COLONIZATION

Oceanic voyages, while potentially fantastically profitable, were extremely
dangerous and risky. They required huge investments, and the returns on those
investments could take years to see. Merchants needed to be induced to risk their
fortunes. Kingdoms wanted to not only increase trade, but to extend their nation’s
reach via settlements and colonies. Most importantly, they wanted to mine the
natural resources from those colonies to send back to the motherland-- especially
precious metals such as gold and silver.

So, how did the Crown induce wealthy merchants to invest in these conquests?
One way was to grant Company charters – a monopoly to a company or
association for a number of years on trade within a certain region. With that
Charter came broad legal powers to enforce order in distant lands. There were also
some restrictions that came with the Charter. Colonies couldn’t trade with other
nations. In the case of England’s America, the colonists had to buy back finished
products with a pseudo currency that couldn’t be used anywhere else.

Still, a large number of speculators were needed. Thus was born the Joint Stock
Company, in which risk could be spread among many investors. Investors could
buy into a company and own the right to share in the profits in proportion to their
amount of stock. Britain issued their first joint stock backed charter in 1555, The
Muscovy Company. Other well known charter’s issued were: The East India
Company in 1600; The Hudson’s Bay Company in 1670; and The South Sea
Company in 1711.

So how did all these investors come to invest in these joint stock ventures? How
did they learn of the opportunities? Was it from a “town crier” on a street corner
or notices posted on doors? Very often, it was from within the first “Starbucks.”
In 1652, the first coffee house opened in England called Jonathon’s Coffee House.
Merchants would gather to partake in this new fashionable rage of drinking coffee
and talking business– many joint stock deals were consummated there.
Meanwhile, at another popular coffee house, Edward Lloyd’s, ship captains and
ship owners would also congregate to discuss business. Here, some investors
began gambling on the success of a voyage by ensuring the voyage against loss in
exchange for a premium. The “insurance” business grew in popularity at this
coffee house which later became known as Lloyd’s of London.

The joint stock structure was next adopted by unincorporated companies (those
trading without a royal charter). Previously, investors were buying stock in
companies with which they had a personal link, such as merchants seeking to sell
goods, etc. Now, investors could buy into a company in which they had no link.
Share prices were simply set by whatever price the buyer and seller agreed upon.

So, if you were an investor with no personal link to a company’s core business,
how did you find out about that opportunity? You needed someone with access to
those opportunities that would present them to you. This led to the advent of stock
brokers, who would arrange deals between buyers and sellers of shares, in
exchange for a cut of each transaction. By 1773, these popular brokers at
Jonathon’s coffee house labeled themselves – the stock exchange.
Along with colonization fever came an explosion in the growth of slavery.
Imperial powers such as France, Britain, Spain, Netherlands, Portugal and others
amassed worldwide empires primarily from agricultural plantations using African
slaves.
By 1552, African slaves comprised 10% of the population of Lisbon. Slavery was
a vital part of the Brazilian colonial economy, especially with regards to sugar cane
and mining production. Brazil had obtained 38% of all African slaves traded.

British colonies in the West Indies were unable to match the low cost of Brazilian
sugar in the marketplace. Moreover, Brits had become huge consumers of
product-- averaging 16 pounds per person per year by the 19th Century. This
eventually led, along with pressure from Evangelical reformers back in the U.K., to
intense lobbying by the British government for the Brazilians to end slavery.
However, those lobbying efforts came long after the British themselves had
become the principal purveyors of slaves. In fact, by the time of the Industrial
Revolution, profits from the slave trade and the West Indian plantations
represented 5% of the British economy.