Oct

27

In reading about the relationship between England and the Netherlands in the development of joint stock companies, as Russell Shorto describes in Amsterdam and also in The Island at the Center of the World, not unlike the relationship between Rome and Greece, respectively, I have to wonder if the idea of the modern corporation developed out of concerns about interest. In the medieval Church, those charging interest were considered for a considerable period to have transgressed against the prohibition of usury, which would damn their souls to hell. A corporation had no soul to so damn. Further, a corporation did not have a limitation on its existence, so collection of debt was more straightforward and would survive the death of a specific individual.

There were corporations before such concerns may have been front and center, granted, and the Lombard banks developed before the Dutch started using joint stock companies as a corporate structure. Still, the need for large amounts of capital was relatively constrained until the joint stock company form appeared. After all, the Fuggers lent quite a lot to sovereigns in medieval times, and they took ownership of mines and other assets in consequence of the loans. Still, the consequences of charging interest, particularly the charge of usury, were non-trivial. I have to imagine this might have been a concern.

Steve Ellison writes:

Just as importantly, a specific individual could survive the death of a corporation without being ruined, thanks to the innovation of limited liability. The excellent book How the West Grew Rich by Nathan Rosenberg and L.E. Birdzell, Jr. has a whole chapter about corporations and the evolution over centuries of corporate forms and laws.

A number of Roman Catholic doctrines were anti-capitalist, including the requirement to charge a "just price", with the Church implicitly being the arbiter. Fortunately for merchants and traders, the Reformation established more of a free market in religion, including the idea that serving G-d by working diligently was as worthy as being a priest, hence the idea of the "Protestant work ethic".

Stefan Jovanovich responds:

Interest was not "illegal" under Catholic doctrine; it simply had to be given the proper name. Islam made similar allowances for discounting promises to pay against present payment. Limited liability under canon law was precisely what you were buying in making an offering that received a written acknowledgement of indulgence.

Peter Penha offers:

Lending to the Borrower from Hell: Debt, Taxes, and Default in the Age of Philip II
(70% off it appears from Princeton)

An excellent Library of Mistakes episode on the book exists as well - appears a much sturdier financial system with two types of government debt one held locally and whose rates can adjust to compensate for the occasional workout of large loans at the capital markets level - much better than our clown show.

On the subject of books and the LoM - Russell Napier has posted on his LinkedIn for a call to support republishing out of print / forgotten titles looking for commitments by Nov 2nd.


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