One of my favorite academic subjects is history. The history of my love of history begins with a video game called Age of Empires II: The Age of Kings. The object of the game is to build armies with historical civilizations and destroy your opponent’s army. The game included a campaign mode with famous military leaders like Genghis Khan and Joan of Arc. The levels were based on historical battles. The game included interesting breakdowns of the histories of the civilizations included (Persians, Mongols etc). I became hooked from then on. So, what better mental exercise than to wed my loves of history and entrepreneurship?
Historical Perspective: Stock and Mega-Corporations
Companies that issue shares representing ownership, joint-stock companies, go back at least as far the Roman Republic. The Romans called these companies publicani. They were usually contracted by the government for state business, such as collecting taxes in the provinces. In the course of doing so the publicani often employed duress to get provincials to cough up, which led to festering resentment. Sometimes, it got so bad rebellions would occur. Nonetheless, the publicani created a novel invention which is still used in some form today.
Where in History Did Mega-Corporations Begin?
The modern global conglomerate finds its roots in the Dutch East India Company. The Company was founded in 1602 as a government directed amalgamation of rival trading companies meant to be competitive with foreign countries. Its operations were massive. The Company operated in modern India, Taiwan, Indonesia, South Africa, Japan, Vietnam, and several other countries. It traded spices, wine, coffee, and sugarcane among many other resources and goods.
It was one of the earliest, if not the first, ventures to have its supply chain be completely vertically integrated. This means the Company owned every portion of the supply chain and was not reliant on outside contractors to move goods and services from one place to another.
The company was something of a state unto itself. While it operated under the legal auspices of the Dutch legislature, it commanded its own armies in addition to its massive financial resources. It was very much a business empire as we currently use the term, and far more. In the company’s foreign colonies, it possessed quasi-governmental powers, including the ability to wage war, imprison and execute convicts, negotiate treaties, strike its own coins, and establish colonies. Its variety of business operations, and the sheer scale on which it operated across the globe secures its place in history as the ancestor to modern corporations.
Like many modern corporations, The Dutch East India Company had its ethical and moral quagmires. By today’s standards, the Company’s business practices were far worse. Its monopolistic undertakings paled in comparison to the violent exploitation of native peoples and resources, which included slavery.
What Really Set the Dutch East India Company Apart in History
While the publicani of Rome and later enterprising businessmen like several Venetian bankers sold shares of stock, the Dutch East India Company added substantial new innovation to corporate ownership. It was also the subject of many modern investment practices.
The Dutch East India Company bears the distinction of being the first company listed on a public stock exchange. This opened up not only new opportunities to enterprising investors, but also an incredibly effective new way for companies to raise money, something modern corporations continue to utilize today.
Many of the common affairs of publicly traded companies have their origins with the Company. Leverage, the practice of magnifying investment gains, usually with borrowed money, was first utilized by Isaac Le Maire, featured on this post’s main image. Le Maire subsequently became the largest shareholder in the Company. Later, after falling out with the Company, he bet against its stock, becoming the world’s first recorded short seller, a term you’ve heard thrown around a lot with the whole GME dog and pony show. Le Maire also filed a petition against the Company’s Board of Directors, accusing them of some misuse of company funds. This also distinguished Le Maire as having instigated the first recorded instance of shareholder activism.
The Company was also responsible for the first recorded instance of a shareholder revolt. The shareholders complaints alleged some funny business was going on with the company’s accounting practices. They described the books as being “smeared” with bacon, that they might be “eaten by dogs.” By distributing pamphlets complaining about management self enrichment at shareholder expense and demanding accountability in the form of an audit, the Company shareholders may have been responsible for the genesis of Corporate Social Responsibility.
The First International Banking Cartel in History Was Founded by…Knights?
Not just any knights mind you, the Knights Templar. The Knights Templar were a crusader order of Knights. After Jerusalem was successfully captured in the First Crusade, the Knights Templar were formed to protect pilgrims on their perilous voyages. After Jerusalem was captured by Saladin and the Muslim armies made gains in the holy land during the Third Crusade, the Templar fought hard to retake those kingdoms.
As well as warriors, the Knights Templar were monks. Knights who joined the order vowed not to have families, worldly possessions, and to remain celibate. Originally, their logo was of two knights riding a single horse, encapsulating their poverty.
The impoverishment of the order did not last long, thanks to powerful sponsorship and generous donations from all over Christendom. They grew this wealth by pioneering financial innovation. The Templar are often credited with the first recorded use of checks. They would receive from pilgrims an amount of goods in exchange for a document the pilgrim could bring to a foreign temple, many of which functioned as bank branches.
Concerned about being killed for their goods on their journey, the pilgrims made a less attractive target for highwaymen without wagons full of valuable goods. Once they arrived at their destination they could exchange their documents for goods of commensurate value. While the individual Templar had no possessions, the order became wealthy by extending credit and charging for banking services.
Of course, banking was a more risky endeavor in the Middle Ages. There was no FDIC, Central Banking, or Treasury to extend bailouts. Many banks often struggled with powerful creditors who were unable to honor their debts, kings being the most notable. Edward III of England, for instance, caused the bankruptcy of several Florentine bankers by defaulting on his loans.
Though They No Longer Exist, The Templar Paved the Way for Much of Modern Banking
Before the Dutch East India Company established itself as the first publicly traded mega-corporation, the Templar built an international conglomerate of their own. They parleyed their donations and banking proceeds into land, managing farms and vineyards. The Templar dabbled in construction, building castles and fortifications. They also owned a fleet of ships which they used for importing and exporting. The Templar had their hands in many pots.
Unfortunately for the Templar, their problems with a particular monarch were far worse than what the Florentine bankers experienced. Success breeds envy, deep debt breeds resentment, and internecine conflict fosters weakness.
After the fall of Acre, in 1291, the Templar’s days were numbered. Support for the order had been waning for some time. The crusaders suffered numerous setbacks thanks to powerful Islamic leaders like Saladin. Though the crusaders recovered somewhat because of the effective leadership of Richard the Lionheart, they never regained Jerusalem after Saladin captured it. Afterwards, the Muslims slowly picked apart crusader holdings and the kingdoms all fell to Muslim rule.
The Templar’s lack of success diminished the popular support they once had. Competing with the other crusader orders, the Knights Hospitallers and the Teutonic Knights weakened all three orders. But, it was a scheming monarch who struck the death blow. King Philip IV of France, sensed an opportunity to rid himself of the burdensome debts he owed the Templar. Also, the Templar’s freedom to move armies through the territories of kings they did not owe homage to probably didn’t sit well with kings like Philip. It’s also suspected these kings didn’t like the fact many of their subjects were employed by the Templar. These people would naturally feel a sort of obligation to the Templar for their employment. Kings don’t like competing for the loyalty of their subjects.
So, What Happened?
King Philip IV apparently had heard rumors of scandal and criminality about the Templar from an ousted knight. The Pope asked King Philip to investigate, despite the charges likely being false. Seizing the moment, Philip was happy to quickly conclude they were likely true and pressure the Papacy into agreeing to disband the order, to which the Pope acquiesced. The Templar ultimately owed allegiance to the Pope after all. It would appear Philip went as far as threatening military action against the Pope to get what he wanted.
King Philip had many of the Templar Knights arrested. They were subjected to show trials in kangaroo courts, and inevitably found guilty of all sorts of bizarre accusations. These included run of the mill heresy as well as the idolatrous worship of obscure figures like Baphoment and a severed, mummified head.
Though some Templar escaped persecution and found refuge, most notably in Portugal, enough did not that the order ceased to exist. It was formally disbanded by the Pope in 1312. King Philip successfully rid himself of his debts, but died soon afterwards in 1314.
Given modern antipathy towards bankers, I can’t help but wonder if many people wouldn’t feel too sorry for the Templar.
Bubbles in History; Or, We’ve Been Down This Road Before
By now, it’s feeling like the GME saga is in the collapse phase of an asset bubble. We had this with housing circa 2007, tech companies post 9/11 and many more times through history. It can certainly feel like bubbles are a recent phenomenon given the abundance of assets and the arcane ways we trade them. But bubbles are older than I’m sure many people realize.
The first recorded speculative bubble was called Tulip Mania. Tulip Mania is exactly what it sounds like. In the Netherlands in the 1630’s tulips became very fashionable, and the price of tulip bulbs rose dramatically. As the Dutch East India Company built itself into a commercial powerhouse, its rise coincided with the substantially increased fortunes of the Dutch Republics themselves. Alongside these economic juggernauts, so did the rise of the tulip as a status symbol occur. The intense saturated petal colors, which came in several varieties, were unlike other flowers in Europe. Tulip merchants began giving different colored flowers branded names to increase their allure. From about 1600 to 1720, the Netherlands had the highest per capita income in the world, fueling this demand.
Speculators and traders looking to make a profit decided to ride the wave into fortune, and began investing in tulips, hoping to take advantage of continually rising prices. Same thing that fuels modern bubbles. Eventually, despite the earning power of citizens of the Netherlands, the rarest tulip bulbs were trading for six times the average salary.
How Did it All End?
In 1637 things came to a screeching halt. Like with every bubble, eventually, for one reason or another, someone isn’t willing to pay the astronomical prices being demanded. Sensing a potential shift to a supply and demand asymmetry, one that favors buyers, it quickly became a race to the bottom as merchants holding tulips sought to lock in whatever profit they could, and later, to stem the losses as best as possible. There isn’t much data on just how much the price of tulip bulbs declined. Most sources seem to agree there was a sudden and rapid decline in the price. By 1638, the price of a tulip bulb returned to its 1634 levels, when tulip mania began.
One thing worth mentioning is that the historical analysis of Tulip Mania has changed over time. Many historians now argue against what was the prevailing narrative. They not only argue that the rapid swings in prices weren’t as profound as had been previously believed, and that the overall economic fallout had previously been exaggerated. That last point seems pretty reasonable. As we’re witnessing with GME and a bunch of stocks coming back down to pre-bubble levels, economic catastrophe need not always ensue. Even the aftermath of the dot com bubble was not a particularly dire calamity, in a historical context.
What Can We Learn From History?
Plenty, it would seem. If it weren’t for the innovations of the past, we’d either not know what to do now, or would have to start from scratch. If more painful lessons like Tulip Mania aren’t heeded, we will repeat those mistakes. Now that I think about it, we definitely don’t heed those lessons nearly enough.