Underdevelopment and the Development of Law: Corporations and Corporation Law in Nineteenth-Century Colombia

Chapter 1: Spanish and Colonial Background

The early development of corporations and corporate law in Colombia was influenced in several ways by the country’s Spanish and colonial background. That influence was most clear, if not necessarily most significant, with respect to formal legal rules. Expressly or by implication, Colombia adopted all of the Spanish colonial law relevant to business associations; until enactment of Colombia’s first commercial code in 1853, the formal rules governing Colombian companies were those of the last years of Spanish colonial rule. If the rules differed significantly from those of the early United States, the difference on the whole favored Colombia. Partnerships, joint stocks, and corporations could be formed as easily under formal Colombian law as under that of the United States, and Colombian law also offered the comandita, which combined the informality of the partnership with the advantage of limited liability for some of the partners (socios comanditarios); only the managing partners (socios gestores) were liable without limit for company debts. This alternative became available, in the form of the limited partnership, only much later in the United States.

The comparison was far less favorable to Colombia with respect to practical experience with the more complex forms of business association. Spain’s experience with charter corporations or complex joint stocks was both less extensive and less successful than that of England and its North American colonies, while Colombia’s own experience with such companies during the colonial period was virtually nonexistent. Colombia was also generally less well served by the institutions that it inherited for organizing and transmitting a knowledge of the legal rules relevant to business corporations. Such institutions, called cognitive legal institutions in this study, in Colombia consisted of university law faculties and legal treatises and, less formally, of apprenticeship training. These institutions were undistinguished in general; with respect to business association law they were wholly inadequate.

Colombia’s inheritance thus was characterized by the unequal development of formal legal rules on the one hand and of accumulated experience and cognitive institutions on the other. The formal rules governing business associations were not inferior to those governing elsewhere in Europe and America at the beginning of the nineteenth century; but Colombia’s experience with the rules was limited and no opportunities existed for supplementing experience through treatises or the classroom. This inheritance does not wholly explain the development of corporations and corporate law after independence. Economy and society placed limits on the development; within those limits, foreign entrepreneurs and foreign practice exercised a strong influence. The legal inheritance did, however, help to give the development its specific form.

The Formal Legal Inheritance

Colombia inherited two quite separate sets of legal rules or principles bearing on the development of corporations and corporate law. The first set, those dealing explicitly with business associations, was found in Spanish civil and commercial law and, for mining companies, in the specialized body of rules governing mines and miners. The second consisted of a much more modest set of principles relating to corporations. The term corporation here must not be understood in its modern sense, as referring primarily to incorporated business associations. Indeed, there were business corporations—corporate entities formed for commercial ventures and intended to bring profit to their shareholders. No such companies had been formed in Colombia, but a number had been formed in Spain prior to Colombia’s independence. In legal theory, however, the principal differentia of the companies was their corporateness, not their business purpose. Spanish law had not yet revised its categories to place business corporations with partnerships and comanditas rather than with cities and guilds. Corporate law was still a part of public law, and a body of rules specifically concerned with business corporations had not yet begun to emerge.

THE LAW OF BUSINESS ASSOCIATIONS

Within the civil law tradition, private law is divided into two great branches. One, the civil law, is in principle the law governing the generality of men and obligations. The other, the commercial law, in principle applies only to matters of commerce, including the affairs of business associations. Both branches had their modern origin in medieval Italy, but the circumstances of their birth and development differed widely. Modern civil law originated in university lectures on the Corpus Juris Civilis of the Roman emperor Justinian, and its development was the work of legal scholars. Commercial law owed far less to either Roman law or scholarship. Rather, it developed as a law merchant in a double sense—as a body of law not only intended for merchants but also largely created by them through the accumulation of their custom and the decisions of their tribunals.

This division line ran through the general business association law inherited by Colombia. The company law title of the Siete Partidas was part of the Spanish civil law; the corresponding chapter of the Ordinances of Bilbao was the product of the Mediterranean mercantile tradition. This distinction determined their relation to the Spanish universities: the substance of the company law provisions of the Siete Partidas was taught in the law faculties of the Spanish universities; the Ordinances of Bilbao had no place in the university curriculum. The distinction also shaped their substantive rules and in particular their treatment of the liability of partners for partnership debts. Under the Ordinances, all general partners were liable without limit; under the Partidas, liability did not extend beyond the partner directly involved in the transaction creating the debt. Viewed from the standpoint of the Ordinances, it therefore was clear that an unincorporated association could not protect its associates from unlimited liability; from the perspective of the Partidas this was not clear at all.

The Siete Partidas, so called for the seven parts into which they are divided, were issued around 1265 by King Alfonso X (the Wise) of Castile. Although cast in statutory form, they remained in theory only a literary document for nearly a century before being formally incorporated into the laws of Castile in 1348. Even then they were assigned a subordinate position in the Castilian hierarchy of laws, to be applied only where neither more recent Castilian legislation nor the municipal charters (fueros) yielded a controlling legal rule.

That was the theory. The fact was that the Partidas were influential from the start and remained the most important source of Spanish civil law until the nineteenth century.¹ Their influence was bound up with that of Roman law, which in the thirteenth century had already begun to transform the law of Spain. The Partidas both reflected and promoted the reception of Roman law. Their style is that of a patriarchal monarch. Their content, however, is largely Roman, and that of their company law title is entirely so.²

Not least among the contributions of Roman law is the title’s very existence. The Fuero Real, issued by Alfonso a decade earlier and more closely patterned on native law, does not mention business associations.³ In the Partidas a title of seventeen laws in essence restates the Roman law governing the contract of societas or partnership.⁴ Two initial laws define companies and place general limits on their use; companies may not, for example, be made by persons younger than fourteen years or be formed for unlawful purposes. Law 3 then sets the structure. Following the Institutes,⁵ it divides companies into two types:

The company can be made in two manners. One is when it is made in this fashion, that all things that there are when the company is made and those gained thenceforth shall be in common, and the profits as well as the losses shall belong to all. The other is when the company is made over a designated thing, such as selling wine or cloth or some other similar thing.⁶

The latter form, known in Roman law as a special partnership (societas specialis) corresponds to the modern partnership. The first form is the universal partnership (societas universalis). It has no modern counterpart; its place in Roman law probably should be understood in terms of the specific familial origins of Roman partnership law. On the face of it, the societas universalis would not seem to be a very promising candidate for successful transplantation to a different culture. Perhaps because the cultures were in fact not wholly dissimilar, however, the form did, in its less extreme manifestations at least, find a place in Spanish legal practice.⁷

The title’s remaining fourteen laws are principally concerned with the rights and duties of partners between themselves. The rights of third parties are treated only for the special case of wrongfully acquired goods that have been distributed among the partners: Law 8 allows the rightful owner to recover his goods. But ordinary partnership creditors are not mentioned.

Nowhere is the title more Roman than in this omission.⁸ Roman partnership law did not stand in the way of creditors, and certainly it did not confer limited liability on the partners. It simply did nothing at all. Classical Roman law, like English common law, was shaped by the law of procedure and remedies. The Roman law of partnership was concerned with the action pro socio, an action on the partnership contract and therefore available only to the partners. A creditor of course had recourse against the partner with whom he dealt, just as he would if no partnership existed, and partnership law might indirectly give him access to the partnership’s assets through the rule that a partner who had made expenditures on the partnership’s behalf was entitled to reimbursement from partnership funds.⁹ But not even indirectly did the law provide him with any recourse against the personal assets of the partners. The mutual agency on which modern partnership law rests was wholly lacking.

In practice other partners might be personally bound at Roman law through the contract of mandatum. Titius might mandate Seius to operate a business; Titius would then be personally liable for the debts Seius incurred in connection with the business. This result would still obtain if Titius and Seius were also linked by the contract of societas, but in that case personal liability followed from the contract of man-datum, not the contract of societas. And it was the contract of societas that was faithfully reproduced in the Partidas. The Partidas nowhere state explicitly that a partner is not personally liable for the partnership’s debts. The implication, however, is clear.¹⁰

The company law title of the Partidas purports to govern the companies made by merchants, and other men among themselves. To what extent its rules were in fact ever used by merchants is not known. Probably disputes between professional merchants seldom found their way into the king’s courts but were resolved in one way or another within the merchant community and according to mercantile custom. Until near the end of the fifteenth century, however, there existed little official basis for a separate commercial law in Castile. The Partidas provided for commercial judges in port cities,¹¹ and it surely was expected that such judges would resolve disputes according to commercial practice and not under the laws of Castile. But the Partidas are silent on the point, merely urging that disputes be speedily resolved, and the idea of a separate commercial jurisdiction and law appears not to have received any further elaboration in general Castilian law during the thirteenth and fourteenth centuries.¹² The basis for a Castilian commercial law was laid down when King Ferdinand the Catholic imported the idea of a consulado or chartered merchants guild from Aragon. The first Castilian consulado was established at Burgos in 1494, and during the sixteenth century consulados were established in the other important Castilian commercial centers.

The port of Bilbao received consulado jurisdiction in 1511 and, like other consulados, issued ordinances governing its internal affairs and regulating the commerce that fell within its jurisdiction. The old ordinances were confirmed by Philip II in 1560 and subsequently revised, but it is the new ordinances, finished and approved in 1737, that achieved fame as the Ordinances of Bilbao. The Ordinances were the last major compilation of Spanish commercial law before the era of codification. Technically they were in force only within the jurisdiction of the Consulado of Bilbao, but their actual influence was far more extensive. They were adopted expressly for the Consulado of Cartagena, which exercised commercial jurisdiction over colonial Colombia, and thus the Ordinances became by incorporation part of the colony’s governing law.¹³

Business associations are treated in chapter ten of the Ordinances. Nominally the chapter regulates only a single form of association, the company. Behind this term, however, lie two different types of business organizations. The distinction is implicitly drawn in paragraph 13, dealing with the liability of associates for the company’s debts. All associates are to be liable up to the amount of their interest in the company’s capital and profits. In addition,

the associate or associates under whose name the company operates will be responsible for satisfaction of all of the company’s debts, not only from their interest in the company’s capital and profits, but also with all the goods that they own or come to own in the future. …¹⁴

The paragraph thus sets down two principles: associates under whose name the company operates bear unlimited responsibility for its debts; other associates, whose names are not involved in its operations, are required to respond only with their share of its capital and profits. It can be assumed that the Ordinances contemplate that every company will be operated under the name of at least one person.¹⁵ Two kinds of company therefore are possible. Either a company may operate under the names of all of its associates, or it may have two classes of associates, one of them public and the other not. The first form of company corresponds to the modern commercial partnership, and by the terms of paragraph 13 entails unlimited joint and several liability for all partners. The other form is the commenda or, in modern Spanish terminology, sociedad en comandita. The commenda, the ancestor of the Anglo-American limited partnership, also carries unlimited joint and several liability for one class of partners, but liability of the second class is limited to their investment.¹⁶

The Ordinances impose a general requirement of good faith in dealings between partners¹⁷ but otherwise have little to say concerning a company’s internal affairs. If the company law provisions of the Partidas reflect the efforts of jurists to define the action pro socio, those of the Ordinances reflect the concerns of merchants confronting the hazards of credit-based trade. In the Ordinances, partners therefore are left to contract among themselves as they will. The purpose of the general law is to protect third parties, through publicity and through unlimited liability.

Neither the Siete Partidas nor the Ordinances of Bilbao made any provision for share companies. A partnership or comandita could of course be formed with many partners as well as with few, and suitable rules regarding negotiability and delegation of management could be established by the contract of association. These possibilities were the creation of entrepreneurs and private draftsmen, however; they were not reflected in the general statutory law of business associations inherited by Colombia.

Only in the special rules governing mining companies did Spanish colonial law expressly recognize share companies. The Mining Ordinances of New Spain (1783) provided in their company law title that

the accustomed style in New Spain of understanding mines to be imaginarily divided in twenty-four equal parts, which are called barras, each of these in turn divided into the corresponding small parts, is to continue without novelty as it has until now.¹⁸

Whether the barras shielded mine owners from unlimited liability is unclear,¹⁹ but otherwise their functions were generally those of modern corporate shares. They determined the division of profits and were the basis for voting in company meetings. They could also be freely bought and sold, although subject to the right of the seller’s associates to meet the purchaser’s price.²⁰ Not all of the companies formed under the Mining Ordinances were share companies in any functional sense. Like a modern business corporation statute, the company law title of the Ordinances could provide the legal basis for what were in essence simple partnerships, and probably the great majority of mining companies formed in Colombia were of this kind. The statutory framework for larger companies was laid down, however, and when needed it was used.

The legal force of the Ordinances of Bilbao and the Siete Partidas in colonial Colombia was formally established. The Partidas had been incorporated into Spain’s general colonial legislation in the sixteenth century;²¹ the Ordinances of Bilbao were extended to Colombia by a 1795 royal cédula. No express basis for application of the Mining Ordinances of New Spain in Colombia existed during the colonial period; not until 1829 were they formally incorporated into Colombian law.²² It appears, however, that they were already being applied in Colombia prior to independence and that the 1829 decree merely ratified existing practice.²³ The question of their specific application in colonial Colombia probably in any case has little practical significance. Mining share companies were not a creation of the ordinances, which merely reflected existing Mexican practice. That practice in turn was part of a long European tradition. It would be surprising if colonial Colombia did not share in that tradition. Mining companies were less common in Colombia than in Mexico. To the extent that they were formed, however, it is likely that their organization was similar to that contemplated by the Mining Ordinances of New Spain.²⁴

CORPORATE LAW

The business association law inherited by Colombia could, if necessary accommodate share companies. Share companies of a sort were intended by the Mining Ordinances of New Spain, and at least two such companies were formed in Colombia during the eighteenth century. The Ordinances of Bilbao and Siete Partidas made no express provision for share companies, but neither did they by their terms prohibit the division of the associates’ interest into shares. There is no evidence that share comanditas were formed in either Spain or Colombia prior to Colombian independence.²⁵ Share partnerships (joint stocks) were, on the other hand, well known in Spain; if they were unknown in colonial Colombia, the reasons were economic rather than legal.²⁶

Spanish business association law had, on the other hand, no place for incorporated share companies. Spain was late in using the corporate form for commercial purposes. The Dutch East India Company, chartered in 1602, had established the corporate share company as a major institution in Europe’s expanding overseas commerce, but nothing similar appeared in Spain until the formation of the Caracas Company in 1728. Nevertheless, by the time of Colombia’s independence, the Spanish crown had chartered a dozen or more overseas trading corporations and a number of others for domestic trade and manufacture. It was not Spanish business corporations that were lacking, but Spanish business corporation law.

The lack of such a law was not peculiar to Spain. England or France might have a longer and richer experience with business corporations, but at the beginning of the nineteenth century those countries too had little that might be called business corporation law. In order for such a law to develop, men had first to think of business corporations as constituting a legal category subject to its own logic and principles; and in eighteenth-century Europe few men drew their legal boundaries in this way.

Today, in the civil law even more than in the common law, corporations are linked to unincorporated partnerships and comanditas within the broader category of business associations. This view is comparatively recent; in the civil law it hardly antedates the French Commercial Code of 1808. Corporations were not treated in precodification commercial ordinances such as the Ordinances of Bilbao or the French Ordinances of 1673, nor were they usually mentioned in commercial law treatises.²⁷ In the traditional view, the most significant characteristic of the business corporation was not its business purpose but its corporateness. Its closest links were with corporations formed for nonbusiness purposes; the general legal principles governing it were not clearly distinguished from those applicable to cities or ecclesiastical bodies. In practice, one eighteenth-century business corporation might closely resemble another and be quite different from a guild or a city, and this fact can hardly have escaped the notice of the lawyers who drafted corporations’ charters and looked to their legal needs. Until the nineteenth century, however, the fact had virtually no impact on formal law even in England, where business corporations were relatively numerous and often successful.²⁸ It was not to be expected that in Spain a handful of business corporations, almost all of them failures, would cause lawyers to redefine the boundaries of their intellectual universe.

The corporate law inherited by Colombia thus was not a law of business corporations but of corporations in general, and its content relevant to business corporations was slight. For present purposes, it can be reduced to a single principle: incorporation was dependent on an act of the sovereign. This general principle does not appear to have been explicitly stated in any Spanish legislation, although one can find more narrow rules that may be regarded as specific applications of it.²⁹ That the principle was part of Colombia’s inherited Spanish law must rest on indirect evidence. In essence it is here assumed that the Spanish law of corporations at the time of Colombia’s independence did not differ from that of other continental countries—or, for that matter, from that of England or the United States—prior to the nineteenth century.³⁰ Although that law purported to rest on Roman texts, it was in fact largely the creation of medieval scholarship. Central to it was the concept of a corporation as a fictitious person. The fiction theory implied a sharp dichotomy between corporate and noncorporate groups: the former possessed most of the legal attributes of natural persons while the latter wholly lacked any corporate existence. A further corollary, at least in the minds of the jurists, was the concession theory—that a corporation could be created only by the sovereign. Individuals could contract among themselves, but they could not by private agreement constitute themselves as a corporate group.

The logic of the Romanist position was not inescapable. Before the reception of Roman law, German law drew no sharp line between corporate and noncorporate groups; the two fell along a continuum, and a group might in some respects be a corporate body and in others a mere aggregation of persons. Prereception German law also imposed no general requirement of a sovereign grant. Corporations might be constituted by charter from king or prince, but they might equally well be established by private contract or simply come into existence through the accretion of custom. This traditional German law fell, however, before the advancing influence of Romanist legal theory, and in Germany as elsewhere, the fiction and concession theories appear then to have stood without effective challenge until the nineteenth century.³¹

Spanish corporate law appears to have undergone a similar development. Spanish kings had chartered new cities as early as the eighth century and continued to do so through the sixteenth. By the eleventh century at least, these charters appear sometimes to have expressly conveyed elements of corporate status. At the same time, however, other important corporate groups, including cities and powerful brotherhoods (hermandades), apparently continued to be constituted by private act of their members. But the same forces that overwhelmed traditional German corporate law were at work in Spain: at an intellectual level the prestige and technical superiority of Roman law; at a political level the centralizing efforts of Spanish kings. The impact of these forces on the corporate law appears not to have been traced, but the triumph of Romanist orthodoxy must have been inevitable in the absence of an effective counterforce. No such force existed at the intellectual level. There was opposition to the logic and formality of Roman law, but it appears to have remained inchoate; there were no Spanish Inns of Court to resist the insinuating logic of the university-trained jurists. Opposition was more effective at the political level, where Spanish cities and other corporate groups resisted the extension of royal power, but final victory lay with the king. It was a gradual process. In the end, however, the cities were brought to heel; so were the guilds.³²

Corporate status in the narrow, modern sense of the term was perhaps of little concern to the Spanish crown in this contest, but corporate status was bound up with politically significant prerogatives, including a measure of autonomous legislative power. It therefore can be assumed that acceptance of the concession theory was part of the royal triumph. The theory probably was asserted by Ferdinand and Isabella,³³ if not before; by the eighteenth century its validity must no longer have been in doubt. In practice, the theory was not always observed. Conquistadores might found cities without royal authorization;³⁴ perhaps others assumed similar powers. The principle, however, remained: the power rested with the king, and at Colombia’s independence it passed to his successors in Bogotá.

Spanish and Colonial Experience

SPAIN AND THE CHARTER CORPORATION

The formal law governing ordinary business associations appears to have reflected with fair accuracy the prevailing practice in Spain and its American colonies. The provenance of the Ordinances of Bilbao in a merchants guild assures their congruence with at least one major current of mercantile practice. The Romanist origins of the Partidas’s company law title give no similar assurance; but as late as the sixteenth century partnerships, at least among nonmerchants, appear to have been generally consistent with the provisions of the Partidas, and this practice probably had changed little at the time of Colombia’s independence.³⁵

The relationship between Colombia’s inherited corporate law and Colombian or Spanish experience was of a different kind. As already noted, this law was not in fact a law of corporate business associations at all. It did, however, offer part of the raw material from which such a law could be constructed. In England and France the practice on which a specifically business corporation law could be modeled was already well developed by the beginning of the nineteenth century; it remained only to transform the work of charter draftsmen into statutes and judicial decisions of general force. In France this transformation was begun in the Commercial Code of 1808, the same year from which Colombia dates its legal independence from Spain.³⁶Spain in 1808, however, not only lacked general legal rules dealing with corporations formed for business purposes, but also had little experience in creating the ad hoc legal rules of business corporation charters.

The Initial Failure

Spain, which led Europe in acquiring world empire, was among the last in Europe to use the charter corporation as an instrument of imperial policy. The country did not lack the simpler forms of company from which charter corporations evolved; the English joint stocks that financed Drake and Frobisher had their Spanish counterparts. But in Spain no charter corporation developed out of the unincorporated share companies. More than a century intervened between the great voyages of the sixteenth century and the appearance of the first charter corporation in the eighteenth; and when the charter corporation did come to Spain it came as an import from northern Europe, not as a development of Spain’s own experience.

The years between the voyages of exploration and conquest and the formation of the first Spanish charter corporation coincide closely with the period of Spain’s decline. Delayed use of the charter corporation was, however, only indirectly connected to Spain’s general economic and social stagnation. Certainly the delay was not simply another dimension of the country’s arrested development toward a capitalist society. The immediate reason for the delay was that, for roughly two centuries, the role assigned to the charter corporation by the countries of northwestern Europe was taken in Spain by the Consulado of Seville and the ordinary business associations that the consulado’s members formed. For most of this period these institutions served both the national interest and the particular interests of the merchants concerned about as well as a charter corporation could have done; arguably they served them better.

The advantages of the business corporation today seem obvious. Economic growth in general and the Industrial Revolution in particular have created a role for which the corporation is manifestly superior to alternative forms of business organization.³⁷ In the premodern world its advantages were less clear. The noncorporate forms of business association used by Spain in common with other European countries served several purposes. For some of these, the distinctive characteristics of the charter corporation were irrelevant or worse. Business associations served as a means of circumventing the constraints of morality and social convention. A partnership might be used to disguise usury; a comandita could permit nobles or ecclesiastics to share in the profits of trade without loss of status.³⁸ Charter corporations might also serve at least the latter purpose,³⁹ but in this they at best offered no advantage over the ordinary business associations of the commercial law. Business associations were in other cases an alternative to hierarchical employment relationships. A commercial house might give its agent partnership status; a mining venture or trading voyage might be undertaken through a company of all those participating in the enterprise.⁴⁰ In the last two fields a form of share company might be used. The purpose was nonetheless essentially anticapitalist, since it negated the separation of labor from ownership of the means of production; it offered no basis for the development of a form of business association based on investment by persons having no other relation to the enterprise.

The potential advantages of the charter corporation as a business association lay in two areas: in increasing the quantity of resources available to the enterprise and in reducing the risk to individual investors. The first of these advantages rested on the charter corporation’s share company organization. The latter ultimately came to rest in part on the protection of limited liability, but limited liability appears not to have been clearly linked to incorporation prior to the eighteenth century. Even without it, however, the use of numerous shares enabled an investor to reduce his risk by dividing his capital among a large number of enterprises. There was nothing new in this. Businessmen commonly had used a complex of ordinary partnerships and comanditas to share the risk of their enterprise with others while dividing their own capital among several ventures. Business associations were in this respect an alternative to insurance or the older sea loan. What a share company could do was to extend the diversification still further. And it could, if the number of investors was large enough, do so while at the same time increasing the aggregate capital available to the company.⁴¹

These advantages were real but, in the premodern era, generally unnecessary. Businessmen were usually content to divide risk among the relatively few persons who could be accommodated within the framework of partnerships and comanditas; the advantage of additional diversification presumably was outweighed by the complexity and loss of control it would entail. Similarly, few undertakings were characterized by economies of scale that could not be fully realized with the resources of a few persons.⁴² There were exceptions, however. The sixteenth-century voyages of exploration and conquest required the union of men and capital, sometimes on a large scale. The Spanish crown might give its blessing; financing was generally left to the explorer or conquistador. Risk increased the disproportion between the undertakings and the resources that individual investors would advance. It was one thing to place one’s entire fortune in an ordinary mercantile venture and quite another to hazard it on a search for the gilded man.

Not all transatlantic ventures were financed through joint stocks. La Palma in the Canaries was conquered by a partnership linking Alonzo de Lugo’s military skills to the resources of two Sevillian investors; a similar arrangement was later used for Rodrigo de Bastidas’s expedition to northern South America.⁴³ The failure to use a joint stock in these voyages, however, was not due to unfamiliarity with the form or unwillingness to use it. The idea of dividing capital into shares was at least as familiar to the Spanish and their Italian mentors as it was to the merchants of London and Bristol, and in Spain as in England, explorers, investors, and freebooters turned to joint stocks in the transatlantic race for wealth.

In some of the Spanish expeditions the joint-stock device was used on a substantial scale. Sixty-five investors purchased shares in Sebastian Cabot’s 1525 voyage. Orellana’s attempt to find the gilded man was financed in the first instance by several wealthy investors, but they in turn divided their shares into smaller units for resale to others. Both Cabot’s and Orellana’s expeditions were dominated by members of Seville’s Genoese community, whose activities are reasonably well known through the research of Ruth Pike. But native Spaniards were sufficiently involved to make it clear that they were familiar with share companies and willing to use them.⁴⁴

Share companies—but not charter corporations. Technically, the Spanish joint stocks were distinguished from charter corporations by their lack of corporate status. The major expeditions operated under decrees conferring royal approval and a measure of royal support, but the decrees were concerned exclusively with the external aspects of the undertakings. The participants’ relations inter se seem to have received little or no attention, and corporate status appears to have been neither asked nor given. But there were also other and more significant differences. The fully developed charter corporation was not simply a joint stock with legal personality. It was also a holder of monopoly privilege, and it was a body corporate in a functional sense, with centralized management to direct its affairs. The Spanish joint stocks did in some cases receive monopoly rights comparable to those of the charter corporations, but in their organization they resembled contracts linking a plurality of persons more than bodies with capacities and functions of their own. Their organization reflected their limited function. Principally joint stocks served as passive intermediaries between port-based capitalists and explorer-entrepreneurs. They were vehicles for assembling funds and disbursing profits; they played little or no part in managing the expeditions that they financed. If their organization gave them a collective decision-making capacity, it was seldom used.⁴⁵

For an organization of investors to have managed an expedition once it was under way would have been difficult or impossible; distances were too great and sailings too infrequent. Some management functions did lie open to a port-based company: the allocation of funds between dividends and reinvestment and the formulation of plans for future voyages. These functions were, however, outside the scope of the share companies’ operations. The companies were single-enterprise ventures, dissolved upon completion of the voyage. Purchase of shares thus constituted a commitment to a defined undertaking. Decisions concerning future voyages and the reinvestment of the proceeds from past ones were not made by existing companies but through the formation of new ones.

A permanently constituted company would have required a more elaborate machinery, one that would have permitted investors collectively to decide between alternative courses of action. No such company could be expected to develop out of the early expeditions; the heterogeneity of the opportunities, the character of the explorers and conquistadores, and the fundamental ignorance regarding the new lands would surely have doomed any attempt to institutionalize exploration and conquest within a permanent commercial organization. The regular transatlantic commerce that soon developed also offered no field for development of the charter corporation, but for different reasons. Its regularity made continuity of management possible and even desirable, but continuity by itself could be provided by a partnership or a single entrepreneur. To continuity, the charter corporation added its ability to assemble large capital sums and its association with monopoly privilege. Neither feature served any socially useful function in ordinary commerce, although a monopoly might of course benefit its holder. Charter corporations were not simply engaged in ordinary commerce, however; they were also government institutions. It was not just that they were instruments of government policy. Although certainly they were that, they also took the government’s role in a much more specific sense, providing armed escorts for their own convoys, building forts, and in general providing a stable structure for trade where none would otherwise exist.

It was these government activities, and not commerce itself, that justified the charter corporations. Unlike commerce, these activities were characterized by significant economies of scale; to perform them effectively required expenditures beyond the resources of an individual trader. But even if an ordinary merchant had possessed the necessary resources, in a competitive market he would have had little incentive to construct forts or patrol against pirates: most of the benefit from his efforts would have gone to competing traders.

The logic was inescapable, but it could be confronted in more than one way. In the charter corporation the commercial and political functions were linked by the corporation’s monopoly; monopoly rights provided the incentive and monopoly profits the funds for the political functions that the commercial organization was to perform. In the organization of Spain’s Atlantic trade the two functions were assigned to different institutions. The commercial function was handled principally through the kinds of unincorporated business associations that had long been familiar to European merchants; the government function was performed partly by the government itself, through the Casa de Contratación, and partly through the Consulado of Seville.

From the middle of the sixteenth until the middle of the eighteenth century, Spain’s American trade was required to pass through the port of Seville or the associated port of Cadiz.⁴⁶ Goods proceeding from other ports had to be transshipped through Seville or Cadiz; shipments from the colonies, whatever their ultimate destination, had to pass through one of the privileged ports. Seville’s principal merchants were organized in a consulado or chartered guild. Like other Spanish consulados, that of Seville possessed broad regulatory powers over the commerce within its jurisdiction. These powers, combined with the port’s privileged position, gave it legal control over the entire American trade. This control, however, had to be exercised within limits set by the Casa de Contratación, which administered the numerous regulations governing the transatlantic trade and collected the avería, the tax supporting the naval vessels that protected the convoys.

No English government body thrust itself as deeply into the regulation of trade as did the Casa de Contratación. Within the limits set by more pervasive official regulation, however, the Consulado of Seville resembled the English regulated companies organized about the same time.⁴⁷ Technically, regulated companies such as the English Merchant Adventurers were charter corporations: they were bodies corporate founded under royal charter and organized for profit. They were not, however, entrepreneurial organizations, carrying on a business under unified control. Like the Consulado of Seville, they were in essence merchants guilds. Members of both regulated company and consulado submitted to the organization’s rules; in return they could participate in the trade monopoly conferred on the organization by royal charter or decree. Within this legal framework members traded for their own account. In carrying on their trade they might form business associations among themselves, but such associations were organizationally separate from the consulado or regulated company itself.

In England the regulated company was a transitional form, superseded during the seventeenth century by charter corporations that superimposed joint-stock organization on the royal charter and monopoly privilege of the regulated companies. In Spain the Consulado of Seville continued for two centuries to provide the institutional framework for the country’s transatlantic trade. The different paths taken by the two countries from the regulated company form perhaps owed something to chance. Certainly there was no conscious rejection of the charter corporation when Spain established the Seville monopoly. One chartered share corporation, the Russia Company, had already been formed; but such companies were at first not clearly distinguished from the older, regulated company form, and the Russia Company itself did not achieve the kind of success that would have made it a compelling international example. If any alternative was considered, it was that of a state trading corporation on the Portuguese model, with its own agents and warehouses. Whatever plans there may have been along that line apparently were abandoned before the need to attract the cooperation of private interests, but the possibility of turning the American trade altogether over to private interests acting through a charter share corporation was never considered.⁴⁸

Chance was not all, however. The range of alternatives considered was shaped by the countries’ different traditions, and their divergent paths accorded well with their respective strengths.⁴⁹ England’s comparative advantage, which the charter corporations exploited, lay in its better-developed bourgeoisie. Spain did not lack for persons willing to invest in trade and exploration. Lying behind the sixteenth-century ventures in Seville were a surprisingly broad capital market and a protocapitalist culture.⁵⁰ In Seville, lawyers, notaries, and artisans risked their money in the transatlantic trade; so, more discreetly, did the clergy. More important—both quantitatively and in its potential—was the participation of the nobility. Spanish nobles had outfitted ships to raid the Moors during the reconquest. Now in Seville they invested large sums in peaceful commerce, sometimes taking the role of passive rentiers, sometimes participating actively in management. Goods mongering at retail still lay outside the bounds of conduct proper to a gentleman, but commerce itself was not deemed inconsistent with nobility so long as the enterprise was large and its operations limited to wholesale.⁵¹

The goal was still large profits and quick ones, however, and much of the return was invested in estates and titles of nobility. Still lacking, it appears, was an orientation toward the steady reproduction of profits—large ones if possible, but modest ones if necessary—sustained by continuous reinvestment. This type of noble entrepreneur-ship was not in itself necessarily fatal to further development. Much of the initiative for the early English joint stocks came from nobles whose motives were not entirely those of rational capitalists. But in England their exploratory efforts were seconded and consolidated by the merchants of London and Bristol. Spain had merchants, but generally no merchant class; the numbers and traditions that would have produced a class consciousness and set of values separate from the nobility were lacking. Barcelona was an exception, but for the sixteenth century and most of the seventeenth, the Catalans could play no significant role in the Atlantic commerce. There were legal obstacles to their participation, but more significant was their own economic weakness. The opening of the Atlantic coincided with eastern Spain’s long economic depression; not until near the end of the seventeenth century did the merchants of Barcelona again possess the initiative and resources to press for a share in the Atlantic commerce. Until then Castile was on its own, and in Castile even the proto-capitalist culture of the sixteenth century withered in the hostile environment of an unsympathetic government and an inflationary economy.⁵²

That is part of the story, but only part. If the weakness of the Spanish bourgeoisie would have made it difficult for Spain to have taken England’s path, the strength of Spanish government also made it unnecessary to do so. Probably no other government in sixteenth-century Europe could match Spain’s ability to mobilize and direct resources on a large scale. This ability was not unrelated to the weakness of the Spanish bourgeoisie. The Spanish state had been erected on the basis of a bargain with the nobility that secured the state’s political dominance at the price of strengthening the nobility’s social and economic position.⁵³ In the long run the price was perhaps too high, but in the sixteenth century the Spanish state was able to play an imperial role well beyond the capabilities of English Tudor government.

Was the role a useful one? André E. Sayous has suggested that use of the partnership and comandita may account for Spain’s delayed use of the chartered trading corporation.⁵ In a similar vein, Fernand Braudel has suggested that the Mediterranean countries in general did not turn to the charter corporation because personalistic ties served in lieu of more formal organizational structure.⁵⁵ Both suggestions misconceive the relationship of the early charter corporations to traditional forms of business organization. For reasons already discussed, ordinary business associations were not adequate for the combination of political and commercial tasks posed by the new overseas trade, and it is hard to see how closer family ties would have served any better. The English solved the problem by creating a hybrid form that combined joint-stock commercial organization with a public charter that conferred extensive privileges and imposed equally extensive political obligations. In retrospect, the charter corporation can be seen as the first clear step toward the modern business corporation. As a solution for the problem at hand it was a good deal less satisfactory. Even with monopoly privilege, the corporations proved generally inadequate for the imperial tasks thrust upon them, and in the eighteenth century they were largely abandoned or relegated to a more modest role. Their political function was taken up by the governments themselves, while their commercial function tended to devolve upon individual merchants or partnerships of a traditional kind.⁵⁶ From this perspective the Consulado of Seville appears not so much a vestige of medieval guild organization as a forerunner of the eighteenth-century rationalization of imperial economic relations.

Certainly the consulado served the interests of its merchant members. The bare port monopoly was insufficient on two counts. In the first place, it did not prevent outsiders from establishing themselves in Seville. In the second place, even if the firms of Seville could maintain their collective monopoly against interlopers, they would deprive themselves of monopoly profits unless they acted in concert to limit their own shipments. The consulado dealt with both dangers. Only its members could ship goods, and through its machinery they limited their shipments and allocated the total among themselves. A charter corporation could have done no more.

The consulado’s members of course argued that it served the interests of Spain as well.⁵⁷ The validity of their argument depends to a large extent on what one takes to have been the available alternative. Economic theory would suggest, and probably correctly, that it would have been better to leave the political function entirely to the state and to open trade at least to all Spaniards. The Spanish government did in fact play a major role. Spanish America was never turned over to the consulado in the way that substantial parts of England’s colonial empire were left to the governance of the trading corporations. But the consulado also played a significant government role; in this respect it resembled a charter corporation rather than a regulated company. And so long as it did so, monopoly privilege was necessary.

Whether the consulado was superior to the separation of political and commercial functions and the liberalization of trade thus depends on whether the Spanish government could have dispensed altogether with the political assistance offered by the consulado. Whether