Before the modern company came of age in the mid-nineteenth century, it had an incredibly protracted and often highly irresponsible youth. The merchants and marauders, imperialists and speculators, who dominated business life for so many centuries might not have formed fully fledged companies as we know them, but they nevertheless created powerful organizations that changed commercial life.

As long ago as 3000 B.C., Mesopotamia boasted business arrangements that went beyond simple barter. Sumerian families who traded along the Euphrates and Tigris rivers developed contracts that tried to rationalize property ownership.1 The temple functioned as both bank and state overseer. The Assyrians (2000–1800 B.C.), a group one normally associates with biblical savagery, took this farther. One document shows an Assyrian ruler formally sharing power with the elders, the town, and the merchants (or karum, named after the word for quay, where they sat).2 There was even a partnership agreement. Under the terms of one such contract, some fourteen investors put twenty-six pieces of gold into a fund run by a merchant called Amur Ishtar, who himself added four. The fund was to last four years, and the merchant was to collect a third of the profits—terms not dissimilar to a modern venture-capital fund.3

The Phoenicians and later the Athenians took this sort of capitalism to sea with them, spreading similar organizations around the Mediterranean. The expense and time involved in maritime commerce made some type of formal arrangement even more necessary than its land-based equivalent. So did the ever-present danger, for investors and creditors alike, that a sea captain would simply disappear. (Homer, the first of a long line of storytellers to distrust traders of all sorts, denounces merchants from Tyre for being duplicitous.)

The Athenian model stood out because it relied on the rule of law rather than the whim of kings, and because it was unusually open to outsiders. A banker and ship owner named Pasion, who died in 370 B.C. as one of the city’s richest men, originally arrived as a barbarian slave. Yet, Athenian businesses remained small beer, typically mustering no more than a handful of people; even shield factories, the largest-known businesses, seldom employed more than one hundred slaves.4

The societates of Rome, particularly those organized by tax-farming publicani, were slightly more ambitious affairs. To begin with, collecting taxes was entrusted to individual Roman knights; but as the Empire grew, the levies became more than any one noble could guarantee, and by the Second Punic War (218–202 B.C.), they began to form companies—societates—in which each partner had a share. These firms also found a role as the commercial arm of conquest, grinding out shields and swords for the legions.5 Lower down the social scale, craftsmen and merchants gathered together to form guilds (collegia or corpora) that elected their own managers and were supposed to be licensed.6

William Blackstone, the great eighteenth-century jurist, claimed that the honor of inventing companies “belongs entirely to the Romans.”7 They certainly created some of the fundamental concepts of corporate law, particularly the idea that an association of people could have a collective identity that was separate from its human components. They linked companies to the familia, the basic unit of society. The partners—or socii—left most of the managerial decisions to a magister, who in turn ran the business, administered the field agents, and kept tabulae accepti et expensi. The firms also had some form of limited liability. On the other hand, the societates were still relatively flimsy things, “mere groups of individuals,” as one historian puts it.8 Most tax-farming contracts were for short terms. And most wealth was still concentrated in agriculture and private estates.9

When Rome crumbled, the focus of commercial life moved eastward—to India, and particularly to China and the Islamic world. The prophet Mohammed (569–632) was a trader. If the religion that he founded banned usury, it nevertheless encouraged responsible moneymaking: while Christian businessmen often found their work at odds with their creed, Muslim merchants like Sinbad could be heroes. To this moral advantage, they could add a couple of geographic ones. First, they sat between West and East. Thousands of Muslim merchants had reached China before Marco Polo appeared. And, second, many Arabs lived in barren places with only rudimentary agriculture. In Mohammed’s Mecca, there was precious little for a young man to do other than become a trader.

The Chinese, meanwhile, opened up a huge technological lead over the West. Within a decade of William the Conqueror dispatching Harold at the Battle of Hastings (1066), Chinese factories were producing 125,000 tons of iron a year—a figure Europe would not match for seven hundred years. The Chinese pioneered paper money. During his travels in China in 1275 to 1292, Marco Polo marveled at trading junks large enough to provide sixty merchants with their own cabins. Even by the time that Vasco da Gama made it round the Cape of Good Hope to East Africa in 1497, his much-better-dressed hosts, accustomed to China’s huge ships, wondered how he could have put to sea in such puny craft.

The debate about why the Chinese and Arabs lost their economic lead to the West is a huge one. Suffice to say here that their relative failure to develop companies was part of their broader geographic and cultural shortcomings. Islamic law allowed for a form of flexible trading partnership, the muqarada, which let investors and traders pool their capital. But, for the most part, the law relied on oral testimony rather than written contracts. And the inheritance law rooted in the Koran rigidly divided up a dead partner’s estate between countless family members (as opposed to the European system, which usually allowed partners to nominate a single heir). This tended to prevent Muslim firms from growing to a size where they needed to raise capital from outsiders.10

In China’s case, the idea of permanent private-sector businesses was undermined both by culture and by state interference. Chinese merchants evolved elaborate partnerships: by the fourteenth century, there were a number of different categories of investor and merchant. But these partnerships seldom lasted much longer than a few voyages.

Meanwhile, many of the big “companies” that did emerge in China relied on the state. Hereditary bureaucrats ran state monopolies in many industries, including porcelain. These businesses often enjoyed huge economies of scale—until the eighteenth century, Chinese factories were far more impressive than anything the West could offer. Yet, the state monopolies suffered from the opposite problem from the businesses of merchants: they were not temporary enough. The very vastness of China counted against them. As we shall see, European state monopolies were also inefficient and corrupt, but they were at least kept on their toes and prevented from becoming so bureaucratic by having to compete with state monopolies from other countries.

In the end, China’s determination to look inward proved fatal. Arguably the zenith of Chinese economic imperialism came in the early fifteenth century, when the Ming emperor Yung Lo, who ascended the throne in 1403, built a fleet of huge treasure ships, which he dispatched around Asia. But after Yung’s death in 1424, his son stopped the treasure ships and gave their most famous seafarer, Zheng He, a landlubber’s job. Crucially, he also ordered all mercantilist exploration to stop. Later emperors rebuilt trade relations with other Asian countries, but their ambitions were limited. In 1793, the Chinese emperor sent a message to Britain’s George III: “As your ambassador can see, we possess all things.… There is therefore no need to import the manufactures of outside barbarians in exchange for our own produce.” This was an unfortunate attitude, for by then China’s merchants faced a formidable new form of business organization.


Two sorts of medieval organization picked up where the Romans had left off: the merchant empires of Italy, and the state-chartered corporations and guilds of northern Europe.

Maritime firms appeared in Italian towns such as Amalfi and Venice from the ninth century onward.11 The earliest version, modeled on the Muslim muqarada, was usually created to finance and manage a single voyage (which might last for several months). This arrangement was particularly attractive to the stay-at-home capitalist, allowing him to diversify his risks over a number of cargoes while avoiding the trouble of going to sea himself. These partnerships gradually became more complex, financing multiple voyages, adding foreign partners, and devising new ownership structures. For instance, Venetian merchants formed consortia to lease galleys from the state. Each voyage was financed by issuing twenty-four shares among the partners.12

In the twelfth century, a slightly different form of organization emerged in Florence and other inland towns: the compagnia. These began as family firms, operating on the principle of joint liability: all partners were jointly liable to the value of their worldly goods (“to their cuff links,” as all-too-liable investing “names” at Lloyds of London would later put it). Given that the punishment for bankruptcy could be imprisonment or even servitude, it was vital that all the members of the organization should trust each other absolutely. The word compagnia is a compound of two Latin words (cum and panis) meaning “breaking bread together.”

Like their Venetian equivalents, the compagnie became more sophisticated as time went by, trying to attract investment from outside the family circle. Perhaps as early as 1340, they introduced double-entry bookkeeping, largely to keep their foreign offices honest. A Genoese merchant would record money sent to his agent in Bruges as “paid” in his accounts, while the latter put down the amount as “received.” And rather than sending coins, the bigger merchants began to trust each other with letters of exchange—a business that Italian banks would dominate.

Indeed, the compagnie were closely intertwined with the banchi (named after the banco, or bench, behind which Italian money lenders used to sit). In the Inferno (1314), Dante gleefully sent usurers to the seventh circle of hell to be tortured by a rain of fire, and in many cities bankers were forbidden, along with prostitutes, from receiving communion. Many banchi were little more than pawnbrokers, charging outrageous rates of interest (often above 40 percent a year). But the grossi banchi were sophisticated, well-capitalized international banks, able to settle bills of exchange in different cities. They lured rich investors away from real estate toward bank deposits (which were much more mobile in the event of a political crisis). And they helped to finance not just voyages and companies but even kingdoms. When Edward III of England defaulted in 1339 he eventually brought down Florence’s two most important banks, the Bardi and the Peruzzi. By 1423, Florence’s addiction to warfare left it with a public debt six times the size of its annual tax revenues (roughly double the proportion that the United States ran up in the early 1990s).13

The Medici bank, which eventually spawned four popes and two queens of France, and provided much of the capital for the Renaissance, was set up in 1397 by Giovanni di Bicci de’ Medici. The family’s great advantage was that it secured the papacy’s business: until 1434, more than half its revenues came from its Roman “branch,” which followed the pope around on his travels. To get around the papal ban on Christians receiving interest, bankers like the Medici were often paid in foreign currencies (with hidden premiums) or with licenses or with goods, thus sucking them into other businesses. The Medici diversified, via the wool trade, into clothmaking, and, notably, a monopoly on alum, a chemical fixative indispensable in dyeing textiles.

As the Medici expanded—they opened branches in ten cities—they minimized their exposure to losses by organizing each branch as a separate partnership. They also devised profit-sharing arrangements to give all the partners a strong incentive to maximize returns.14 They even tried to ban their managers from lending to princes. But, in the end, their commercial power relied mostly on their personal supervision. Under Cosimo de’ Medici (1389–1464), that supervision was tough. The bank even managed to prevent the elevation of one young cleric to a bishopric until his father (a cardinal, as it happens) had paid off both their debts. But after Cosimo died, his descendants allowed the bank to slip downhill. The Wars of the Roses left it with bad debts in London, and the firm’s interest in the wool trade dragged it into lending to the crown. In 1478, it lost the papal banking business. By 1494, when the family was expelled from Florence, their bank had already closed many of its branches.


How similar were these organizations to modern companies? Let us pause for a moment to look at a fourteenth-century business.15 Francesco di Marco Datini was born in relatively humble circumstances in the Tuscan town of Prato in about 1335 and orphaned soon thereafter. As a young man, he set out for Avignon, where he probably worked as an apprentice before striking out on his own. Despite doing business under the motto “For God and Profit,” Datini’s first venture was in arms-dealing, though he soon branched into more innocent partnerships, involving shops, textiles, and jewelry. He returned to Prato in 1382, driven out of Avignon by a papal squabble with the Florentines. By the end of the century, his compagnie dealt in everything from slaves to pilgrims’ robes in nine cities. Datini had also—slightly nervously—become a banker. When he died ten years later, the childless merchant bequeathed almost all his money (some 100,000 florins), his house, and all his papers to a foundation for the poor of Prato.

“The Merchant of Prato” was something of a control freak: Datini recorded everything and told his managers to do the same. The business that emerges from the 150,000 letters, 500 ledgers, and 300 partnership agreements that he left behind often seems remarkably modern. The near-daily letters from the capo to his various fattori around Europe asking for news and numbers, their replying boasts and excuses, his reprimands (“You cannot see a crow in a bowl full of milk”), read a little like e-mail. There is the persistent need for lawyers, for the right papers, for up-to-date accounts. Promotions are awarded, employees trained, disgruntled partners appeased; all the while, Datini’s wife frets about her husband working too hard. Even his hard-won profits seem meagerly modern: all this hard labor eked out a mere 9 percent margin.

Yet, if many of the incidental noises of business are familiar, the environment is not. This was the time of the Black Death, of the revolt of the Florentine weavers against the guilds, of periodic bursts of violent religious fervor that often targeted moneymakers. As his biographer, Iris Origo, points out, Datini “lived in daily dread of war, pestilence, famine and insurrection, in daily expectation of bad news. He believed neither in the stability of government, nor the honesty of any man.… It was these fears that caused him to distribute his fortune in as many places as possible, never trusting too much to any partner, always prepared to cut his losses and begin again.”16

Despite his obsession with running everything, Datini was a fervent supporter of compagnie. “I am one of those who hold that two partners or brothers who are united in the same trade and behave as they should, will make greater profits than each of them would separately.”17 Since partners were liable for each other’s debts, most people still stuck to kith and kin (Datini chose Tuscans). For much the same reason, the terms of partnerships were usually only two years, though these could be renewed.

His will dictated that his shares in his companies should be wound up within five years of his death. If he had had children, Datini’s “company” might have lasted longer. But it was plainly in any independent merchant’s interest to keep things as loose and flexible as possible: permanence was the prerogative of the state. So it is unsurprising that the state played a big role in the creation of corporations. This was an area in which northern Europe led the way.


Northern Europe, it should be stressed quickly, did not lack for trading companies any more than Italy lacked for guilds. Northern merchants copied many of the arrangements that the Italians pioneered.18 Some of the businesses were huge undertakings. For instance, Germany’s magna societas, a combination of three family firms based in Ravensburg, had subsidiaries in cities as far apart as Barcelona, Genoa, and Paris, sent representatives to fairs all around the Continent, and lasted for 150 years, ending up with eighty partners and a capital of 120,000 florins. All the same, the most important contribution from the north were guilds and chartered companies.

In the early Middle Ages, jurists, elaborating on Roman and canon law, slowly began to recognize the existence of “corporate persons”: loose associations of people who wished to be treated as collective entities. These “corporate persons” included towns, universities, and religious communities, as well as guilds of merchants and tradesmen. Such associations honeycombed medieval society, providing security and fellowship in a forbidding world. They also provided a means of transmitting traditions—not to mention considerable wealth—to future generations. The Corporation of London, which dates back to the twelfth century, still owns a quarter of the land in the City of London, as well as three private schools, four markets, and Hampstead Heath. Many of the companies that vie to be called the world’s oldest date back to this period. The one with the best claim, if you ignore ostensibly noncommercial entities like monasteries, is the Aberdeen Harbour Board, which was set up in 1136. (The oldest existing private-sector company in Europe is probably Stora Enso of Sweden, whose direct ancestor, a copper mine, began trading in 1288 and was issued with a royal charter in 1347.)

The immortal status of these bodies clearly worried the crown. They circumvented feudal fees by never dying, never coming of age, and never getting married. In 1279, Edward I issued the Statute of Mortmain, which was aimed at limiting the amount of land passing to corporate bodies, particularly the church. Unauthorized transfers without the monarch’s permission could result in forfeiture.

None of this stopped corporate bodies growing. For much of the Middle Ages, guilds were the most important form of business organization. A guild (based on the Saxon verb gildan, to pay) typically enjoyed a monopoly of the trade within a city’s walls in return for substantial monetary donations to the sovereign. Its officers set standards for quality, trained members, appointed notaries and brokers, administered charitable work, built magnificent guildhalls that survive till this day, and imposed punishments. In London, a man who served a seven-year apprenticeship in one of the liveried guilds could become a freeman, which brought exemption from conscription and also allowed him to establish his business within the walls of the City of London.

The guilds were often more like trade unions than companies, more interested in protecting their members’ interests than in pursuing economic innovation. Indeed, once their medieval heyday was behind them, they often descended into Luddism. (In 1707, members of the boatmen’s guild in Germany ambushed the French inventor Denis Papin and destroyed the world’s first steamboat: steam power was not used in shipping until a century later.)

Guilds were closely related to “regulated companies”: associations of independent merchants who were granted monopolies of trade with particular foreign markets. Like guilds, these bodies trained new members through apprenticeships, and conducted periodic peer reviews (as they might be called today) to screen out less successful members. But they also sometimes operated as consortia—the merchants clubbing together to negotiate better prices for raw materials and transport (in much the same way that the Venetian galley lessors did). The most successful of the regulated companies was the Staple of London, which was founded in 1248 to control wool exports.19 In 1357, the Staple acquired the right to collect customs on wool exports in return for helping to finance Edward III’s French wars. In 1466, Henry VI granted the Staple authority over Calais (including the right to collect customs on woolen imports bound for the Continent) in return for similar financial help.

So even if the crown remained nervous about ceding powers to bodies corporate, it was still crucial to their development. The state offered security, and the promise of a guaranteed market was as alluring to groups of medieval merchants as it is to defense contractors nowadays. Over the next few centuries the story of the company would be bound up with the overseas ambitions of the emerging nation-states of northern Europe.

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