156. Agriculture.—The next important subject to be discussed in considering the great changes in commerce in the modern period is the development of the economic organization. The influence of the discovery of new lands, new routes, and new wares is so obvious that the discoveries are often represented as the chief cause of the growth of commerce in the modern period. They were unquestionably very important factors in this growth, but European commerce was developing without them, and would have felt their influence much less if it had not been changing in its internal structure. Men were applying new methods of cooperation, which enabled them to make more of their resources at home and to utilize with greatest effect the opportunities for gain abroad. Even at the end of the period the commerce of England with Europe was larger than with all the other continents together.

We shall review briefly in the following sections the main changes in the different branches of production. The topic of agriculture must be dismissed with but a few words. There was a general movement toward freedom of the agricultural classes of western Europe at the beginning of the period. Wars and other political interruptions checked the movement in France, and brought about an actual decline of the cultivators in Germany; England was the only important country in which the country classes became perfectly free. In Europe as a whole, however, the conditions of production in agriculture were decidedly better than they had been in the Middle Ages, and the increased product supported a larger population and furnished a basis for a more extended trade.

157. Development of manufacturing organization in England; persistence of gild restrictions elsewhere.—In manufactures, also, there was a movement toward freedom in the more favored countries. We shall see, in the history of England, how greatly English manufactures, and the commerce depending on them, advanced under the leadership of merchants and capitalists who broke through the old gild restrictions. The striking feature, however, in the manufactures of most countries of this period is the maintenance of the gild system, which became a most serious check on industrial advance. It will be remembered that the gilds grew originally out of the union of artisans in any trade, who banded together to protect their interests, and who were granted certain privileges, especially that of monopoly, that they might regulate the trade more efficiently and so protect the interests of consumers also. At the present time the interests of consumers are sufficiently protected by the competition of producers, who do not need government regulations to tell them that they must sell good wares at low prices if they desire to succeed; and just as soon as exchange becomes sufficiently active to stimulate competition the public gains by having restrictions abolished. In most of the European countries, however, the gild privileges and restrictions were retained until the nineteenth century, with results set forth in the following paragraph.

158. Evils of the gilds.—(1) The privilege of monopoly was abused by limiting entrance to the gild in various ways, so that production was restricted and prices were raised to the detriment of merchant and consumer. Laborers suffered, also, by the lessened demand for their services. (2) Gilds came into frequent conflict over the question as to which had the right to exercise a particular branch of trade or manufacture; these quarrels were similar to those arising between trade unions at the present time. Manufacturers suffered from the separation of allied trades; and time and money, which ought to have gone into the business, were wasted in long lawsuits. (3) The full members of the gilds, the masters, tried to keep the laborers (apprentices and journeymen) in an inferior position, and granted promotion by favor rather than by merit; laborers lost the incentive to good work and were tempted to idleness and disorder. (4) The masters tried to preserve equality among themselves. Any master who was sufficiently enterprising to attempt to extend his business by introducing improvements or by employing more men was pulled back to the general level. (5) Technical improvements were prevented also by the regulations which were adopted originally to secure good quality of the product, but which hardened into a routine prescribing the details of every process of manufacture. (6) After all the restrictions, consumers did not get good quality even when they paid high prices. They could not punish the producers of poor goods by withdrawing their custom; and scamped work, adulteration, and fraud were common.

159. Development of the commercial organization. Rise of wholesalers.—Reviewing the substance of the last few paragraphs we find that the advance in agriculture was local and incomplete, while in manufactures it failed, in great measure, to displace a wornout system inherited from a preceding period. Only in commerce itself were the changes rapid and general in western Europe. Methods of business which before had been practised in only a few Italian cities, were now adopted in the country north of the Alps, and developed rapidly in the leading commercial districts.

A class of professional wholesale merchants now sprang up. Before this time, of course, merchants had on occasion dealt in considerable quantities of wares, but even the leading medieval merchants seem to have been glad to keep up their business by selling in small quantities to consumers. Only in the last century of the Middle Ages do we find in Germany merchants who confined themselves entirely to wholesale trade. As yet they had not become specialists in any one particular ware. An idea both of the variety and of the extent of their transactions can be gained from the business of John von Bodeck, who was a merchant in Frankfort about 1600. He bought silk and drugs in Venice, spices in Amsterdam, and sent them for sale to Hamburg; he bought iron and wax in Hamburg and sent them to Spain; he bought indigo and wool in Spain and sent them to Amsterdam and Antwerp; he bought rye in Amsterdam and sent it to Genoa.

160. Development of the commission trade; services of factors.—Bodeck must have traded in these wares often without knowing much about them himself, and generally without seeing them. Such a business would have been impossible in the Middle Ages when a merchant accompanied his wares or shared his responsibilities with a few associates. It was made possible now by the development of the commission trade. Commission merchants, or factors, made it their profession “to buy and sell for other business men for a certain profit which is given them for their trouble by the principals.” Sometimes they were in business on their own account also; sometimes they were specialists in various lines. A writer of the seventeenth century distinguished five classes: those who lived in a manufacturing or commercial center and bought goods for others; those who sold goods for others; the correspondents of business men and bankers who made collections and remittances of money for them; forwarders, who received and forwarded goods at places of transshipment; and, finally, the agents for carriers, who distributed and collected the load of a freight wagon in a city. The duties of a mercantile factor, in general, were to advise his principal frequently concerning the market for wares, the course of exchange, etc., to acknowledge letters punctually, and to follow orders exactly. The commission varied from 5 per cent of the value of the goods in the West Indies to 2 per cent or even less in some of the European countries.

161. Improvement in means of communication; posts.—Commission business of the kind described in the preceding paragraphs implied much greater frequency of communication among merchants, and it is noteworthy that the system of public posts was founded in Europe about the beginning of this period, and developed rapidly during it. Relays of horses with postilions and with the necessary officials were established by the governments of various countries, to insure regular communication; the system was meant at first only for official business, but was soon extended to serve the needs of private individuals. Some idea of the advance can be got from a statement made at the opening of the railroad from Strassburg to Basel, giving the time required to go from the one to the other of these places in earlier times. The distance, about seventy-five miles, or less than the distance between New York and Philadelphia, was covered in the sixteenth century by a coach in eight days, in 1600 by a diligence in six days, in 1700 by the same vehicle in four days, and in 1800 by “express” (Eilwagen) in two days and a half. In the eighteenth century a man in England could send a letter fifteen miles for a penny, thirty miles for twopence, and so on up, the sum increasing with the distance; postage from London to France was tenpence, to New York a shilling.

Merchants needed no longer to rely upon the friendly offices of the traveler who happened to be going in the desired direction, and were free from the expense of special couriers. Knowledge of market conditions in distant places spread more broadly and more rapidly than it had ever done before. Shrewd speculators could still sometimes make great profits by getting possession early of some special bit of news, but the essentials of commercial information were available for all. The modern newspaper grew up, by several stages, from written reports that were passed around as circulars in this period, telling of the state of the market, prices, conditions of transportation, etc.

162. Need of closer association among merchants; risks of commerce.—The most striking change in the organization of commerce, regarding especially that with distant countries and other continents, was the growth of association among merchants. We have noted the development in the Middle Ages of the partnership and other forms of association; we have now to study the rise of great companies which form a connecting link with the corporations and trusts of the present day.

Among the reasons for the rise of great commercial companies the following are to be noted. (1) Distant commerce was exposed constantly to armed attack. The protection of a country’s navy extended but a small distance from home. Ships in European waters were threatened by pirates in times of peace, by privateers in times in war; in waters outside Europe they faced trade rivals from other European countries, and hostile natives who were not bound by the civilized rules of peace and war. Distant commerce was essentially military in character, and required for successful prosecution greater military force than a small group of men could afford. (2) Partly because of dangers suggested above, partly because of the natural perils of the sea under the conditions of navigation at the time, partly because of the very novelty of the trade, distant commerce was very hazardous. If five men sent out a ship they might make a great fortune, but they might lose everything. If they associated themselves with ninety-five others and together sent out twenty ships they were pretty sure to lose some of these, but they were pretty sure to make from the other ships enough to return large profits.

163. Association required by government; reasons.—It was natural, under the circumstances, that associations of men should spring up for carrying on commerce in distant parts. We must note further, however, that these associations were required by European governments, that a certain field was assigned to each company in which it was given a monopoly, and that in this field trade by individuals and by other associations was prohibited. The reasons for this course were, in brief, as follows:

(1) The peoples of distant countries did not distinguish between individual merchants. As all Chinamen look alike to us, so all Englishmen or even all Europeans were alike to them. An unscrupulous trader, who cheated, robbed, or killed a native, escaped the consequences of his crime and left them to be borne by his countrymen who sought later to carry on the trade. The home government could not punish such offences, and it could not afford to let them continue. It required, therefore, that a man proposing to trade to a distant country should have an interest in the permanent welfare of the trade, by making him contribute money to the association, and subscribe to its rules.

(2) The government could diminish the risks of distant commerce by assuring merchants who spent money in building up a trade that they should not be deprived of the fruits of their labors by newcomers who had made no sacrifices. It seemed as proper to encourage in this way the investment of capital in commerce as to encourage investment in manufactures by granting patents.

(3) Finally, governments were led naturally to apply the prevalent ideas of guild regulation to distant commerce, and found some practical advantages in doing this; it was easier to tax and to regulate an association of men than a number of individuals.

164. Association in the form of the regulated company.—Many of the objects enumerated above could be obtained by union in what was called a “regulated company.” The regulated company had a monopoly of a certain field of trade, and established regulations which were binding on the members trading in that field. Every one, however, who secured admission by paying the entrance fee and promising obedience to the rules, traded thenceforth with his own capital, and kept his profits for himself; there was no pooling of capital or profits. The character of such a company may be suggested to readers by the organization of the modern stock exchange. No one who is not a member can trade on the exchange, and every member is bound to follow certain rules in his dealings, but every member keeps his capital and profits distinct from those of the others.

The larger part of the early English commercial companies were regulated companies of this kind. To a certain extent they attained the objects of association which have been enumerated above; some of the worst evils of individual trade were impossible so long as the company adopted wise regulations and could force members to live up to them.

165. Objections to the form of the regulated company.—Still, the regulated company was at best a loose association. Individual traders had no greater interest in it than the amount of their entrance fees, and regarded their momentary individual interests as more important than the permanent interests of the group. This weakened the control of the company over the associates, and rendered difficult the prevention of abuses. A strong and active policy was hardly possible, moreover, when associates kept the bulk of their capital in their own hands, and could withdraw in periods of adversity, so that the resources available to push the interests of the association diminished when most needed.

The problem set before Europe in this condition of affairs was as important as it was difficult. The future of European commerce, even of European civilization, depended on some solution which would make from the individual impulse to gain, the instinctive selfishness of every man, a collective force which would enable a number of men to work for gain together. The partnership had united the interests of a very few men, simplifying the problem by starting with members of the same family, who were naturally bound together. The relation of merchant and factor was another move in the right direction, as it united in loyal support of each other two men separated by considerable distance, and with no other common interest than that of their business. The principle of association must, however, be extended far beyond the bounds of factorship, or partnership, or of the regulated company, if Europe was to rise to the opportunity presented by trade with distant countries.

166. The joint stock company, and its advantages.—The problem, reviewed briefly, was to get: (a) a permanent stock of capital, (b) so large that it must be contributed by a very considerable number of people, (c) under the management of a few people who would employ it efficiently, and for the advantage of all the contributors. The solution was the joint stock company. Early examples of this form of association are to be found in Italy, but it developed north of the Alps only after the founding of the Dutch and English East India Companies about 1600.

Let us see how the stock company meets the demands for an improved form of association which were imperative at this time. (1) It insures permanence of operation. Individual stockholders or managers may die, but the company does not die with them; their places are filled, and the company continues with its original capital. (2) The contributor does not, like a partner, need to be a business man; does not, like a silent partner, need to have especial trust in the person of the managers. The contributor may be a foreigner, a child, or a woman, and the sources from which capital may be drawn are thus immensely extended. (3) Capitalists of every class are willing to contribute to the undertaking because of the peculiar safeguards which this form of association offers to them. In the first place, though the investment is permanent, from the standpoint of the company, and so enables the management to carry out far-sighted plans, yet it endures, from the standpoint of the individual subscriber, only so long as he pleases. The system of transferable shares enables a stockholder to sell out his interest at any time, and so change his investment. In the second place, the stockholders have a voice in the management of the company proportionate to their interest in it. They choose the persons to whom they will entrust the active direction of affairs, require periodical reports on the course of business from the managing directors, and have the power to change the directors if the conduct of affairs is not satisfactory.

167. Good and bad sides of joint stock companies.—The reader would err if he assumed that all the advantages suggested above were secured immediately on the founding of the first stock companies. Experiments of various kinds were tried at the start, and only gradually did the companies take the form which they have assumed in modern law. The English East India Company, for instance, which was founded in 1600 as a regulated company, was made over into a joint stock company by degrees, and could not be regarded as permanently established on this basis for over fifty years. Generations of bitter experience were required to teach people the possible dangers as well as the possible benefits of this form of association.

Incompetence and corruption were prevalent in the management of affairs. The worst abuses of our modern corporations give one but a faint idea of the enormities that were perpetrated in the early period of joint stock history. In spite of all, the joint stock companies accomplished the purpose for which they were created; they attracted capital at home, stimulated the prosecution of a definite policy abroad, and extended commercial interests as individuals or other forms of association would have been unable to do. The American reader may remember that Virginia was founded and Massachusetts was developed by joint stock companies. Other forms of association, especially partnership, were more suitable for many purposes, and increased constantly in number; but alongside them several hundred stock companies grew up in Europe of which perhaps a hundred were founded to develop great commercial and colonial undertakings.

QUESTIONS AND TOPICS

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