The larger part of the early English commercial companies were regulated companies of this kind. To a certain extent they attained the objects of association which have been enumerated above; some of the worst evils of individual trade were impossible so long as the company adopted wise regulations and could force members to live up to them.
165. Objections to the form of the regulated company.—Still, 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.
166. The joint stock company, and its advantages.—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 entrust 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.
167. Good and bad sides of joint stock companies.—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.
QUESTIONS AND TOPICS
1. Write a report on the break-up of the manor and the rise of modern farming in England. [Cheyney, Indust. hist., chap. 5, or one of the other manuals of English economic history.]
2. Write an essay comparing the restrictions of the guilds with those of modern trade-unions.