From Monarchies to Markets

How Ships and Shareholders Got Me Into Investing

A Little Bit About Myself

I write up analyses a couple of times a week but rarely do I share anything to do with my personal interests. As this Substack and my X account have grown, so have the amount of people that reach out to me across those mediums. Lately I’ve been getting offered written interviews, podcast appearances, and Q&A sessions where the question always gets asked - “How did you get into investing?” I got into investing because I’m a bit obsessive. By that I mean, I’m naturally very curious and am rarely satisfied with the answers I uncover whenever I am looking into whatever it is that sparked my initial curiosity.

I’ve always had three very big obsessions in my life. Music, literature (especially classical English literature), and history. When I mean music, literature, and history are my obsessions, I mean likely to the point of being unhealthy. At any one point in time, I’ll be thinking about one of these three things. It’s not like these things are mutually exclusive of one another, especially history and literature. If you like learning about history you’re going to have to spend a lot of time not just reading but reading things not meant to be read by modern audiences.

My Obsession With History

Almost always when I hear someone in America talk about history it’s almost exclusively about a war but even more specifically about the battles of that war. Who doesn’t love a good violent story? I certainly did. With that in mind, I generally tend to think of these battles generally as consequences caused by important events more so than I’d see them as this main event solely defining the world thereafter. Even in the midst of these violent events there are other often larger forces steering the ship. The biggest of those forces being an economy. The ability to fund those wars, the ability to administer and fund the basic needs of the people within these various places and time periods sways and influences these exciting stories immensely.

I grew up helping out on family farms throughout the entirety of my childhood. Whenever I was bailing or loading hay into an elevator or trying to load pigs or cows into a trailer to head to the slaughterhouse I always wondered how on earth people managed these jobs before any of the modern conveniences that we’re blessed with today. When you begin to look into the economic conditions of historical societies you can begin to put together a picture showing how the average Joe was moving through his day to day life. If you’re to read about history, especially from time periods several hundreds of years ago, you can read a lot about Queen Victoria or the Holy Roman Emperor Charlemagne the Great but it can be a lot harder to learn about Llewellyn the shepherd or Edmund the Farmer. Learning about how the economies of a shepherd or a farmer functioned during those respective time periods can help us a great deal to figure out how the world worked and currently works and that’s why I initially became so interested in economics.

Throughout my long journey learning about the world we live in and its past I was able to also learn why the world has made so much progress in the last couple of hundred years. Understanding the world today starts with understanding the world of yesterday. On that note, today I’m going to talk a little bit about the mechanism that allowed us to fund explorations to entire new worlds as well as important inventions that at the time, few people believed in. Today I’ll be talking about Joint-stock Companies.

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An Expensive, Problem

The 16th century was buzzing with excitement about the prospects of global trade. Monarchies throughout Europe expended a large amount of their resources trying to facilitate this trade. Obviously I’d presume most of my readers know that most of Europe had become aware of the Americas via Christopher Columbus’s famous voyage in 1492. By the mid 1500’s however it was evident that these new lands weren’t attached to Asia but were in fact their own separate continents.

While the new world garnished its own economic prospects, many Europeans were still captivated by the allure of finding a way quicker way into Asia. Here lay Cathay (China) and the Moluccas (modern day Indonesia). I probably don’t need to tell my readers about how dangerous it was to venture into new lands unknown like this 500 years ago without engines, electricity, or modern navigation but it must also be said that it was also extremely expensive. Building ships capable of staying at sea for months on end was a very capital extensive endeavor. It was also very expensive to insure such a ship, especially if it was going out into the great unknown. On top of the basic costs of building, insuring, and manning a vessel capable of traveling the globe, whoever was undertaking this project was going to need protection from pirates and other nationalities controlling trade routes. In almost all cases the only people capable of funding such elaborate projects were the highest ranking royals, usually Kings and Queens.

The Solution

It was out of this dilemma that Richard Chancellor, Sebastian Cabot, and Sir Hugh Willoughby formed the Company of Merchant Adventurers in 1551. Made up of 240 shareholders, the Company of Merchant Adventurers sold shares of their company for the equivalent of what would be about $25 a share today. The charter for the Company of Merchant Adventurers was signed by King Edward the VI in 1553 and for the first time allowed common people a vehicle through which they could pool their money together and be able to fund projects on a scale that only the most privileged of people of society could afford to do prior.

While it’s easy to point at historically successful economic decisions from a retrospective point of view and think, “It was so obvious that doing this or that would lead to this outcome or that outcome”, our hindsight always tends to be better than our foresight. It’s pretty easy to suffer from a bit of survivor’s bias where we think business ideas we’ve learned about were always a sure fire thing because we tend to read about the winners left standing at the end of an immense competition that birthed that industry but not all of the losers that went bust trying to build up something new.

Monarchies had armies to supply and pay as well as kingdoms to administer. Those things cost money, especially in times of war and so it’s not surprising that royal families would be hesitant to give money to expensive projects with low chances of success. This new idea, a company owned and funded by a conglomerate of individuals who could pool together great amounts of resources while spreading out the financial risk among a greater number of individuals so should the project fail, no one person would be stuck in complete financial ruin. This type of business formation finally allowed the less privileged in society to take risks to an extent greater than he would have otherwise have been able to do should he be forced to fund such an operation as a single induvial. The Company of Merchant Adventurers, the world’s first Joint-stock company had been formed.

From The Company of Merchant Adventurers to The Muscovy Company

The Company of Merchant Adventurers did in fact fail their initial task of finding a path to Asia by exploring the seas to the North East. They did find something still quite valuable however. The Company of Merchant Adventurers found trade routes to Muscovy (Russia). This prompted a building of a diplomatic relationship between Russia and England and in 1555 Queen Mary I of England changed the joint-stock company’s name from the Company of Merchant Adventurers to The Muscovy Company. Russia needed a sea fairing business partner to help facilitate trade as the country had no sea access and so the two countries traded throughout most of the 16th century and through half of the 17th century.

As is the case throughout most of history, when a new form of government or economic organization is developed the more established governments try and destroy it before it can threaten the status quo. We saw this not only during the English Civil war but also with the attempted reintroduction of European democracy during the French Revolution and also after the birth of communism.

After the execution of King Charles I of England in 1648, Russian Czar Alexei I expelled almost all of England’s merchants from the country. This is because England had overthrown their monarchy and replaced it with a non monarchial republican government during the English Civil War which terrified other monarchies throughout the continent.

Trade privileges with Russia were restored after England’s Civil War had ended and King Charles II was restored to the throne but England’s trade monopoly with the country was over. Nevertheless England did maintain trade relations with Russia until the Russian Revolution in 1917.

Progress Through The Investment of Private Capital From Regular People

While the Company of Merchant Adventurers did fail at its initial goal of finding new trade routes to Asia through a North East Passage, the Muscovy Company was successful at instituting a trade monopoly with Russia that ultimately benefited both countries for hundreds of years. The Muscovy Company and the benefits that it brought to both Russia, England, and the individuals that invested in it would have never happened without the investment of private capital from regular people.

The Company of Merchant Adventurers was chartered under Kind Edward VI of England who was the son of King Henry VIII of England. King Henry VIII died when England’s treasury was severely drained and the crown wasn’t exactly in a position to be funding high risk excursions like this while it was still trying to rebuild its military and administrative capacities. Private capital was there to step up and provide that funding. It also did something else too, something just as important.

Joint-stock companies gave non royal peoples the ability to organize and accomplish great things without the assistance of the government. This I would strongly argue helped bring forth modern democracy. Citizens could now potentially fund projects or institutions that rivaled many government entities. All of a sudden people who before would have been too poor and powerless to organize and protest for certain rights or changes to their daily lives became powerful figures that society had to bargain with.

I hope you guys have enjoyed this article. I thought I’d try out something new to let my readers know a little bit more about why I invest and what makes me tick. If I get a good response from this piece I will follow up with some of the other Join-stock companies that followed in the footsteps of the Muscovy Company. If you enjoyed what you’ve read and want to read my analyses on various micro and nanocap stocks please consider becoming a paid subscribe to my Substack.

I’m going to drop a couple of links below to cite my sources as well as give my readers some more useful information to look into should they be further curious.

The Muscovy Company: World’s first joint stock company - The Business Standard

Muscovy Company - English trade organization - Britannica

Muscovy Company - www.lancaster.ac.uk

John Micklethwait Explains the History of the Joint Stock Company - Big Think