- The Language of Finance
- What Is Financial Innovation?
- The First Financial Innovations: From Capital to Credit
- Financial Innovations in the Age of Discovery
- The Rise of Financial Capitalism
- Landmarks in Financial Innovation
- Did Financial Innovation Cause the Crisis?
- Using Finance to Manage Risk and Democratize Access to Capital
This chapter is from the book
This chapter is from the book
This chapter is from the book
Financial Innovations in the Age of Discovery
The Spanish, Portuguese, and French voyages of exploration were sponsored by ambitious rulers and financed through taxes, plunder, mining, and loans. The expeditions were purely commercial in nature, with hoped-for profits fueling expectations.
England, Europe's relatively poor cousin during this period, was ruled by monarchs whose taxation powers were limited by the Magna Carta and common law. The nobles, some of whom were wealthy, were not interested in such crass matters as commerce. England did have a large and growing merchant class, with a centuries-old interest in commerce and a willingness to invest in ventures. But if England's monarchs were to enter the colonial race on a large scale, they would have to find some other means of obtaining capital.
One method was outright theft. Queen Elizabeth unleashed the "sea dogs," who robbed Spanish vessels laden with wealth from South and Central America. The other strategy was an alliance of monarch and merchant in joint stock companies that received charters in the New World.
The Crown chartered several trading companies in the sixteenth century. They were open to all who had money to purchase shares in one venture or another. At first, they sponsored single voyages or enterprises and were dissolved on completion of the mission. But as the century wore on, they became permanent. The first of these, the Muscovy Company, held a monopoly on trade with Russia for hundreds of years. Decades later, the Levant Company was founded to trade with Turkey, and the Barbary Company was created to trade with North Africa.12
The East India Company, destined to be the most important of all the joint stock companies, obtained its charter in 1600. It was granted a 15-year monopoly for English trade between the Cape of Good Hope and the Straits of Magellan. By 1610, the company had 19 facilities and was sending shipments of spices and fabrics from the Orient to England. The merchants pocketed handsome profits, and the Crown taxed that wealth, ending its sole dependence on Parliament for funding. Later, joint stock companies would enter the history books by settling several of the English colonies in North America and elsewhere.
The joint stock idea continued throughout the seventeenth, eighteenth, and nineteenth centuries. Its popularity was due in large part to the voluntary nature of the enterprises, the hopes of great profit, and the sharing of risks.