Joint-Stock Exchange – APUSH
Can a new business structure change the world? Yes, absolutely. How is that possible? The answer can be found in the joint stock company.
The joint stock company, like most big advances in human civilization, begins with a basic idea but has profound impacts. Let me ask you this. Do you know the most common business structure in medieval Europe? Probably not. The basic business structure of Medieval Europe was a single person or a single family owned a business. And that person or family would be legally responsible for all the business debts and obligation. That means if a person’s business went broke, they could go after that person’s home and personal assets to satisfy the business’s debt. Essentially, any business venture, there was no separation between the personal life of the owner and the business itself.
Why is this important? It’s important because it limits the creation of new business ventures. It usually takes a lot of money to start a business. But in medieval Europe, if you are already have money, you don’t want to risk it on something new. Business owners want to play it safe because if you risk it on something new and that something fails then you might lose all of your money. To put it simply, the people that had money to start businesses, they didn’t want to risk the money to start the business. But things change in 1553.
The company of merchant adventurers in England gets a charter from the king to allow multiple investors to pool their money for one business entity. In this new business structure, multiple investors share the risk and share the reward of a business. This allowed the people with the money to limit their risk, limit their exposure to loss because they’re combining with other investors. This new business structure is called the joint stock company. It allows multiple investors to share or have joint stock in a company. Now, this new structure of a joint stock company allows for more riskier and more profitable investments to be explored. Such a situation catalyzes innovation.
So what does this have to do with U.S. history? In 1606, the King of England allows a Virginia company to charter. You see, back then the king had to sign off on all these new joint stock companies. So one year later, the Virginia company, they found the Jamestown colony. England, at this time, was very poor. And the crown, King James, didn’t have a lot of money to risk on kind of outlandish business ideas, like colonizing a new world. So what James and these investors did, the King said, “I’ll take half, you take half. You can pool your money together and I’ll let you go colonize these lands that I’ve claimed for England.” These lands being the Chesapeake Bay Area. So these investors brokered a deal where King James and the investors split the profit from the colony.
And what happened in Jamestown? What happened with this joint stock company risky venture? Eventually, John Rolfe introduces tobacco to Jamestown and they become profitable. They begin to satisfy the demand for tobacco in Europe, which on a side note, it’s always a good idea to have your cash crop be a very addictive substance. Anyway, as Jamestown becomes more profitable, more companies, more investors get interested in colonization. And the success of Jamestown begins to fuel further British colonization of the North American land.
See, it was the joint stock company that allowed for the proper allocation of risk and reward among a pool of investors. And this provided the much catalyst for rapid colonization of New England and the Chesapeake Bay Area.
What are your thoughts on this video and the joint stock companies?