A history of commerce

by Clive Day

160. Development of the commission trade; services of factors.—Bodeck must have traded in these wares often without knowing much about them himself, and generally without seeing them. Such a business would have been impossible in the Middle Ages when a merchant accompanied his wares or shared his responsibilities with a few associates. It was made possible now by the development of the commission trade. Commission merchants, or factors, made it their profession “to buy and sell for other business men for a certain profit which is given them for their trouble by the principals.” Sometimes they were in business on their own account also; sometimes they were specialists in various lines. A writer of the seventeenth century distinguished five classes: those who lived in a manufacturing or commercial center and bought goods for others; those who sold goods for others; the correspondents of business men and bankers who made collections and remittances of money for them; forwarders, who received and forwarded goods at places of transshipment; and, finally, the agents for carriers, who distributed and collected the load of a freight wagon in a city. The duties of a mercantile factor, in general, were to advise his principal frequently concerning the market for wares, the course of exchange, etc., to acknowledge letters punctually, and to follow orders exactly. The commission varied from 5 per cent of the value of the goods in the West Indies to 2 per cent or even less in some of the European countries.

161. Improvement in means of communication; posts.—Commission business of the kind described in the preceding paragraphs implied much greater frequency of communication among merchants, and it is noteworthy that the system of public posts was founded in Europe about the beginning of this period, and developed rapidly during it. Relays of horses with postilions and with the necessary officials were established by the governments of various countries, to insure regular communication; the system was meant at first only for official business, but was soon extended to serve the needs of private individuals. Some idea of the advance can be got from a statement made at the opening of the railroad from Strassburg to Basel, giving the time required to go from the one to the other of these places in earlier times. The distance, about seventy-five miles, or less than the distance between New York and Philadelphia, was covered in the sixteenth century by a coach in eight days, in 1600 by a diligence in six days, in 1700 by the same vehicle in four days, and in 1800 by “express” (Eilwagen) in two days and a half. In the eighteenth century a man in England could send a letter fifteen miles for a penny, thirty miles for twopence, and so on up, the sum increasing with the distance; postage from London to France was tenpence, to New York a shilling.

Merchants needed no longer to rely upon the friendly offices of the traveler who happened to be going in the desired direction, and were free from the expense of special couriers. Knowledge of market conditions in distant places spread more broadly and more rapidly than it had ever done before. Shrewd speculators could still sometimes make great profits by getting possession early of some special bit of news, but the essentials of commercial information were available for all. The modern newspaper grew up, by several stages, from written reports that were passed around as circulars in this period, telling of the state of the market, prices, conditions of transportation, etc.

162. Need of closer association among merchants; risks of commerce.—The most striking change in the organization of commerce, regarding especially that with distant countries and other continents, was the growth of association among merchants. We have noted the development in the Middle Ages of the partnership and other forms of association; 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. The protection of a country’s navy extended but a small distance from home. Ships in European waters were threatened by pirates in times of peace, by privateers in times in war; in waters outside Europe they faced trade rivals from other European countries, and hostile natives who were not bound by the civilized rules of peace and war. Distant commerce 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.

163. Association required by government; reasons.—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 required, 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 labors 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 guild 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.

164. Association in the form of the regulated company.—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. Every one, 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.