[Sidenote: Mercantilism]
The new nations founded their power not on the fearlessness of their chevaliers, but on the extent of their financial resources. Wealth was needed to arm and to pay the soldiers, wealth to build warships, wealth to bribe diplomats. And since this wealth must come from the people by taxes, it was essential to have a people prosperous enough to pay taxes. The wealth of the nation must be the primary consideration of the legislators. In endeavoring to cultivate and preserve the wealth of their subjects, European monarchs proceeded upon the assumption that if a nation exported costly manufactures to its own colonies and imported cheap raw materials from them, the money paid into the home country for manufactures would more than counterbalance the money paid out for raw materials, and this "favorable balance of trade" would bring gold to the nation. This economic theory and the system based upon it are called mercantilism. In order to establish such a balance of trade, the government might either forbid or heavily tax the importation of manufactures from abroad, might prohibit the export of raw materials, might subsidize the export of manufactures, and might attempt by minute regulations to foster industry at home as well as to discourage competition in the colonies. Thus, intending to retain the profits of commerce for Englishmen, Cromwell and later rulers required that certain goods must be carried on English ships.
[Sidenote: Chartered Companies]
By far the most popular method of developing a lucrative colonial trade—especially towards the end of the sixteenth and throughout the seventeenth century—was by means of chartered commercial companies. England (in 1600), Holland (in 1602), France (in 1664), Sweden, Denmark, Scotland, and Prussia each chartered its own "East India Company." The English possessions on the Atlantic coast of America were shared by the London and Plymouth Companies (1606). English companies for trade with Russia, Turkey, Morocco, Guiana, Bermuda, the Canaries, and Hudson Bay were organized and reorganized with bewildering activity. In France the crop of commercial companies was no less abundant.
To each of these companies was assigned the exclusive right to trade with and to govern the inhabitants of a particular colony, with the privilege and duty of defending the same. Sometimes the companies were required to pay money into the royal treasury, or on the other hand, if the enterprise were a difficult one, a company might be supported by royal subsidies. The Dutch West India Company (1621) was authorized to build forts, maintain troops, and make war on land and sea; the government endowed the company with one million florins, sixteen ships, four yachts, and exemption from all tolls and license dues on its vessels. The English East India Company, first organized in 1600, conducted the conquest and government of India for more than two centuries, before its administrative power was taken away in 1858.
[Sidenote: Financial Methods.]
[Sidenote: The "Regulated Company">[
The great commercial companies were a new departure in business method. In the middle ages business had been carried on mostly by individuals or by partnerships, the partners being, as a rule, members of the same family. After the expansion of commerce, trading with another country necessitated building forts and equipping fleets for protection against savages, pirates, or other nations. Since this could not be accomplished with the limited resources of a few individuals, it was necessary to form large companies in which many investors shared expense and risk. Some had been created for European trade, but the important growth of such companies was for distant trade. Their first form was the "regulated company." Each member would contribute to the general fund for such expenses as building forts; and certain rules would be made for the governance of all. Subject to these rules, each merchant traded as he pleased, and there was no pooling of profits. The regulated company, the first form of the commercial company, was encouraged by the king. He could charter such a company, grant it a monopoly over a certain district, and trust it to develop the trade as no individual could, and there was no evasion of taxes as by independent merchants.
[Sidenote: The Joint-stock Company]
After a decade or so, many of the regulated companies found that their members often pursued individual advantage to the detriment of the company's interests, and it was thought that, taken altogether, profits would be greater and the risk less, if all should contribute to a common treasury, intrusting to the most able members the direction of the business for the benefit of all. Then each would receive a dividend or part of the profits proportional to his share in the general treasury or "joint stock." The idea that while the company as a whole was permanent each individual could buy or sell "shares" in the joint stock, helped to make such "joint-stock" companies very popular after the opening of the seventeenth century. The English East India Company, organized as a regulated company in 1600, was reorganized piecemeal for half a century until it acquired the form of a joint-stock enterprise; most of the other chartered colonial companies followed the same plan. In these early stock-companies we find the germ of the most characteristic of present-day business institutions—the corporation. In the seventeenth century this form of business organization, then in its rudimentary stages, as yet had not been applied to industry, nor had sad experience yet revealed the lengths to which corrupt corporation directors might go.
[Sidenote: Banking]