Chapter Content
Okay, so, let's talk about corporations. It's kind of a wild ride when you start digging into it. You know, there's this quote from Ambrose Bierce that's always stuck with me, something about corporations being this, like, "ingenious device for obtaining profit without individual responsibility." Pretty harsh, right? But it gets you thinking.
So, corporations, they've been around forever. Literally. The word itself comes from Latin. Apparently, the Romans had 'em. And get this, the City of London Corporation? That thing that runs London's financial district? Its origins are, like, lost in the mists of time. They got a royal charter way back in the 1000s, but they were already doing their thing way before that. Crazy, huh? Back then, these guilds—silversmiths, fishmongers, bakers, brewers—they were basically running the show, setting prices, controlling who got in, the whole nine yards.
And those guilds, like, some of them are still around today! You know, they're more like fancy dining clubs now, and they do a lot of charity work. You probably won't find an actual fishmonger hanging out at Fishmongers' Hall these days, just fancy meals. Although, there was that one time somebody pulled a narwhal tusk off the wall there to stop a terrorist. I mean, talk about a story!
But the thing is, the real essence of a corporation is that it's, well, it’s its own thing. It can own stuff, make deals, without that stuff belonging to any specific person. It's like a person in the eyes of the law. This whole idea of "corporate personality" is the core of modern corporate law. Members pick some people to manage things and... yeah.
When Europeans started sailing around the world, they needed corporations to handle the crazy amounts of money and risk involved. Queen Elizabeth I chartered the East India Company to trade in South-East Asia. And the Dutch made the VOC to grab all those spice islands. Basically, back then, a company was just a group of people working together, but it became a corporation when it got some kind of official legal status, you know, maybe even limiting liability. And to get that, you needed permission from the king or parliament or whatever.
Then you had these American companies like the Virginia Company, chartered to colonize North America. Turns out there wasn’t as much gold as they thought. But, Harvard Corporation, that's the oldest corporation in the Western hemisphere. It's been around since the 1600s.
The East India Company eventually became, like, the government of India! Then there was the Indian Mutiny, or the War of Independence, depending on who you ask. After that, the company got nationalized, and Queen Victoria became Empress of India. So, colonization went from a private thing to a public thing.
Now, here’s where things get interesting. People started trading notes and shares. Imagine, you can trade shares without moving the actual assets – ships, factories, etc. Your return depends on how well the whole operation goes.
And banks? They started out holding gold and issuing notes, right? But then they realized they could issue *more* notes than they had gold. That's where the idea of banks "creating money" comes from. Basically, they're lending out money, usually for people to buy houses or factories or whatever. It's all about borrowing short and lending long, because not everyone's gonna want their money back at the same time.
English banks like Lloyds and Barclays started way back in the late 1600s. The Bank of England and the Bank of Scotland came along later. And then you had merchant banks, like Barings and Rothschild, who were big in international trade.
Oh, and stock markets? The Amsterdam Bourse was established in 1602. Coffee shops became hubs for financial speculation. Jonathan's Coffee House became the London Stock Market. And over in America, some merchants gathered under a buttonwood tree on Wall Street and started the New York Stock Exchange. Then came the railway boom, and everyone was buying stocks.
Around 1720, there was a frenzy of trading. You had the South Sea Bubble in England and John Law's Mississippi Company in Paris, both giant frauds. After that, people got serious about restricting corporations.
But not for long. The railways changed everything. Local businessmen saw the benefits of fast transport and got corporate charters to build them. Building railways was super expensive, so they raised money by selling stock. The Great Western Railway, that was started by Bristol merchants.
Then, in 1856, Britain allowed people to create limited liability companies just by registering them, no royal charter needed. Other countries had already done it. People were skeptical, thought no one would trust companies that limited liability and didn't even have to publish their accounts. But they were wrong.
Banks started failing. There'd be bank runs. But even those bank failures reinforced the move toward incorporation. The City of Glasgow Bank failed, and its shareholders were wiped out. It was the death knell for unlimited liability. By the end of the 1800s, limited liability companies were unstoppable. They used the same corporate structures that had financed the railways for banking, mining, and even manufacturing.
The Guinness IPO in 1886 was huge. Everyone wanted a piece. Edward Guinness made a fortune, and the Baring partnership made a killing. Barings organized the issue. A few years later, they got into trouble in Argentina, and Barings had to be rescued.
It's crazy how things have changed. Dick Fuld, the CEO of Lehman Brothers, you know, the company whose failure basically kicked off the 2008 financial crisis? He was back in business less than a year later. But there’s this saying: "This time it's different," are the four most expensive words in investing.
And nowadays, corporations are all over the place, and there are all these different names for them, depending on where you are: LLCs, PLCs, SARLs, AGs, all sorts of stuff. What's important is limiting liability, figuring out the tax situation, and deciding if you want to go public.
The European Commission wants some common rules for big businesses, like this Public Interest Entity idea. But it's all up to the individual countries to actually do something about it. Airbus SE is a modern European company, for example.
The ability to buy and sell shares, and maturity transformation, those things changed everything. Without them, there's no way we could have had international trade, the Industrial Revolution, or the railways.
Britain was a global leader in the 1800s, but then Germany and the US started catching up. In Germany, the banks were more important than the stock market. And in America, you had the "robber barons"—Rockefeller, Vanderbilt, Carnegie, Duke—consolidating their industries and trying to create monopolies.
JP Morgan was the biggest banker of them all. He created US Steel in 1901, and it was the largest company in the world. The profits were insane. But then antitrust laws came along, like the Sherman Act.
But US Steel survived the trustbusters, Rockefeller's Standard Oil didn't. And the companies that came out of the Standard Oil breakup did really well.
So, railways, factories, corporations, stock markets—they all came together to create a new business world. And the 20th century brought even more, with the automobile and electricity.
You had Henry Ford, Cadillac, Chrysler, Benz, Renault...and consolidation. Billy Durant took over Buick and started buying up competitors to make General Motors. He was a great salesman, but not so great at running a business, so the banks took over. But then he bought Chevrolet, made a Model T competitor, and got control of GM again. Then he got kicked out again, and Alfred Sloan took over.
And later, the British nationalization program in the 1940s was more about consolidation than anything else. The British Railways Board, the Central Electricity Generating Board, the National Coal Board...it was all about centralized government control.
The automobile flagship, British Leyland, collapsed. The computing flagship ICL failed. The electrical flagship GEC eventually disintegrated. Turns out, international competition can’t be fought only by trying to get bigger at home.
You know, people exaggerate the benefits of size. Scale has advantages, but it also has disadvantages. Big organizations get stuck in their ways. It's Intel and Microsoft, not IBM, who gave us laptops. It's Apple, not AT&T, who gave us smartphones. And it's Tesla, not General Motors, who gave us electric cars.
GM used to be a leader, but then they got overtaken by companies in countries that hadn't even had an Industrial Revolution yet. And nowadays, you can buy cars made all over the world, smartphones designed in California and assembled in China or designed in South Korea and assembled in Vietnam. And they're available everywhere. So, yeah, that’s a little history of corporations, hope you found that interesting.