Capital Market Evolution 1602-1720
This series “Capital Market Evolution” is sponsored by Teamo “where teamwork matters”,Teamo is on Open Collective and is part of the project Smart "Master" Contract for Equity Distribution, we truly believe that we should understand our past to build our economic future more wisely. In that blog post we will see the birth of capitalism as we know it today .
The modern root of corporation starts in 1602 with the established of The Dutch East India Company (Dutch: Vereenigde Oostindische Compagnie; VOC) as a joint-stock royal chartered company to create a powerful conglomerate with a government-directed amalgamation of several rival Dutch trading companies to take control of the maritime trade flow in the East Indies. Before establishing the VOC, the voyage to the precious resources in the West Indies was risky. Threats of pirates, disease, misfortune, shipwreck, and various macroeconomic factors heightened the risk factor and thus made the trip wildly expensive, the net benefit of the charter was for spreading the risk across many voyages.
Almost 10 years later the VOC established world's first important stock exchange — a roofless courtyard in Amsterdam — providing more liquidity to the merchant for building the ship for further exploration in the East Indies with the highly profitable spice trade. The Dutch keep innovating with a forward contract, insurance, derivative, short selling (the story of Isaac Lemaire is facinating this man deserves a movie) and is subsequent ban providing the first capital market with a glimpse of regulation. At is peak the VOC was evaluated at 7.9 trillion dollars, which is indeed the most valuable enterprise of all time.
The growth of the European chartered joint-stock company come to an abrupt halt when much joint-stock company like the South Sea Company and Mississippi Company burn and crash at the eight of the bubble in 1720. One of the most ironic moments in history was the creation of the Bubble Act 1720 (6 Geo I, c 18), which forbade the creation of joint-stock companies without a royal charter, was promoted by the South Sea company itself before its collapse.
The most significant provision read: All undertakings ... presuming to act as a corporate body ... raising ... transferrable stock ... transferring ... shares in such stock ..., either by Act of Parliament or any charter from the Crown, ... and acting under any charter ... for raising a capital stock ... not intended ... by such charter ... and all acting ... under any obsolete charter ... for ever be deemed illegal and void.
Under the terms of the act, the Royal Exchange Assurance Corporation and the London Assurance Corporation were granted charters to write marine insurance
ARC: Is just incredible to look back at our past and see similitude with today world, VOC is kinda the modern Amazone, back then VOC was building port all around the world for merchant ship, today Amazone is building data center all over the world for web merchant, the politic game of the corpo-nation stay almost the same to a certain extent. One of the most fascinating things was that cartographer was the pioneer of the open source movement, mapping the world was a concerting effort to reduce the risk of shipwreck.
About the tulipomania, some parallels could be trace with Bitcoin and the subsequence evolution of the technology, back then futures contract was the hot new thing where stakeholders could time stamp their trade on a paper certificate and take possession of the underlying commodity at a future date.
Here a common list of all common similarity:
- Trade is time-stamped (future contact vs smart contract)
- You could fork bitcoin in many variances just like you can produce many different tulips
- Both witness huge market speculative bubble
- Is the underlying technology that as a true utility
- Both as no intrinsic value beyond self-observation
The similarity between the South Sea Company and the ICO world is more than fascinating, history is been rewritten chapter by chapter.
Here a common list of all common similarity:
- Both sell on the promise of future business with no actual business that brings cash flow that could fulfill the market expectation
- Both did dubious pivot, for the SSC that was the slave trade
- Insider trading is rampant (pump and dump) with other dubious activity like wash trade and market spoofing
- Venture capitalist did play the same role as the British aristocracy play inside the SSC bubble
- As for regulation we are now into a wait and see approach, we hope to not see something horrendous like the 1720 Bubble Act that put a +100 years hiatus on IPO from 1720 to 1844
ARC:Nobody can predict the future, personally, I would like to have ICO been regulated as a new asset class if they fulfill a certain number of requirement, the ICO world is far from been perfect, but the incentivization mechanism for OSS was far from perfect either before the ICO boom. If the mother of all evil is speculation, the father is deflation if they form a couple and have a baby they will be on depression period.
Thanks for reading, I truly apologize for not producing a better series, I’m lacking time, we are always looking to add more contributor to join Teamo mission “Where Teamwork Matters”. To be a Teamo contributor you need to ask yourself two questions, the first question are you ready to “create richness” for all stakeholders, the second question are you ready to “share the pursuit of happiness”, if the answer yes on both questions welcome on board.