The Trading Companies That Moved Nations with Invisible Strings
In the 19th century, certain trading companies financed wars and were involved in establishing banks in emerging nations. Born from a system of shared losses, these companies sometimes became powerful enough to move nations, wielding more influence than kings.
They made their fortune by being the first to learn the outcome of the Battle of Waterloo. This is a well-known story about the Rothschild family in the 19th century. However, the source of this tale is an anti-Semitic pamphlet printed in Paris in 1846, and the family's archives show that no contemporary letters support this story.
From War Financiers to Bank Shareholders
The Rothschilds were one of the trading companies that financed wars in the 19th century by underwriting government bonds. In 1814, they acted as agents for the British government, purchasing gold coins for Wellington's army.
Later, when the National Bank of Greece was established by royal decree in 1841, the name of the Rothschild company of Paris appeared on its list of shareholders. This was not a state-owned bank, but a private one that raised capital through shares. They were investors alongside the state and the King of Bavaria. Its establishment was led by the Swiss banker Eynard and its first governor, Georgios Stavros.
A System That Drew 140 Trading Companies
There are also examples of trading companies driving the prosperity of entire cities. The great fairs of Lyon, France, began in 1420 when Charles VII, then the Dauphin, granted the city the privileges of a free fair. Louis XI expanded on this, adding a fourth great fair by royal charter in 1463, growing them into four annual events totaling sixty days.
Furthermore, the king forbade merchants of the kingdom from trading in Geneva, across the border. With tax-exempt fairs and the exclusion of a rival city, this system alone was enough to transfer Geneva's prosperity to Lyon. The Medici Bank branch completed its move in 1466, and some 140 Florentine trading companies were drawn to the city.
A System for Sharing Losses
A trading company was a forerunner of the modern corporation, an organization for conducting commerce. Families or partners would pool their capital and divide the labor of long-distance trade. The creation of a structure that allowed losses to be shared enabled commerce on a scale that no single individual could bear.
Those who lent money held more power than kings. An era had arrived where both war and peace were moved by the invisible strings of government bonds. To underwrite a nation's bonds was to hold the power to decide whether it could go to war. If no one lent, it could not fight. Moreover, since the price of these bonds was set daily on the market, a nation's creditworthiness became visible in numbers.
More in The origin of words
Gulden, the Name of a Coin That Was Once an Adjective
Originally an adjective meaning 'golden,' the name Gulden detached from its metallic origin, eventually becoming a unit of account in ledgers and shaping the history of a currency.
A System for Sharing Risk and Sharing Profit
On voyages where some ships might not return, a system for sharing risk was needed. Investing a little in one ship, and spreading investments across many. This idea would later form the backbone of the joint-stock company and grow into a pillar of modern finance.
The Coinage Act as a Standard
Even after the United States was born, the silver coins of other countries continued to be legal tender. A law that has the power to define and change a country's monetary system is a coinage act.
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