We must note further, however, that these associations were required by European governments, that a certain field was assigned to each company in which it was given a monopoly, and that in this field trade by individuals and by other associations was prohibited. The reasons for this course were, in brief, as follows:

1. The peoples of distant countries did not distinguish between individual merchants. As all Chinamen look alike to us, so all Englishmen or even all Europeans were alike to them. An unscrupulous trader who cheated, robbed, or killed a native, escaped the consequences of his crime and left them to be borne by his countrymen who sought later to carry on the trade. The home government could not punish such offences, and it could not afford to let them continue. It secured, therefore, that a man proposing to trade to a distant country should have an interest in the permanent welfare of the trade, by making him contribute money to the association and subscribe to its rules.

2. The government could diminish the risks of distant commerce by assuring merchants who spent money in building up a trade that they should not be deprived of the fruits of their labours by newcomers who had made no sacrifices. It seemed as proper to encourage in this way the investment of capital in commerce as to encourage investment in manufactures by granting patents.

3. Finally, governments were led naturally to apply the prevalent ideas of gild regulation to distant commerce, and found some practical advantages in doing this; it was easier to tax and to regulate an association of men than a number of individuals.

Many of the objects enumerated above could be obtained by union in what was called a "regulated company." The regulated company had a monopoly of a certain field of trade, and established regulations which were binding on the members trading in that field. Everyone, however, who secured admission by paying the entrance fee and promising obedience to the rules, traded thenceforth with his own capital, and kept his profits for himself; there was no pooling of capital or profits. The character of such a company may be suggested

to readers by the organization of the modern stock exchange. No one who is not a member can trade on the exchange, and every member is bound to follow certain rules in his dealings, but every member keeps his capital and profits distinct from those of the others.

The regulated company was at best a loose association. Individual traders had no greater interest in it than the amount of their entrance fees, and regarded their momentary individual interests as more important than the permanent interests of the group. This weakened the control of the company over the associates, and rendered difficult the prevention of abuses. A strong and active policy was hardly possible, moreover, when associates kept the bulk of their capital in their own hands, and could withdraw in periods of adversity, so that the resources available to push the interests of the association diminished when most needed.

The problem set before Europe in this condition of affairs was as important as it was difficult. The future of European commerce, even of European civilization, depended on some solution which would make from the individual impulse to gain, the instinctive selfishness of every man, a collective force which would enable a number of men to work for gain together. The partnership had united the interests of a very few men, simplifying the problem by starting with members of the same family, who were naturally bound together. The relation of merchant and factor was another move in the right direction, as it united in loyal support of each other two men separated by considerable distance, and with no other common interest than that of their business. The principle of association must, however, be extended far beyond the bounds of factorship, or partnership, or of the regulated company, if Europe was to rise to the opportunity presented by trade with distant countries.

The problem, reviewed briefly, was to get: (a) a permanent stock of capital, (b) so large that it must be contributed by a very considerable number of people, (c) under the management of a few people who would employ it efficiently and for the advantage of all the contributors. The solution was the joint-stock company. Early examples of this form of association are to be found in Italy, but it developed north of the Alps only after the founding of the Dutch and English East India companies about 1600.

Let us see how the stock company meets the demands for an improved form of association which were imperative at this time. (1) It insures permanence of operation. Individual stockholders

or managers may die, but the company does not die with them; their places are filled, and the company continues with its original capital. (2) The contributor does not, like a partner, need to be a business man; does not, like a silent partner, need to have especial trust in the person of the managers. The contributor may be a foreigner, a child, or a woman, and the sources from which capital may be drawn are thus immensely extended. (3) Capitalists of every class are willing to contribute to the undertaking because of the peculiar safeguards which this form of association offers to them. In the first place, though the investment is permanent, from the standpoint of the company, and so enables the management to carry out far-sighted plans, yet it endures, from the standpoint of the individual subscriber, only so long as he pleases. The system of transferable shares enables a stockholder to sell out his interest at any time, and so change his investment. In the second place, the stockholders have a voice in the management of the company proportionate to their interest in it. They choose the persons to whom they will intrust the active direction of affairs, require periodical reports on the course of business from the managing directors, and have the power to change the directors if the conduct of affairs is not satisfactory.

The reader would err if he assumed that all the advantages suggested above were secured immediately on the founding of the first stock companies. Experiments of various kinds were tried at the start, and only gradually did the companies take the form which they have assumed in modern law. The English East India Company, for instance, which was founded in 1600 as a regulated company, was made over into a joint-stock company by degrees, and could not be regarded as permanently established on this basis for over fifty years. Generations of bitter experience were required to teach people the possible dangers as well as the possible benefits of this form of association.

Incompetence and corruption were prevalent in the management of affairs. The worst abuses of our modern corporations give one but a faint idea of the enormities that were perpetrated in the early period of joint-stock history. In spite of all, the joint-stock companies accomplished the purpose for which they were created; they attracted capital at home, stimulated the prosecution of a definite policy abroad, and extended commercial interests as individuals or other forms of association would have been unable to do. The American

reader may remember that Virginia was founded and Massachusetts was developed by joint-stock companies. Other forms of association, especially partnership, were more suitable for many purposes, and increased constantly in number; but alongside them several hundred stock companies grew up in Europe of which perhaps a hundred were founded to develop great commercial and colonial undertakings.

53. MEDIAEVAL CURRENCY1

One of the serious obstacles to the development of commerce was the character of the currency in the various countries of Europe. Assuming that the reader appreciates the importance of money as facilitating the operations of exchange and knows the qualities of good money, we may confine ourselves to pointing out some of the characteristic faults of mediaeval currency.

1. Merchants could not rely upon the government to maintain the standard of value. In many countries the kings debased the coinage again and again to secure the means of carrying on war or paying public expenses of other kinds. Every debasement, as it left the coins with less pure metal, lowered their purchasing power and raised prices; many innocent people suffered, and everybody grew reluctant to make bargains and contracts.

2. In many countries, especially those on the Continent, the privileges of the great feudal lords included the right to keep a mint and to issue coins. The central government restricted this right as it grew stronger, but in general the currency of mediaeval Europe was made up of a vast variety of coins of standards even less reliable than that of the king's coinage. There was danger that a coin, even if it was of good weight, could not be passed at its full value outside the locality where it was minted.

3. Even in countries like England, where feudal coinage was put down and where debasement by the government was exceptional, counterfeits were not rare, and the clipping of coin was

very common.

These characteristics of mediaeval currency made the moneychanger a necessary figure in the commercial world; he was to be found everywhere, even in the small towns, buying and selling the various coins in circulation.

'Adapted by permission from Clive Day, A History of Commerce, pp. 118-21. (Longmans, Green, & Co., 1912.)