Tom Burns Organisation and Social Order

ChapterXI

CAPITALISMANDMONARCHY Tawney and Weber wrote at some length to argue that the Reformation, if not causally linked with the rise of capitalism, did provide at the very least either (according to Tawney) the strongest ideological justification for the practice of capitalism or (for Weber) reinforcement for its spirit.1 As against this, J.N.Figgis, adapting a remark of Thucydides, suggested that whereas the talking-points of the Reformation had to do with religion, its enduring legacy was the modern state.2

Taken in isolation, neither of the two propositions cuts much ice nowadays. The Weber-Tawney thesis has been whittled away by historians, and the point of Figgis' remark was conceded only within the limited context of the absolutist takeover of the Church's authority. Taken in conjunction, though, they become rather more plausible; a fundamental change in the politico-economic structure of the countries of western Europe began at much the same time as the Reformation, and it is not easy to regard it as altogether a coincidence.

I

The affinity between modern capitalism and the modern state had become manifest, in very general terms, to the social and political philosophers who disentangled the sovereignty of the state from 'absolute monarchy' and attached it to interests. Thus Locke, the ideologue (or 'justifier', as he called himself) of the 'Glorious Revolution' of 1688:

"The great and chief end therefore, of Men’s uniting into Commonwealths, and putting themselves under Government, is the preservation of their Property."

Hume: "the greatness of the sovereign and the happiness of the state are in a great measure united with regard to trade and manufacture."

and Adam Smith, rather more pungently:

1 M.Weber, The Protestant Ethic and the Spirit of Capitalism (1904), and R.H.Tawney, Religion and the Rise of Capitalism (1926). 2 J.N.Figgis, From Gerson to Grotius, p.55.

"Civil government.... is in reality instituted for the defence of the rich against the poor."3

Yet their observations could hardly have been made in the Britain of earlier times, and there is no echo in eighteenth century Europe, with the possible exception of Holland. Since then, the relationship between capitalism and the state has been the subject of much debate, the terms of which have been determined largely by the polarisation of marxist and anti-marxist ideas and attitudes. (The word capitalism itself, although first used before 1800, was not in popular use until socialists began to use it in the latter part of the nineteenth century as the name for the system they were attacking.) This has done much to advance understanding of the nature of both the modern state and capitalism, but the shaping of investigation and discussion by adversarial debate has loosened our grip of other significant aspects and consequences of their connectedness.

One principal consequence is that, while the changing nature of the state in modern times has been more than fully acknowledged and analysed, capitalism seems to be regarded as remaining unchanged in character since its first appearance, although some recognise its undergoing two expansions since its first appearance as 'commercial capitalism', first into 'industrial capitalism', in the later eighteenth century, and then as 'financial capitalism' a hundred years later. If one takes into account the critically important symbiotic - or commensal - relationship between capitalism and the state, it is, I think, helpful to distinguish six episodes in the history of capitalism. They are:

I. State (or Fiscal) Capitalism II. Commercial Capitalism

III. Industrial Capitalism IV. Financial Capitalism V. Managerialism

VI. Financial Engineering

It goes without saying that there are hardly clear breaks between the episodes; all but the first grew out of, and superimposed themselves, on what went before. This chapter deals with the first and second episodes.

II

One of the few who seem to have grasped the importance of the basic affinity between capitalism and the state is Otto Hintze. It is unfortunate that he goes on to evoke an image of a 'hidden hand' guiding the actions of self-interested individuals towards the general, indeed universal, good in a passage which parodies the uses to which Adam Smith's metaphor has been put. Still, he is clear enough about what might be called 'the elective affinity' which did exist between the modern state and capitalism at the outset

3 John Locke, Second Treatise, chap. ix, sec.124. David Hume, Essays, (1768 edn.) Vol.I, p.299. Adam Smith, Wealth of Nations, (Cannan edn.) p.674.

and for most of the second episode4 even though he perpetuates the connection well beyond the time it was dominant.

Hintze's starting point is the dismissal of Schumpeter's argument about the incompatibility of capitalism with nationalism and imperialism5, siding instead with Max Weber, whose earliest published lecture argued that the modern nation state was, or ought to be, the natural guarantor of capitalism,6 and who, towards the end of his life, declared that "the modern state is an 'enterprise', just like a factory:"7 they were, sociologically speaking, identical.

Sombart insisted too much, Hintze continues, on economic development as autonomous, and independent of political development. Sombart was correct, he says, in arguing that neither was the modern state brought about by capitalism (as most Marxists have claimed) nor capitalism by the modern state, and that the rise of capitalism remains unintelligible "without some insight into how it was conditioned by the course of nation-building and by the spirit of politics during the last four centuries." But more than 'conditioning' was at work, in Hintze's view. The same social and psychological processes were present in both developments. In the case of the modern capitalist system, it was the efforts made by individual private entrepreneurs in seeking profits, taking risks, and competing with each other so as to satisfy a demand arising from an ever-expanding market; there was no common or overall plan. And the selfsame procedure in the political field produced the modern nation state - the remodelling of long-established states like France and England no less than the creation of new states like Italy and Germany: "This process, of modern nation-building, can also be regarded as an entrepreneurial undertaking, a political enterprise complementing the economic one. It shared with its economic counterpart the fact that it emanated from the individual initiative of single leading figures, operating from different centres, without a common plan, in constant competition and rivalry with each other". Whereas economic entrepreneurs went for profit and wealth, political entrepreneurs - the rulers of early modern Europe, 'the founders of the modern state' - went for dominion and power both at home and abroad.

The entrepreneurial character shared by rulers and merchants aside, there was nothing problematical about their alliance during the sixteenth century. To treat the close affinity between their purposes as even mildly so would probably have puzzled the people living four hundred years ago who were directly involved. As Braudel observes, "the rise of the state is in the mainstream of economic development." The state was in fact the principal economic as well as political entrepreneur of the sixteenth century. "It was on the state 4 O. Hintze, "Wirtschaft und Politik im Zeitalter des modernen Kapitalismus" (1929). The translated passages (and the references to the publications by Weber and Schumpeter given in the text are from The Historical Essays of Otto Hintze, ed. F.Gilbert, O.U.P., 1975, pp.426-9. 5 Schumpeter's views first appeared in "zur Soziologie der Imperialismus", Archiv fur Sozialwissenschaft und Sozialpolitik, Vol.46, 1919. 6 The reference is to Weber's Akademische Antrittsrede, published in 1895; it is reprinted in Gesammelte Politische Schriften, J.C.B.Mohr, 2nd. edn., 1958. 7 M. Weber, "Parliament and Government in a Reconstructed Germany," Economy and Society (Appendix II), p. 1394.

that modern warfare depended, with its constantly increasing requirements in manpower and money; as did the biggest economic enterprises: the Seville-based Carrera des Indias, the shipping route between Lisbon and the East Indies, for which the Casa da India, in other words, the king of Portugal, was responsible."8 By the late sixteenth century, rulers were joining forces openly with wealthy merchants in the inauguration and exploitation of joint-stock companies for trade, mining, and manufactures, and in the organisation and management of taxation, of government credit, and of military and naval forces.

Even so, the dominance of state entrepreneurship throughout the greater part of the sixteenth century involved, and rested on, the relatively narrow band of the fiscal side of the economy which conducted its transactions in coin - issued by the state's own mints. It was paper money - bills of exchange, bonds, credit - that became the main currency of large-scale commercial business, and it is the establishment of confidence in this form of money - a confidence at least as assured as the official coinage, and in some cases probably more so - that helped merchants both to face risk and to exploit the opportunities it afforded.

Commercial capitalism emerges as the summit of what Braudel calls the 'hierarchy of trade'. There are, as he describes it, three levels. The base consists of the 'many-sided, self-sufficient, and routine' material life of the great mass of the people who, for the most part, grew, killed, or gathered what they ate, built their dwellings, made their own clothes, and gathered their own fuel. For the rest of their needs and wants, there was the 'everyday economy': "a world of transparency and regularity, in which everyone could be sure in advance, with the benefit of common experience, how the processes of exchange would operate. This was always the case in the town market-place, for the transactions necessary for everyday life: goods were exchanged for money or vice-versa and the deal was resolved on the spot, the moment these things changed hands."9

Much the same went for long-distance trade, provided it was regular and the origins of the commodities and the conditions, routes and market were familiar. It was around the middle of the sixteenth century that commercial capitalism - Braudel's third hierarchic level - makes its entry. As an instance, he cites the case of cereals from the Baltic, which normally came into the open market at Amsterdam, and once stored in the warehouses there became "a counter in a complicated game which only rich merchants could play. They would send it to a variety of destinations - to places where famine had sent up the price out of all proportion to the original purchasing price, or to places where it could be exchanged for a certain desired commodity."10

Long-distance trade - in Amsterdam, in particular, but also elsewhere, in Antwerp, Genoa and London, for example - meant the presence there of a sizeable number of established merchants who, besides being wealthy, were well-informed. Capitalism needs both wealth and information, plus ready access to more wealth and information.

8 F.Braudel, The Mediterranean, (2nd. edn.) Collins, 1972, Vol.I, p.449. 9 F.Braudel, The Wheels of Commerce (Vol.II of Civilisation and Capital), Collins, 1982, p.455. 10 10. ibid

What is under discussion here is the difference between what is commonly regarded as 'habitual', 'customary', or 'routine' decision-making on the one hand, and 'important', 'critical,' or 'consequential' decision making on the other. The distinction is one which Herbert Simon equated with 'programmed' and 'non-programmed' decision-making.11 Either kind may be rational or irrational, of course, but what Simon suggests is that for non-programmed decision-making, rationality consists in undertaking a search for more information.

Wealthy merchants at the 'business-end' of long-distance trade did not have to search very hard for more information. They were, in all probability, perpetually on the look-out for it. In the case of commercial enterprise, one has to make allowances for opportunism, for the recognition that circumstances and arrangements which were designed to follow a planned or customary sequence may be re-ordered so as to yield extra and unlooked-for gains. Opportunism really has two aspects: attention - constant attention - to serving the interests of oneself, or one's group or party; and the ability to see what had previously been taken for granted or had seemed routine or conventional as part of the new, larger, situation. It calls for individuals being able to perceive reward in deserting prescribed routines, or re-combining institutional elements, or adapting procedures usually appropriate to quite other places or circumstances. For 'opportunism' one may read 'enterprise', or 'vision', or 'imaginativeness' (or, for that matter, 'eccentricity', 'foolhardiness', or 'gambling against the odds'), but in any case what is involved is a new reference system, or a reconstitution of the old one, which admits of further possibilities of action than were previously prescribed.

Of course, opportunism was evident enough in medieval times in institution-building, commercial and other, as well as in the territorial acquisitiveness of kings and nobles. This is the key to understanding the quite remarkable expansion of trade, the success story of the merchant class, and the efflorescence of corporations which mark the Middle Ages. What was at work was a capacity for exploiting existing organisational technology.

It is, in short, possible for institutional and organisational growth and change to occur without innovations in material or social technology acting as the spur. Michael Postan once observed that trading is in itself a simple enough undertaking, and anyone with money, literacy and common sense was well enough equipped to practise it at any time up to the end of the eighteenth century. This was a propos of demolishing the idea of trade, "as a social art acquired by men at the end of their progressive ascent through history," cherished by historians of an earlier generation ("which not only believed in continuous progress, but valued the commerce of their own day as the highest manifestation and fulfilment of their culture").

This is fair enough, but Postan then goes on: "What determined the place that trade was to occupy in their daily lives and in their development was the historical setting taken as

11 H.A.Simon, "The Role of Expectations in an Adaptive or Behavioristic Model" in Bowman, (ed.) Expectations, Uncertainty and Business Behavior, Social Science Research Council (New York), 1958. See also T.Burns and G.M.Stalker, The Management of Innovation, Tavistock Press, 1961, pp. 110-119.

a whole - their laws and customs, their distribution of wealth, their access to circulating capital, as well as the political circumstances of the time."12

The use of the word 'determined' in the latter sentence suggests an underlying assumption that people's 'daily lives' - their relationships, proclivities and actions - are somehow distinct from the 'historical setting' which 'determines' them. By 'historical setting' is presumably meant the structure of institutions and the social technology of organisation which went into creating them or kept them going, as well as the social, political and economic circumstances of the time. Undeniably, institutions and organisations were constructed according to the ideas and values prevailing among the people directly and indirectly concerned in their operation and in what benefits and satisfactions they hoped from them. But the very looseness of the 'historical setting' notion gives it a useful amplitude. And having it 'determine the place' which trade took in their daily lives suggests that, in addition to the structures of economic and political power, we have an historical setting which defines - limits - people's decisions and actions, their aspirations and desires, their freedom to organise, and their capacity to do so (the available social technology).

Postan's observation reflects a kind of determinism - 'structural determinism', to be sociological about it - which is much more common than the historical determinism which has caused so much bother in the last few generations. What was at work in the growth of commercial activity in the Middle Ages - and growth there certainly was - is best read as the endeavour to make fresh combinations of old factors and traditional institutional procedures, and to make them work in new ventures.

Much depends on how long and broad a view one takes, of course, but it is impossible even for so 'structuralist' an historian as Fernand Braudel not to think that people play a considerable, though not easily measurable, part in determining 'the historical setting' in which they live out their lives. At the time Postan has in mind - the earlier Middle Ages - people in many different parts of Europe were at least taking a hand in creating their own destiny just as much as others were submitting to it; and the same goes for other times.

But opportunism of the re-combinative kind characteristic of the Middle Ages hardly accounts for the transformation of trading concerns from the individual entrepreneur, alone or in partnership for a single venture, to the joint-stock company. In what might be called Postan terms, the increased volume of trade called for aggregations of capital beyond those feasible for partnerships of fellow guild-members and of an increase in sophistication and commercial competence as its natural, 'common-sense', consequence. But this kind of explanation hardly accounts for - to take one instance ready to hand - the willingness, early in the sixteenth century, of the Corporation of London to hand over an enterprise - water supply - it had itself conceived and planned to groups of entrepreneurs who saw profit for themselves in taking on responsibility for them. The members of that particular corporation would surely have seen themselves as possessed of all the

12 M.M.Postan, "The Trade of Medieval Europe:the North", C.E.H.E. Vol. II, C.U.P., 1952, p.239

commercial competence and acumen needed, without recourse to any entirely new, 'privatised', enterprise.

III

Just as the years from 1500 to 1700 mark the turn towards modern sovereignty and colonial imperialism, so do they mark the critical phase of the drive towards capital accumulation before the onset of modern industrial capitalism.

There is in the first place the transition from the partnership form of joint undertaking to the corporation. The medieval form is emphatically temporary and singular. Profit is measured in the immediate return on the one transaction: the purchase and sale of a specific batch or cargo goods, a voyage, a loan.

The incorporated company of modern times is, from its beginning, long-lasting, engaged in multiple transactions, and reads its profits in capital accounting terms. Its framework, also, is constituted according to positive law and it is in other ways a dependency of the state.

Taken together, the changes in both political and economic behaviour and ways of thought together register a shift in fundamental values. It can be tied down to a process of alteration in the prevailing ethos which is twofold and seemingly contradictory, but proves in the event to be complementary and self-reinforcing. At its most superficial level, this shows up in the increased prominence accorded on the one hand to supremacy, either worldly or divine, and, on the other, to individual rights and entitlements. The combination entails a corresponding diminution of the power to intercede, intervene or mediate between the sovereign power and the individual which used to belong to the nobility, the community, urban and corporatist or rural and collectivist, and the church.

Of course, for the most part, trade and industry in the middle ages were, like so many other activities, carried on as a matter for individuals to engage in. Equally of course, the term 'individual' has to be understood, usually, to mean the head of a family, in itself an elastic term which might include cousins, nephews and even separate, though closely related families, and would certainly indicate a household, with servants, helpers, and even outside craftsmen employed on a permanent or piecework basis.

But even with this wider meaning attached to the word 'individual', however, it was not a matter of individual enterprise, as it is was now understood. 'Individualism' in enterprise, as in much else, is an ethic innovation of the monarchist period, preached by the Enlightenment and turned to practical application during the Great Transformation of the Industrial and the French Revolutions. What one has to reckon with in the Middle Ages is collegiality - a principle of association founded on communality and therefore not so much of equality in ownership as of equality of entitlement to use common resources or to participate in activities on a common footing with colleagues. Collegiality - fellowship within a corporate entity - added vocational and sacramental dimensions to rank, occupation, political loyalties, neighbourhood, and dedication to a code of religious

practice; out of it were created monastic, mendicant and chivalric orders, lay brotherhoods and sisterhoods, guilds, colleges and universities, orders of priesthood, the chapters of abbeys and cathedrals, parliaments, and much else. In total, all such associations constituted the congregation of the Church and society itself, together with, at a lower level, the city republics of Italy, or incorporated urban communities everywhere.

Before an 'individual' could engage in trade during the Middle Ages, there was an essential condition which he had to meet: recognition as a merchant within the company of merchants. Normally, of course, this meant guild-membership; but guild-membership came in time to signify no less than acceptance, in formal and ceremonial terms, as an associate by the company of merchants of a town who, often enough, also formed the council, jointly responsible for the town's franchises and its magisterial and fiscal obligations.

The organisation of commerce beyond this seems to have been regarded exclusively in terms of the useful - indeed, essential - combination of individual traders in a corporation as a means of facilitating the enterprises embarked on by individual members, of providing individual traders with protection against competition, especially from outside 'interlopers', but also from one's fellow-members, and as a mutual-benefit, mutual insurance, agency.

There were also, to take another dimension into account, two kinds of purposes, broadly speaking, which corporate bodies were set up to serve. Beyond existing as a convenient way of providing members with the wherewithal to pursue activities, as well as interests, which were inherently individual, or were so originally, they might enable the creation of a big enough operating unit to undertake activities quite beyond the capacities of individual persons or families.

The Venetian shipping regulations cited in an earlier chapter show gradations of balance between the two broad purposes, but there are extremes well beyond their range.

At one end, there was, for example, the collective - individualist arrangement which used to obtain in many parts of Europe (and indeed elsewhere) whereby fishing boats were corporately owned, with individual fishermen keeping their own catch. At the other end of the scale, "fishing vessels", even in the fifteenth century, "were frequently owned by a borough and used by the burgesses in common, each conducting his business for himself, but according to the ordinances of the corporation, and using the corporation vessels in common with his fellows."13 In between, there was the variant of this form so thoroughly exploited at Venice, with the Republic building and owning galleys and auctioning charters to be taken up by individual merchants and partnerships.

Organisation in such a form, and on such terms, undoubtedly furthered trade and industry throughout the Middle Ages. It provided a relatively benign set of circumstances in which the individual merchant could do business; it offered some

13 J.P.Davis, Corporations, Putnam, 1905, p.33.

guarantee of fair dealing between merchant and merchant; and it fostered partnerships between members of the same organization so that they could undertake rather larger ventures than they could contemplate singly, or split their investment between ventures and so reduce risk.

Organisations like the guild merchants in scores of towns, and confederations of merchants like the 'Mayor, Constables and Fellowship of the Merchants of the Staple of England' and 'the Fellowship of the Merchant Adventurers of England' fostered the growth of domestic and foreign trade effectively by providing the conditions under which individual merchants could multiply in number. What they did not do was to foster the accumulation of capital of an undertaking funded by a number of individuals over a period of time. Of course, there were rich merchants in England, but, as individuals, they did not command anything like the resources administered by the great banking and merchant houses of Florence, Lyons, Antwerp and Augsburg through their own agents, usually members of their own household or extended family; the agents of English corporations were responsible to the corporation as a whole.

Still, by the sixteenth century, medieval corporatism of the kind on which the Italian city-republics had founded themselves, in both political and economic terms, was in decline. The republics themselves, with the single exception of Venice, were on the point of extinction, converted or absorbed into the new 'absolutist' principalities and kingdoms. In all this, there were obvious external causes at work: European expansion across the Atlantic and in the Far East shifted the economic centre of gravity west and north from the Mediterranean. The shift was not so speedy or as complete as was once thought; Italian banking and commercial enterprises preserved some of their dominance in Germany, the Low Countries, and England well into the sixteenth century - and beyond, in some cases. Even so, with corporations in Italy becoming more repressive as they lost their economic supremacy, the rather less restrictive practices of their opposite numbers in the north-west of Europe fostered expansion there - largely by way of imitation of Italian methods.

The first innovative move by the English came after the near collapse of Italian commercial and banking interests, following the failure of the Bardi and some other houses just before the Black Death. It simply extended the partnership - the societas in its simplest and most basic form - in one or two instances to the pooling of capital by a sizeable number of individuals in order for them to engage in relatively large-scale undertakings, mainly in mining and smelting. Trading ventures also began to look further afield than the Low Countries and the Hanseatic towns, where the 'staples' had established themselves, and one finds 'regulated' companies being started up: the Eastland (as early as 1408), and in the fifteenth century the Merchant Adventurers, the Russia and the Levant Companies of London, with smaller counterparts in other towns. The native 'regulated companies' dominated England's overseas trade until almost the end of the sixteenth century.

They were, like the merchant guilds, associations of individual merchants. The 'regulations' applied to the conditions agreed among the members under which goods might be bought or sold in the towns and markets where the company had established

itself, with exclusive trading rights. This was all very much on the lines of the older staple. The difference was that there were companies with a defined membership, operating under charter from the 'home' government. From the merchants' point of view, however, the companies were, as formerly, designed to minimise competition among members, even to the point of rationing the volume of goods and of setting price limits, as well, of course, as to eliminate interlopers. More important, the normal procedure was still for individual members to trade as individuals, relying entirely on their own capital for trading purposes.

Nevertheless, the regulated company marks a further stage in the development of a type of organisation which allowed of, even if it did not actively promote, some aggregation of capital resources, which could be used in furthering the interests of the company's members. "Though each freeman remained relatively isolated, as a capitalist, he was compelled to employ his resources according to the ordinances of the fellowship. Not only so, but the regulated company, as a whole, became possessed of a certain amount of corporate property, arising from the fines for admission and from special levies."14

Not surprisingly, the accumulated capital funds at the disposal of such companies caught the interest of all those late medieval and Renaissance monarchs in need of money. One use to which the funds were put, therefore, was to provide loans to English or foreign sovereigns. And - again not surprisingly - the privileges of companies were, as a consequence, increased from time to time. In fact, the fairly rapid development of the regulated company owed a good deal to the increasing interest of governments as the usefulness of commerce as a source of revenue became more and more evident.

With the sixteenth century comes the first definite signs of alteration in the generally accepted models of organised activity, especially for business and trade, and in the political and legal structure of the kind of institution regarded as appropriate or feasible for such undertakings. The course which entrepreneurial activity took is instructive. There was, to begin with, an increased emphasis on the export of English cloth, as against wool. London merchants pushed on with the establishment of staples further and further into Germany, to the point of competing with the Hanse on its own doorstep. This was truly Postan's 'natural', 'common-sense', response. Townsmen, rich and poor alike, had taken the collegial, autonomous 'society' as their model for almost all organised activities - economic, social and, in respect of town government, political - which went beyond the resources the individual family could, or would, commit to them.

The change came when the old organisational forms began to seem, to the participants, unsuitable to the kinds of enterprise they were contemplating. Beginning with those organisations whose activities reached out through ports, across the seas, and beyond familiar foreign lands to those which were strange, this communal, self-managing, institutional form was ousted in favour of the corporation, licensed ('incorporated') by government act.

14 W.R.Scott, op. cit., Vol.I, pp.10-11.

With the onset of absolutism the balance of military strength shifted decisively towards the rulers of the larger dominions and away from the territorial magnates within them. There was also a centripetal drift of economic interests within each separate kingdom and principality towards the royal court, now the main arena for self-advancement. This fostered the growth of new-style enlarged partnerships, some of which had to find room for the monarch and members of the Court. In England, it was merchants who took the initiative, with the 'regulated company' and the earliest joint-stock companies (incorporated under royal charter, of course). After the War of Independence, Dutch merchants took much the same path. In seventeenth century France, however, it became customary for the King, or members of his court, to become members of the companies and even to take the initiative. Sweden, Denmark and other Baltic countries followed suit, with chartered companies for trading with the West and the East Indies being set up entirely by the royal government.

IV

It was about the middle of the sixteenth century - so far as England is concerned - that the final step was taken in the development of an organisational form which was geared to the aggregation of the capital resources of a number of individuals in order specifically to employ them in large-scale ventures. This meant a move from single enterprises in common to enterprise as a sustained joint undertaking: the joint-stock company.

Two joint-stock companies were incorporated in 1553. The corporate form of one of them, the Russia Company, is usually taken to be a straightforward extrapolation of regulated company principles. The line of descent of the other - the Africa Company, as it came to be known - is just as easily interpretable as being from the commenda, the older partnership form. It was less formally constituted and in fact a little surreptitious, since its purpose was to open up trade along the West African coast, where the Portuguese were already established in what they regarded as a monopoly position. The 'Adventurers to Guinie' were not incorporated, and although described as a company, with meetings of stockholders, it had no charter and no prescriptive right, therefore, to a monopoly even among English traders. Again, whereas the Russia Company bought ships for the first expedition under Chancellor (two of the three were lost in the ice), the Africa Company chartered its ships.

Both companies were begun at a time when, after Henry VIII's depredations and extravagances, and the desperate effort to supplement royal revenues by debasing the coinage, the government was sinking more and more heavily into debt; 14 per cent interest - a high rate by then - was being paid on short-term loans. Any venture, therefore, which promised a high return for any capital that happened to be available, was bound to look attractive, and to get government approval, however high the risk. Altogether, a classic example - for followers of Schumpeter - of how the trade-cycle works to produce an upturn of innovative enterprise during a period of slump, and, for disciples of March and Simon, of how disappointing results from conventional or routine management strategies may induce a search for new kinds of strategy.

The distinctive mark which sets off the joint-stock company from their predecessors was the provision for the pooling of capital by members; there was to be "one common stocke of the company", and no individual member or servant of the company was to trade on his own account. At the same time, the resemblance to predecessors was, at the outset, just as marked. Each voyage or 'venture' was subscribed afresh by the members, who were called on to contribute specified sums for each share; similarly, at the end of each venture, the entire proceeds and profits would be distributed to members.

Enterprises organised along such 'joint-stock' lines were already familiar enough in Italy, Germany, and the Low Countries, where independent city-republics or quasi-independent cities had positively encouraged the growth and development of 'societal' forms of business. Not so in England, where the sheer novelty of the idea is sufficiently represented by the term 'company' which was adopted eventually, when titles became shorter and less specific, for the new form of organisation. The word was adopted, it seems, from the example, so much more familiar to the English, of the armed band of mercenaries who had proved themselves so useful, and so expensive, to the European kings and princes in their pursuit of territorial expansion and absolute sovereignty.

More to the point for contemporaries was the move across the borderline between taking risks and making a gamble. The purposes for which the Russia Company was formed were exploration and discovery.

Its title, as was commonly the case, epitomised its objectives: it was "The Mysterie and Companie of the Merchant Adventurers for the discoverie of lands, territories, isles, dominions and seignories unknown, and not before that late adventure or enterprise commonly frequented". It was in fact a company formed in order to discover the North-East passage to China and the Far East, and exploit it by establishing trade with any countries discovered along that route. The true basis of the monopoly sought, therefore, was innovation rather than any legal 'patent'. They would keep clear of the trading grounds of the regulated companies in the countries bordering the Mediterranean, the North Sea, and the Baltic partly because the regulated companies were already there and trading under patents granted by the Crown, but more especially because the regulated companies had failed in one of their principal purposes, which was to keep out interlopers.

The Russia Company ended its short life with the two disastrous voyages in search of the North-East passage. The Africa Company failed, eventually, for less heroic reasons. Nine years after it was founded, Hawkins descended on the West African coast, seized some four or five hundred blacks, and sold two hundred of them (presumably those who survived) in the Spanish plantations in America. "The expeditions of Hawkins produced an impossible situation. The seizure of so many negroes by force resulted in a panic on the African coast, and the news spread with great rapidity. Hitherto the English had been distinguished amongst Europeans by a comparatively fair treatment of the natives. Now, when an English ship appeared, instead of being welcomed, it was treated with hostility, and trade became exceedingly difficult. For these reasons, the last voyage, with which the Adventurers can be connected, was in 1566; and, after the final expedition of

Hawkins in the following year, there is no record of a regular African trade until 1588."15

After the small beginnings of the 1550's, there was something of a boom period for overseas expeditions - for trade, privateering, or planting settlers, or most of the time, all three. All ships were of course armed. They carried merchandise with a view either of trading with foreign countries or establishing settlers there, but there was always the chance of capturing plate ships, should these be met. Thus whether an expedition became one for foreign trade, or for privateering, or for planting colonists depended to a large degree on the set of circumstances and the opportunities they met with.

There were, however, during Elizabeth's reign, a few expeditions designed specifically for planting settlements in America, North and South, all of which failed, some of them disastrously. Later still, in the 1600's, joint-stock companies were restricted to trade only, and the two enterprises directed towards colonial settlement on the North American seaboard (the "London Company" and a similar organisation, destined for a stretch of coast somewhat to the north of the first, based on Plymouth), were formed under the aegis of the government itself. They were each to be managed by a council nominated by the Royal Council and under the instruction of James I. But nothing much came of these ventures, either, nor, when the organisational form of the joint-stock company was reverted to, of the next attempt to found a colony in Virginia.

In fact, the first successful establishment of a colony in North America was the settlement of part of the coast of Massachusetts by a corporation which obtained a grant of land in 1628 and received its charter from the Crown in the following year. Though modelled0.

on a joint-stock company, its members had little interest in enterprise for profit.

The Massachusetts Bay Company was "dominated by the desire to establish in the New World a colony in which certain ways of thinking and living might find an unhampered expression. As such it was more successful than its contemporaries and predecessors of a business nature. Soon after its organisation its leaders took the bold step of transferring its seat to America. There established it gradually lost its private character, and out of its corporate organisation it evolved the political system of the chief New England colony."16

Alongside the development of joint-stock companies for overseas trade, one or two partnerships or 'societies' which had been originated in the fifteenth century were also turning to the same pattern, and for the same reason, which was to create larger aggregates of capital. As early as 1485, a number of people - all of them from the nobility or gentry - had formed a society and were granted rights to prospect for and mine precious metals. It is, however, a later company with the same title - the 'Mines Royal'- which has left its mark. It was incorporated, along with another mining 15 W.R.Scott, op. cit, p.34. 16 J.S.Davis, "Corporations in the American Colonies", Essays in the Earlier History of American Corporations, Vol. I, Harvard Univ. Press, 1917,p.39.

company, some time after their foundation, in 1568. Both seem to have started as partnerships and then to have divided their ownership rights into shares in order to raise more capital. No great success attended their attempts to mine gold and silver, but discoveries first of copper and then zinc enabled them to invest in the production of brass - for cannon and for wire.

Almost all of these early companies in fact adopted the title of 'society'. As with earlier associations under this title, the rules under the charter provided for the election of a governor (sometimes two), deputy-governors (who acted as 'consuls' in the case of overseas trading companies) and assistants. Normally, the earlier, medieval, practice was followed of distributing all the proceeds of a single venture or of a contract or commission after its completion. In the same way, members ('shareholders') would be called on to contribute the fraction of the capital needed for a fresh venture or operation represented by their share.

The share, 'portion', or 'part' in a company was a more straightforward affair than its modern counterpart. It was only after the nineteenth century Company Acts that the denomination of a share became fixed, the number of shares varying with the progress of the undertaking. In the first Elizabethan companies, what was fixed was the number of shares; it was the contribution called for on each share which varied. Any more capital needed was provided in the early company by the original participants, in addition to the sums already called up. So a share in a company in Elizabethan times represented "an appreciable part of the whole undertaking, not as a multiple of units of the capital. The person, who owned one share in the Mines Royal considered himself as an owner of one twenty-fourth of the whole.....In this way the Elizabethan company may be regarded as an extended partnership, in which each participant possessed a considerable portion of the business..... At the same time, the distinction between the company and the partnership is sufficiently clear. The shareholders in the former were capitalists, controlling the business, but not taking part personally in the management."17

This manner of proceeding continued long after the few successful companies had embarked on a more or less continuous series of ventures, with voyages often overlapping each other - a circumstance which partly accounts for some of the mystification which crops up in the accounts.

V

After the uncertain start of the mid-sixteenth century, the turning-point from the older organisational form (the regulated company) to the modern was signaled, in the case of England, by the signing of the charter of "The Governor and Company of the Merchants of London trading into the East Indies". It was founded in direct imitation of the Dutch East India Company, which had been formed in 1595. The Dutch had taken advantage of the troubles of its English competitors (the Levant Company, which, in one of its shifts meant to escape its liabilities, actually changed its constitution in order to revert to being a 'regulated company'), and doubled the price of spices to English customers.

17 W.R.Scott op. cit., Vol. I, pp.44-5.

The East India Company was the characteristic, as well as the leading, joint-stock company of the period of monarchism and mercantilism. With its founding, the corporation may seem to have drifted well outside the bounds not only of positive public benefit but of neutral effects on the public good by which its existence within the framework of law is justified.

The East India Company lived off a monopoly. So did its Dutch and French competitors, and so had its predecessor, the Levant Company (many of whose members had been instrumental in founding the East India Company). The Crown profited (or at least saw itself profiting) from this, by way of customs duties and direct payments in return for the monopoly charter, but the consumer undoubtedly suffered, and made no bones about voicing his grievances in public.

The governments of Holland, England, and France had incorporated all three companies so as to afford their members monopoly rights of trade in the designated territories. Given the political circumstances and the changed political values which now obtained in the Europe of monarchism and mercantilism, the justification for their existence still held good, in the eyes of the rulers of those countries. The grant of monopoly rights was in the first place held to be essential if the company was to attract venture capital and, in the second place, to serve as a means whereby the economic welfare of the state might be advantaged.

The ultimate objective, at least in principle (mercantilist principle), was to promote the wealth of the nation by seeing to it that there was a net flow of money into the country. In essence, this was no different from the overall policy which had been formulated by the city councils of medieval Europe, notably in Italy. There were now, however, conflicting views of how this was to be done - or rather, what the appropriate measure should be. English policy, to begin with, seems to have followed the largely monetary view advocated by Gresham to Henry VIII, which was to keep the exchange value of his currency as high as possible so as to bring in money to pay for imported goods. To some extent, this was a natural consequence of the greatly increased monetary demands of the new-style monarchies, especially as they coincided with (and presumably exacerbated) a shortage of precious metals. Later on, also, it was borne in on those most closely concerned that large amounts of precious metals had to be found to buy the supplies they looked for in the Far East, the Baltic, and the new colonies in the west. By the depression years of the early 1620's, it had become obvious to merchants (and to the miscellaneous crew of courtiers and government officers who were principal shareholders in the new trading companies) that a net inflow of money could best be ensured by 'observing the rule', as Thomas Mun put it in what became the mercantilist bible, 'to sell more to strangers yearly than we consume of theirs in value'.

How far mercantilism was a motivating force before Colbert adopted it as a declared and rigorously applied policy, is not easy to say. In France, the sole concern of the King and his ministers had been the direct return of dues paid in return for the grant of monopoly and profits from the investments made by the King and sundry members of the Court. The same was true of England. The Dutch company, on the other hand, was a federation of pre-existing companies in the various provinces. The federal structure persisted

largely because, apart from the return on their own investment, Dutch stockholders were interested in the business which participation in the company could bring their own towns and districts. So it could be that mercantilist principles were at work at the provincial level.

But mercantilism was founded on the belief that commerce was still thought of as a zero-sum game, at least at the level of international trade; if some were winners, others must be losers, and by the same amount. Sully and Richelieu in succession founded a whole string of companies in the hope of rivalling the Dutch and sharing in some of the riches their Company was bringing them; there was a secondary objective in that, by taking some of their trade away, they might weaken the Dutch.

All these earlier French companies failed, and later, when Colbert, the leading political exponent of mercantilism, revived them or started up successor companies, they were hampered by having the king and members of his court among the principal shareholders and by the legalistic constraints and political directives the royal interest imposed on company policy. The rulers benefited directly, of course, since the monopoly they granted was a privilege which had to be paid for. But the identification of the interests of the country (or at least the monied sections of it) with those of its ruler was held to apply in the sphere of economic enterprise overseas no less than in foreign relations. As Professor Supple has remarked: "The private element in joint-stock companies was never entirely divorced, whether by choice or necessity, from some aspects of government activity."18 The sheer dependence of these companies on the powers of government and the strategic importance, real or imagined, of their trading activities involved both sides inevitably and constantly in each other's affairs and destinies. Even in England, where the companies were privately owned (investment by Elizabeth and the Stuarts were for the sake of income rather than control), there were always comings and goings between the boards of governors of the companies and the royal ministers. In France and Holland the connection was even closer, and more public.

From the government's point of view, then, these companies might be seen as thrifty devices by which they could enjoy the profits they believed Spain and Portugal had derived from reserving trade with their overseas possessions to ventures operated more or less directly by the state, or under very strict control and liable to heavy taxation.

It all seems a far cry from the symbiotic relationship between government and commerce typical of Venice and other Italian city-republics. In many ways it was, but, as Scott points out,19 the origin of the organisational form of the joint-stock company lies as much, and perhaps more, in the normal practices of civil government as in the organisation of the regulated companies. Leading city merchants in London no less than in Venice were accustomed to reaching decisions in the common council by discussion, consultation, negotiation and accommodation as between equals and, at the same time, consulting and arguing with each other as representatives of sectional interests: those of their fellows and associates in the same line of business who were also their constituents.

18 B.S.Supple, "The Nature of Enterprise", C.E.H.E., Vol. V, C.U.P., 1977, p.442. 19 W.R.Scott, op. cit., Vol. I, p.462.

The same kind of experiences in common had also familiarised them with reasonable effective practices in the joint control of the council's officers, agents and contractors. Even Adam Smith, the arch-critic of joint-stock companies, pays tribute to the "resolution and decisive wisdom", on several occasions, of the councils of Madras and Calcutta, "which would have done honour to the Senate of Rome in the best days of that Republic."20

The joint-stock company had one feature which stood it apart from previous collective trading enterprises. It was what brought them into being, and which also proved to be their undoing in a great number of cases. This was their ability to raise fixed capital - to provide for "dead stock", as it was called.

'Dead stock' comprehended far more than the fixed assets of today. "Consular, diplomatic and military services, large transports, depots and warehouses, a detailed administrative superstructure, community development (in the case of colonial ventures, whole societies) - all these were necessary, costly, and had to be managed over the long run."21 Nor was this all. From the very earliest days seaborne trade had been carried in under constant threat from the armed vessels of countries at war or from pirates, who were often indistinguishable from each other. Piracy in the Channel and off the Atlantic coast brought in returns for French seamen comparable with those from legitimate overseas trade. Armed aggression had always been at the heart of overseas trade. The earliest English joint-stock companies had not made much of any distinction between 'legitimate' trade (of which slave-trading was perhaps the most profitable branch) and piracy or the plunder of commercial harbours and trading posts. In the seventeenth century, when commerce-raiding was as often as not given governmental approval and was backed by navies, trade with distant countries on a regular footing required well-armed ships, sailing in convoy, fortified harbours, and substantial land forces.

The risks involved in locking up large capital sums in 'dead stock' of this kind were clear enough. For more than a hundred years after the first joint-stock trading ventures of the mid-sixteenth century, what profits there were in seaborne trade fell all too often to individual or small partnership ventures by 'interlopers' who, just as they had in the days of the regulated companies, ignored or defied the monopolies granted by any government, including their own.

The greater economic strength, organisational reach, and political influence of the fully-fledged joint-stock company was for the most part directed towards establishing permanent trading-posts ('factories') and a continuous flow of privileged commerce; and, once again, interlopers took their unfair share of the benefits. Moreover, it was they who profited first from the general increase in the volume of seaborne trade, which brought with it increased competition and more opportunities for enterprising individuals to make their own use of the trading posts and markets established by the big companies.

20 Adam Smith, The Wealth of Nations, p.606. 21 B.Supple, op. cit., p.440.

VI

The boom period of joint-stock companies lasted from 1680 to 1719, when 56 (a number which includes the Bank of England) were founded, as against 49 in the previous 130 years. It began with the extraordinary success of a venture formed to salvage a treasure ship which had foundered in 1646 off Hispaniola; it paid 10,000 per cent. in dividends to subscribers. It ended with the collapse of the South Sea Company, a collapse which affected all joint-stock companies, shares in many of the largest falling by 90 per cent in a few months.

Up to 1720, the joint-stock company was the principal instrument of modern capitalism. In many ways, it bulked as large in business affairs as the incorporated limited liability company has during the past hundred years. Just before their growth in England was checked by the South Sea Bubble crisis, joint-stock companies, according to W.R.Scott, disposed of capital sums actually in excess of the total capital available in Britain for commercial transactions and credit of all kinds. This was simply because much of the capital subscribed had been used for loans to the government; many companies, indeed, had been formed in order to consolidate loans into stock. In the South Sea Company's case, only a fraction of the nominal capital was used for trading.

The 'South Sea Bubble' had nothing to do with commerce and trade, and everything to do with speculation and belief in the magical properties of credit. But 1720 left an almost indelible stain on the character of joint-stock companies, with Adam Smith's indictment being repeated and supported with fresh arguments (if not evidence) up to the middle of the nineteenth century.

These latterday arguments, like Smith's, had to do with what were seen as defects intrinsic to the organisational form of the joint-stock company. They proved strong enough to confine industrial enterprise to individual ownership and partnership for more than a century, throughout the Industrial Revolution and beyond.

The Bubble Act was passed in 1719 to suppress speculation. It did so by making it extremely difficult to incorporate a new joint-stock company. Existing companies were allowed to remain, but partnerships again became the general rule for capital investment in commercial undertakings outside of single ownership. The Act remained in force until 1826, and, even after that, incorporation was still very difficult, requiring a separate Act of Parliament for each new venture; joint-stock companies which were unincorporated (i.e., went ahead without Act of Parliament) still bore the suspicion, the odium, and the risks they had attracted before 1826 when, if they got into trouble, the promoters of a joint-stock company faced the threat of a writ of praemunire, and with it the possibility of unlimited fine and lifelong imprisonment. Dickens' account of the launching in the City of 'The United Metropolitan Improved Hot Muffin and Crumpet Baking and Punctual Delivery Company' in the early pages of Nicholas Nickleby, with the promise of incorporation by Act of Parliament a prominent part of the proceedings, is a reminder of just how disreputable the joint-stock company still was in 1840.

It was Adam Smith who provided a rationale for the fear and suspicion surrounding the joint-stock company, a rationale which, in time, acquired classic authority. He recites the list compiled by the Abbé Morellet of the failings and the misdeeds of the directors and servants of "fifty-five joint-stock companies for foreign trade which had been established since the year 1600, and which, according to him, have all failed from mismanagement."22 It all went to show that "Negligence and profusion" must inevitably be the permanent condition, "more or less," of management in such companies.

The operative word for later writers has been 'must'. Professor Supple points out, commenting on Smith's remark, that the 'negligence and profusion' has to be attributed to the management problems which beset every large-scale enterprise, especially when it comes to long distance control of operations. "Like any commercial enterprise, its reliance on subordinates increased with the distance which divided the latter from the base of the enterprise. And when distance, in an age of poor communications, placed such subordinates in positions of irresponsible entrepreneurial power, the best of sedentary managers could do little."23

Other historians follow much the same line, often arriving at harsher judgments. Self-interest, inefficiency and fraud make rather more frequent appearances than do loyalty, competence, and honesty in economic, as well as political, history. According to Sidney Pollard, any enterprise which was too big, too complicated, or too dispersed to be subjected to constant and personal oversight, or to be staffed by relatives, or by persons dependent for their future livelihood on the owners (conditions which had obtained in businesses of all kinds for six centuries and more), was all too liable to be affected in the same way. In the earlier chapters of The Genesis of Modern Management, he provides brief accounts of some fifteen large-scale companies founded in the late seventeenth and early eighteenth centuries and involved in mining and quarrying or manufacture in England, Wales and Scotland. A very few enjoyed temporary success, but virtually all of them foundered eventually because of the incompetence, the negligence, or the dishonesty of the people engaged to manage the operations.

"Altogether, examples of dishonest, absconding or alcoholic managers who did much damage to their firms abound in this period, and this experience reinforced the current theories that self-interest was the only possible driving force in industry. There were here two separate strands of economic doctrine: one looking on joint-stock companies as naturally seeking profit by monopoly rather than efficiency, and thus harming the public interest; and the other stating that all large enterprises, indirectly administered, invited fraud as well as lack of adequate interest or drive on the part of merely salaried staff, and thus harming the owners. Both, however, led to identical practical conclusions."24

It is not often that one finds the verdict of history pronounced with such unanimity or in confirmation of contemporary judgment. But the verdict does seem to fly in the face of the evident success of the East India Company and the Bank of England, and it has not

22 Adam Smith, The Wealth of Nations, p.713. 23 B.Supple, op. cit., p.447. 24 S.Pollard, The Genesis of Modern Management, Penguin edn. 1968, p. 33.

gone unchallenged. In particular, there is W.R.Scott's lengthy analysis, and rebuttal, of Adam Smith's charges. Scott's detailed exposure of Adam Smith's errors is something of a classic. It is difficult to think of so devastating a demolition job having been performed on any other authority of comparable importance.

VII

In the eyes of Adam Smith and other contemporaries, the basic error lay in the very attempt to manage by proxy, where the on-site manager or agent was not in some way tied to his employer by ties external to the business connection. It seems that the same mixture of individual self-interest, family feeling, and clientelage was at work in the economic life of the eighteenth century as in its politics and administration. There was, however, one mitigating factor which entered into business relationships. This was religious affiliation.

"[T]hat bold chapter in ideal-type historiography," C.H.Wilson has written, "the Weber-Tawney thesis that linked the Protestant ethic with the emergence of capitalism has become a positive hindrance to thought and is probably better dispensed with."25 Nevertheless, it is not difficult to find reasons why membership of the same religious sect, especially among Dissenters, should have assumed importance in the world of trade and industry.

Entry into profitable careers in politics, government administration and service, the army and navy, the established church and the law was, in the main, restricted to members of the national church - Roman Catholic, Lutheran, Calvinist, or Anglican - of virtually every European country, England included. Religious disabilities did not, however, affect trade, manufacture, or finance. In England, the exclusion of Dissenters made for strong positive reasons for the comparative success they met with in business. Since membership of a dissenting church or sect was, even in the more tolerant eighteenth century, subject to legal disabilities and widespread suspicion, the fellowship of such religious groups became of itself a basis for trust and, increasingly, a surrogate for kinship in business affairs.

Risks of default or fraud on single shipments might, like shipwreck or losing a cargo, to some extent be discounted in monetary terms, but dishonest or incompetent agents could prove disastrous over the long term. By and large, therefore, the kind of trust on which commerce had to depend was such as could be reposed only in members of one's own family. Even clients, whose future prospects as well as their present position might seem to ensure loyalty to their patrons, tended all to often to find, or think, that their main chance lay in more direct self-seeking action. Failing that, merchants who were practising members of one of the many nonconformist sects might turn to fellow dissenters, people whose religious faith was some earnest of reliability, especially as it also made for some insecurity, some degree of threat to their freedom, or their livelihood, or their safety, and who, to some extent, were dependent on the mutual support and protection afforded by co-religionists.

25 C.H.Wilson, Introduction to Vol.V, C.E.H.E., p.15.

"It was neither an illogical nepotism nor a bigoted exclusiveness which kept so many commercial and family partnerships in the hands of one family or one religious sect, and which so often led entrepreneurs to employ as their agents their relatives or co-religionists. In a business world where the unknown was a credit risk and the entrepreneur's success lay so much in the hands of men beyond his immediate control, the ties of family, or religion, and of the social community which went with both, were the cement of commercial confidence and commercial organisation. The lesson was the same whether exemplified in relationships within the individual enterprise or between different firms which provided commercial services for each other; close personal relationships, whatever their basis, fulfilled economic functions which no others could hope to serve so effectively."26

Family connections were for the most part sufficient to sustain partnerships and to provide some assurance for the completion of contracts or transactions which needed a period of time to conclude. But to maintain trading enterprises over a distance, and especially in places which it might take months or half a year to reach, merchants had to rely on agents; they might send their own man as 'supercargo', but only agents permanently in residence could arrange currency exchange, credits, transport and other services, for a commission. Such agents were often entrepreneurs in their own right; also, they ordinarily handled the affairs of more than one merchant house.

To rely on others, beyond the narrow limits mentioned, for the performance of duties and obligations, still more the active promotion of one's own interests, it can be argued, requires one of two things: personal oversight or a means of controlling, impersonally and systematically, the activities by which agreements and contracts must be fulfilled, and profitable undertakings pursued to the end. But the techniques by which accountability could be ensured and a system of impersonal control over fiduciary relationships did not exist. In 1634, a meeting of the East India Company concerning a debt of L100,000 in India noted, despairingly, that "which of the voyages owes it no man can tell."27 Things were not much better a hundred years later.

Even so, the very survival, still more the increasing prosperity, of the East India Company argues that it was in practice possible for large organisations to survive and to prosper, susceptible as they undoubtedly were to the self-interest, dishonesty and incompetence of their agents.

There is a simple enough answer. Just as the government - the King's ministers and Parliament - established itself in virtually unchallenged command over the British Isles, in spite of the burden of wholesale corruption which permeated it from top to bottom, so did the East India Company, along with the other big trading companies and colonial settlements prosper, despite the presence in their organisations of large-scale fraud, peculation, and bribery.

26 B.Supple, op. cit., p.410. 27 E.F.Hecksher, Mercantilism, (rev. edn.) 1955, Vol. I, p.405.

The last twenty years of the seventeenth century were the first of many decades of commercial expansion for England. It was an expansion founded on and promoted by a newly won naval supremacy. The Treaty of Utrecht brought the South Sea Company a monopoly of the slave trade to Spanish America and a limited legal (and almost unlimited illegal) access to Spanish American trade. This was supplemented by the brazen exploitation of the native population of Bengal and other territories in and around Bombay and Madras.

'The Company' was now embarked on a career of conquest with the armies it was now authorised to recruit and maintain. A new charter in 1683, ratified and extended three years later, had given it powers to make peace and war with native princes and to raise military forces of its own, together with a navy and courts of law.

The interlopers who had given so much trouble to the regulated and joint-stock companies in the past were still there, but, now that Britain had become more assertive as a naval power, those who used the Atlantic as their hunting ground found it more profitable to intervene in the colonial trade of Spain. Interlopers in the east tended, as the East India Company became a power in its own right, and was becoming more difficult to beat at the game, followed the ancient precept of joining it. Chatham's grandfather, who became Governor of Madras and amassed a fortune as a 'servant of the Company', began as a buccaneer and interloper. There were counterparts to Governor Pitt even in his own day, but fifty years later, Chatham himself, according to Horace Walpole, was roused to indignation by the "horrid treachery, fraud, violence and blood" by which the Company's men, by the score, "had ridden to such aggrandisement." By mid-century, at least as many fortunes had been made, and by comparable exploits, out of the slave trade and the West Indian sugar plantations.

For the hundreds of families who constituted the ruling class, these benefits were matched by the proceeds of 'old corruption', proceeds which were much more firmly secured than they had ever been in previous centuries. The government's finances were now stabilised on a reasonably sound tax base, with excise duties on tobacco and spirits, a legacy of the Commonwealth, producing an ever-increasing return, and the demands of wartime expenditure on revenue much reduced by the new system of funding debt.

The wealth of the nation did in fact grow throughout the eighteenth century. Even the South Sea Bubble, while it gave pause to the wilder gamblers, was itself a sure indication of what was happening, for the South Sea Company was conceived in the new competitive spirit as a direct challenge to the Bank of England's monopoly of Government funding. And the Bubble Act of 1720, which locked the door on corporation-making for over a hundred years, could be said to have opened the door wider to individual entrepreneurs and partnerships in search of capital. At all events, from the 1740's on, landowners, farmers, merchants and those with capital to invest in government bonds or trading ventures prospered.

But the new wealth and prosperity went to the rich and the powerful; the poor and the weak multiplied – and lost out. Smallholders, craftsmen, townspeople who depended on domestic manufacturing or the old protected systems of work organization (or whom the

hope of becoming masters themselves saw through the drudgery of apprenticeship) for the most part became proletarianized. It was not that the poor became so much poorer as that poverty tended to become more inescapable, less cushioned by the local community, less possible to alleviate by jobbing work, home work and a little subsistence farming. Economic growth during the eighteenth century, and well into the nineteenth, distributed its benefits in ways which widened the gap between the haves and the have-nots.

******

<<Excisions from Chap.11 - 'Capitalism and Monarchy'. NB. ?? Unholy alliance between merchants (and industrialists) and government.>> Yet while it is natural to suppose that this development was connected with the social and religious trends which furthered (or merely accompanied) the transformation of Western societies into recognisably modern form, the interconnections of the pursuit of power in the direction of monarchism with the pursuit of power in the direction of modern capitalism have for the most part - with one or two notable exceptions - been buried under the debris from the hundred years of debate generated by marxist interpretation(s).

Hintze pursues the analogy so far as to contend that there is a sense in which an ultimate raison d'etat was at work in both cases, satisfying needs which were those of the people as a whole. "Economic entrepreneurship concerned itself with the production or distribution of goods to meet the current pressing social need for certain commodities. Political entrepreneurship concerned itself with the creation and provision of means of power for the guaranteeing of safety and legal protection."

Law offers the best evidence, simply because, of all kinds of decision-making, legal records are the longest and best kept. In the case of legal judgments, the 'right' answer is one which the judges (judge or jurors, or both) regard as satisfactory. And they are aware that it is not only the parties to the dispute to have to regard their decision as satisfactory, but the onlookers ('the public'), and, perhaps especially, those holding superior jurisdiction, and again those others who have been, or may subsequently be, involved in similar cases.

In commerce, it is the answer which offers to the entrepreneur a satisfactory combination of foreseeable ('short-term') profits, but also low risk and the possibility (or at least no lessening of the possibility) of long-term advantage. There are other considerations: use of the merchant's own resources rather than having to resort to resources in other hands and minimal dependence on permission or assistance from unfamiliar or potentially hostile parties. In addition, it has to be an answer which is acceptable to the 'public' - customers, suppliers, and competitors - and one which is unlikely to be prohibited by superior powers or to invite retribution.

Arrays of considerations can be thought up for situations requiring decision or judgment in other fields of action, but there are critically important aspects of all such situations. The first is that the array of considerations which have to be reviewed may differ greatly in number and scope. This is especially so when the array includes some considerations novel enough to suggest new kinds of opportunity or when increased competition or fresh barriers reduces the opportunities previously available and makes risk-taking more attractive. One may try to assess these new considerations, guard against them, even offset them, but some uncertainty enters in, and if one wants to go ahead, risks have to be taken.

Uncertainty may attach to some of the circumstances which have to be encountered or overcome in order to accomplish a set task, complete an undertaking, or reach a

destination. The undertaking then becomes risky. If the task happens to be consequential - perhaps even fateful - as well as problematic for an individual (or an enterprise, an armed force, or any other group with decisions to make about future action), then, if there is time, and the decision is being made on rational grounds, steps will be taken to reduce uncertainty by cutting down the number or the size of risky circumstances.

The second aspect is that each consideration requires the exercise of judgment about the weight to be given to it. And the third aspect is that sizeable differences in the weight to be given one or other of the considerations can lead to a review of the premises (the facts of the matter) on which, or of the logic (the customary practice) by which, decisions are arrived at.

But dissatisfaction may enter in.

Dissatisfaction leads to a 'framing' of the reference system. By this is meant a shift of perspective in which the reference system is seen for what it is, a bounded set of considerations outside of which there are any number of matters which might conceivably be taken into account. Such considerations may lead on simply to acceptance of failure and either lower expectations or a move to some other, less demanding, field of activity. But dissatisfaction may also come from a higher level of aspiration as well as from the frustration of endeavours which have proved successful in the past, or for others, or in similar circumstances or locations. Possibilities for action previously excluded by the frame now present themselves as feasible, and so initiate a search for a new strategy.

The idea that it is dissatisfaction that triggers off innovation, or at least the search for new strategies, is one that was first broached by March and Simon in connection with the behaviour of individual managers in contemporary business organisations.28 But it is applicable to the much broader set of circumstances now under discussion.

At the level of decision-making in which tradition is wholly dominant, the bare resemblance of the array of considerations to former occasions and situations may entail judgment or decision which is simply routine. At the level at which the weight which various considerations have to be given is different from what occurred previously, or there are some altogether new considerations, the memory of former judgments in apparently similar situations serves as guidance only.

But there is a further level - one at which the weight of one or more of the considerations is so great as to require a reassessment of the weight given to all the others. In matters of legal judgment, notions of what is right and proper in this particular case - very broad notions of 'natural justice', or of equity, that is to say - may enter in.

In the case of commercial enterprise, one has, at this third level, to make allowances for opportunism, for the recognition that circumstances and arrangements which were designed to follow a planned or customary sequence may be re-ordered so as to yield extra and unlooked-for gains. (The same consideration applies also, of course, in war 28 J.G.March and H.A.Simon, Organizations, Wiley, 1958, esp. p. 48 et seq..

and in politics - as the course of events in the eighteenth century discussed in later chapters amply demonstrates.) Opportunism really has two aspects: attention - constant attention - to serving the interests of oneself, or one's group or party; and the ability to see what had previously been taken for granted or had seemed routine or conventional as part of the new, larger, situation. It calls for individuals being able to perceive reward in deserting prescribed routines, or re-combining institutional elements, or adapting procedures usually appropriate to quite other places or circumstances. For 'opportunism' one may read 'enterprise', or 'vision', or 'imaginativeness' (or, for that matter, 'eccentricity', 'foolhardiness', or 'gambling against the odds'), but in any case what is involved is a new reference system, or a reconstitution of the old one, which admits of further possibilities of action than were previously prescribed.

Opportunism was evident enough in medieval times in institution-building, commercial and other, as well as in the territorial acquisitiveness of kings and nobles. This is the key to understanding the quite remarkable expansion of trade, the success story of the merchant class, and the efflorescence of corporations which mark the Middle Ages. What was at work was a capacity for exploiting existing organisational technology. It is, in short, possible for institutional and organisational growth and change to occur without innovations in material or social technology acting as the spur. Postan's observation reflects a kind of determinism - 'structural determinism', to be sociological about it - which is much more common than the historical determinism which has caused so much bother in the last few generations. What was at work in the growth of commercial activity in the Middle Ages - and growth there certainly was - is best read as the endeavour to make fresh combinations of old factors and traditional institutional procedures, and to make them work in new ventures.

But opportunism of this re-combinative kind hardly accounts for the transformation of trading concerns from the individual entrepreneur, alone or in partnership for a single venture, to the joint-stock company. In what might be called Postan terms, the increased volume of trade called for aggregations of capital beyond those feasible for partnerships of fellow guild-members and of an increase in sophistication and commercial competence as its natural, 'common-sense', consequence. But this kind of explanation hardly accounts for - to take one instance ready to hand - the willingness of the Corporation of London to hand over enterprises it had itself conceived and planned to groups of entrepreneurs who saw profit for themselves in taking on responsibility for them. The members of that particular Corporation would surely have seen themselves as possessed of all the commercial competence and acumen needed for such projects.

The transfer of responsibility for London's water supply from the hands of the individual members of the community exercising their common rights - assumed at first and then legalised - to the City's council and magistrates acting as the representatives of the community follows the natural path of organised collective action. But the next phase, by which the common good is to be achieved by putting out contracts for entrepreneurs to take up and profit from bespeaks a different kind of common sense, a wholly different reference system at work in organised collective action.

The suggestion has been made (by J.P. Davis, in a work on Corporations written towards the end of the nineteenth century,29) that there may be a kind of structural determinism at work governing the birth-rate and death-rate of corporations. There exists, he argued, a tendency for certain periods to be extremely fertile in the creation of corporate bodies with all sorts of activities and all sorts of purposes in mind; at other periods, the historical setting appears to be much less favourable for corporation-making.

This may well be so, but it hardly seems to warrant the analogy of demographic trends of unknown origin and nature. There were times which saw the rapid growth of monastic and, thereafter, mendicant orders in the early Middle Ages, when a life devoted to religious pursuits offered the best of a small set of poor options if one wanted peace and quiet. City-republics and chartered boroughs, guilds and other civic institutions flourished during the culturally and commercially expansive years of the twelfth and thirteenth centuries. These were periods of increasing prosperity or which followed major alterations in the structure of power in society and in the values and purposes to which people for the most part orient their lives.

Furthermore, it seems that the same corporate institutions were liable to come under the domination of, or even be absorbed into, larger bodies (including the State or, during the Middle Ages, the Church). All kinds of corporate bodies were taken over or made subordinate instruments either of the all-encompassing territorial dominion or of the Church (or national church). Universities were to begin with (always in principle and often in practice) self-governing communities of scholars - students - who formulated and managed their affairs. They first appeared in western Europe early in the twelfth century, spread to middle and eastern Europe by the fourteenth and dominated intellectual life for some three hundred years as they have never done since. Then, like the church which their products had principally served, they fell under the control and patronage of kings and princes during the sixteenth century. Many of the joint-stock companies, monopoly trading companies and colonial corporations formed in the seventeenth century, a large number of charitable institutions, colleges, voluntary associations and, not least, local government authorities and municipal undertakings met with a similar fate in more recent times, to become dependencies or administrative agents of central government, where they have not been absorbed by it.

It is as though corporations, and corporation-building, served as a laboratory resource for society in experimenting with and developing new forms of social, political and economic institutions and activities - which affords a fresh view of takeovers. They may have a quite different significance in the long view from what they have in the short.

Hobbes saw corporations as impediments to, or encroachments upon, the absolute power and authority which should attach to the sovereign, although he put it in more picturesque terms. In terms of the actualities of European history, however, they may also be seen as all-purpose instruments for moulding, combining and institutionalising different kinds of individual activity and enterprise into organised collectivities, and so making them more effective. In the process, however, they also rendered themselves

29 J.P.Davis, Corporations, Putnam, 1905, p.

more easily available for opportunistic takeover by the state, or some other powerful political or economic organisation to monitor, control, exploit, or otherwise accommodate to the interest of a group, the state, or the public - as interpreted by the new controllers.

Every corporate group, whether societas or universitas, has two characteristics. First, it is made up of individuals having a personal interest in pursuing certain activities - political, cultural, sociable or religious, as well as economic - as a group. Secondly, its activities have to be such as to justify, at law if need be, the assumption that the public welfare is materially advanced by its existence and its actions. At the very least, if the welfare of members of the corporation is advanced and that of the rest of society not thereby reduced, it must be assumed that there is an increase in total welfare.

The distinction between private and public interest is seldom easy to determine, and the balance between them is liable to fluctuate over time. Even in the case of monastic or mendicant orders, or the early universities and communes, it was the personal interests of individuals that provided the motivation for setting up a permanent organisation. The public interest attached more to the implications of permanence, and of the rights and duties, privileges and obligations, embodied in the rules and regulations. Formation into a corporate body meant that it was possible for others to appeal to the law against alleged actions which disturbed the balance prescribed in the declared purposes and rules between the private interests of members of the corporate body on the one hand and those of the public on the other.

It may well be argued that the second characteristic, ('public interest') is not nowadays much in evidence, at least so far as the activities of many of them (and not all of them 'private' business corporations) are concerned. But this is the point of the need for a legal instrument of incorporation. The corporate form of organisation as universitas (i.e., incorporation by the state under legal prerogative or by statute) is what it is today because of the inherent difficulty of reconciling the interests of private individuals acting in concert with the interests of the public at large (of which the state, in modern times, is assumed to be the guardian). (Banking, it should be said, contented itself in the main with the safe-keeping of precious metals and coin - and, in the case of the larger houses of Florence, Augsburg and Genoa, arranging loans - in gold and silver coin -for the kings and princes of Europe.)

In addition, it has to be an answer which is acceptable to the 'public' - customers, suppliers, and competitors - and one which is unlikely to be prohibited by superior powers or to invite retribution.

Arrays of considerations can be thought up for situations requiring decision or judgment in other fields of action, but there are critically important aspects of all such situations. The first is that the array of considerations which have to be reviewed may differ greatly in number and scope. This is especially so when the array includes some considerations novel enough to suggest new kinds of opportunity or when increased competition or fresh barriers reduces the opportunities previously available and makes risk-taking more attractive. One may try to assess these new considerations, guard against them, even

offset them, but some uncertainty may attach to some of the circumstances which have to be encountered or overcome in order to accomplish a set task, complete an undertaking, or reach a destination. The undertaking then becomes risky. If the task happens to be consequential - perhaps even fateful - as well as problematic for an individual (or an enterprise, an armed force, or any other group with decisions to make about future action), then, if there is time, and the decision is being made on rational grounds, steps will be taken to reduce uncertainty by cutting down the number or the size of risky circumstances. There is a borderline between taking risks and making a gamble. When uncertainty attaches to success or absolute failure in the undertaking or the destination itself, one makes a gamble. The difference is clear when it comes to the explorations and the early commercial venturers of the sixteenth century.

The second aspect is that each consideration requires the exercise of judgment about the weight to be given to it. And the third aspect is that sizeable differences in the weight to be given one or other of the considerations can lead to a review of the premises (the facts of the matter) on which, or of the logic (the customary practice) by which, decisions are arrived at.

The suggestion has been made (by J.P. Davis, in a work on Corporations written towards the end of the nineteenth century30) that there may be a kind of structural determinism at work governing the birth-rate and death-rate of corporations. There exists, he argued, a tendency for certain periods to be extremely fertile in the creation of corporate bodies with all sorts of activities and all sorts of purposes in mind; at other periods, the historical setting appears to be much less favourable for corporation-making.

This may well be so, but it hardly seems to warrant the analogy of demographic trends of unknown origin and nature. There were times which saw the rapid growth of monastic and, thereafter, mendicant orders in the early Middle Ages, when a life devoted to religious pursuits offered the best of a small set of poor options if one wanted peace and quiet. City-republics and chartered boroughs, guilds and other civic institutions flourished during the culturally and commercially expansive years of the twelfth and thirteenth centuries. These were periods of increasing prosperity or which followed major alterations in the structure of power in society and in the values and purposes to which people for the most part orient their lives.

Furthermore, it seems that the same corporate institutions were liable to come under the domination of, or even be absorbed into, larger bodies (including the State or, during the Middle Ages, the Church). All kinds of corporate bodies were taken over or made subordinate instruments either of the all-encompassing territorial dominion or of the Church (or national church). Universities were to begin with (always in principle and often in practice) self-governing communities of scholars - students - who formulated and managed their affairs. They first appeared in western Europe early in the twelfth century, spread to middle and eastern Europe by the fourteenth and dominated intellectual life for some three hundred years as they have never done since. Then, like the church which their products had principally served, they fell under the control and

30 J.P.Davis, Corporations, Putnam, 1905, p.

patronage of kings and princes during the sixteenth century. Many of the joint-stock companies, monopoly trading companies and colonial corporations formed in the seventeenth century, a large number of charitable institutions, colleges, voluntary associations and, not least, local government authorities and municipal undertakings met with a similar fate in more recent times, to become dependencies or administrative agents of central government, where they have not been absorbed by it.

It is as though corporations, and corporation-building, served as a laboratory resource for society in experimenting with and developing new forms of social, political and economic institutions and activities - which affords a fresh view of takeovers. They may have a quite different significance in the long view from what they have in the short.

Hobbes saw corporations as impediments to, or encroachments upon, the absolute power and authority which should attach to the sovereign, although he put it in more picturesque terms. In terms of the actualities of European history, however, they may also be seen as all-purpose instruments for moulding, combining and institutionalising different kinds of individual activity and enterprise into organised collectivities, and so making them more effective. In the process, however, they also rendered themselves more easily available for opportunistic takeover by the state, or some other powerful political or economic organisation to monitor, control, exploit, or otherwise accommodate to the interest of a group, the state, or the public - as interpreted by the new controllers.

Every corporate group, whether societas or universitas, has two characteristics. First, it is made up of individuals having a personal interest in pursuing certain activities - political, cultural, sociable or religious, as well as economic - as a group. Secondly, its activities have to be such as to justify, at law if need be, the assumption that the public welfare is materially advanced by its existence and its actions. At the very least, if the welfare of members of the corporation is advanced and that of the rest of society not thereby reduced, it must be assumed that there is an increase in total welfare.

The distinction between private and public interest is seldom easy to determine, and the balance between them is liable to fluctuate over time. Even in the case of monastic or mendicant orders, or the early universities and communes, it was the personal interests of individuals that provided the motivation for setting up a permanent organisation. The public interest attached more to the implications of permanence, and of the rights and duties, privileges and obligations, embodied in the rules and regulations. Formation into a corporate body meant that it was possible for others to appeal to the law against alleged actions which disturbed the balance prescribed in the declared purposes and rules between the private interests of members of the corporate body on the one hand and those of the public on the other.

It may well be argued that the second characteristic, ('public interest') is not nowadays much in evidence, at least so far as the activities of many of them (and not all of them 'private' business corporations) are concerned. But this is the point of the need for a legal instrument of incorporation. The corporate form of organisation as universitas (i.e., incorporation by the state under legal prerogative or by statute) is what it is today

because of the inherent difficulty of reconciling the interests of private individuals acting in concert with the interests of the public at large (of which the state, in modern times, is assumed to be the guardian).

(The same consideration applies also, of course, in war and in politics - as the course of events in the eighteenth century discussed in later chapters amply demonstrates.)

For, however strong the influence exerted by established ('traditional') practice in a social setting, there is always another feasible level of decision-making and action than surrendering to mere routine repetition - assuming, that is, that the primary concern is to find the 'right' answer to the question of what to do now. In commerce, it is the answer which offers to the entrepreneur a satisfactory combination of foreseeable ('short-term') profits, but also low risk and the possibility (or at least no lessening of the possibility) of long-term advantage.

The idea that it is dissatisfaction that triggers off innovation, or at least the search for new strategies, is one that was first broached by March and Simon in connection with the behaviour of individual managers in contemporary business organisations.5 But it is applicable to the much broader set of circumstances now under discussion.

At the level of decision-making in which tradition is wholly dominant, the bare resemblance of the array of considerations to former occasions and situations may entail judgment or decision which is simply routine. At the level at which the weight which various considerations have to be given is different from what occurred previously, or there are some altogether new considerations, the memory of former judgments in apparently similar situations serves as guidance only.

But there is a further level - one at which the weight of one or more of the considerations is so great as to require a reassessment of the weight given to all the others. In matters of legal judgment, notions of what is right and proper in this particular case - very broad notions of 'natural justice', or of equity, that is to say - may enter in.

The transfer of responsibility for London's water supply from the hands of the individual members of the community exercising their common rights - assumed at first and then legalised - to the City's council and magistrates acting as the representatives of the community follows the natural path of organised collective action. But the next phase, by which the common good is to be achieved by putting out contracts for entrepreneurs to take up and profit from bespeaks a different kind of common sense, a wholly different reference system at work in organised collective action.

There are other considerations: Uncertainty may enter in, and if one wants to go ahead, risks have to be taken. There is a borderline between taking risks and making a gamble. When uncertainty attaches to success or absolute failure in the undertaking or the

5 no reference, but this could be ref 5 in chap II

destination itself, one makes a gamble. The difference is clear when it comes to the explorations and the early commercial ventures of the sixteenth century.

On the other hand, there may be dissatisfaction with existing possibilities. Dissatisfaction leads to a 'framing' of the reference system. By this is meant a shift of perspective in which the reference system is seen for what it is, a bounded set of considerations outside of which there are any number of matters which might conceivably be taken into account. When endeavours which have proved successful in the past, possibilities for action previously excluded by the frame now present themselves as feasible, and so initiate a search for a new strategy. This kind of consideration presumably became fairly prominent during the 1550's, when Spain and France 'went bankrupt' - felt compelled to suspend repayment of their loans from merchant houses in Augsburg, Antwerp and elsewhere. There is no coincidence about the same period seeing the creation of new-style companies of merchants with monopoly rights granted by kings and princes for long-distance trade in the East Indies and Africa

Dissatisfaction may also come from a higher level of aspiration as well as use of the merchant's own resources rather than having to resort to resources in other hands and minimal dependence on permission or assistance from unfamiliar or potentially hostile parties