An Ode to "the Money-Spinner"

By Michael Arndt


A Short History

of a Revolutionary Idea

By John Micklethwait and Adrian Wooldridge

Modern Library -- 227pp -- $19.95

On Oct. 7, 1893, Gilbert and Sullivan's Utopia Limited, or The Flowers of Progress opened to a standing ovation at London's Savoy Theatre. The operetta's setting, a languid South Sea island called Utopia, could hardly have seemed further removed from the City's bustling brokerages, where a nascent investor class was snapping up shares in initial public offerings. Soon enough, however, Utopia's monarch is getting pitched by a company promoter. Brought to the island by the king's oldest daughter, who has just returned from college in Britain, the huckster urges the ruler to incorporate his kingdom and all his subjects as companies. Before the first act is over, even babies have their own prospectuses, and King Paramount and his household are singing a chorus lauding Parliament's Joint Stock Companies Act of 1862.

Gilbert and Sullivan, of course, meant Utopia Limited to be a send-up. And yet, write John Micklethwait and Adrian Wooldridge in The Company: A Short History of a Revolutionary Idea, it was also a celebration of a "quirky Victorian invention that had changed the world." Now, nearly 110 years later, Micklethwait and Wooldridge pick up where Gilbert and Sullivan left off, singing the praises of the company. Yes, as everyone knows, corporations can be scoundrels. But they have enriched the societies that have embraced them. In fact, the authors argue, there is no better gauge of the living standards and political freedom of a nation than the number of companies it harbors.

Oddly, though, little has been written about how this dynamic entity emerged. As Micklethwait and Wooldridge point out, the New Oxford History of England, which devotes 800 pages to the years 1846-86, does not even mention the Joint Stock Companies Act of 1862 or any related measures that allowed individuals, for the first time, to create limited-liability companies without having to get a government charter first.

The Company. makes up for such lapses. The authors -- veteran journalists at The Economist who have collaborated on two previous books -- trace the history of companies from precursors such as ancient Greece's shipping partnerships and Rome's tax-collecting societates through today's multinational behemoths, with stops along the way to discuss speculative stock busts in early 18th-century Europe, America's Robber Baron era, the rise of the Company Man, and Japan Inc.

Micklethwait and Wooldridge cover all this territory in little more than 200 pages. The style is breezy and often humorous, and they pepper the account with a wealth of engaging, endnoted factoids. The derivation of the word company? Two Latin words, cum and panis, which mean breaking bread together. The first large-scale consumer boycott? England in the 1790s over slave-harvested sugar. (It succeeded in forcing the importer to switch to free-labor sources.) The first U.S. President-businessman? George Washington, who teamed up with Thomas Jefferson in 1785 in a river-dredging outfit called Potomac Co. (It failed.) They find corporate foes who predate Ralph Nader or Greenpeace by centuries: In 1612, English jurist Edward Coke complained that corporations "cannot commit treason, nor be outlawed or excommunicated, for they have no souls."

They even identify the father of the modern company: Robert Lowe, who, as vice-chairman of London's Board of Trade, masterminded the Joint Stock Companies Act of 1856. England had begun permitting groups to set up publicly traded companies in 1844, but few did so, because if the company went bust, each owner would be responsible for the entire loss, not just his initial investment. Lowe's measure limited each shareholder's liability to his own stake -- hence the "limited" affixed to company names in Britain -- and did away with minimum capital requirements as well. (These provisions were later embodied in the more comprehensive Act of 1862.) From 1856 to 1862, 25,000 limited-liability companies were incorporated. Millions more around the world followed.

If The Company has a shortcoming, it is that it is too short. Micklethwait and Wooldridge brush off the latter-day conversions of Russia and China to capitalism in less than a page. Latin America is all but ignored. They rightly give space to General Motors Corp. (GM ) but do not cite even in passing, say, McDonald's Corp. (MCD ) or the oil giants of the Middle East. Maddeningly, the authors also throw out monetary sums without explaining them. They write, for example, that, during the Middle Ages, one family partnership in Germany had a capitalization of 120,000 florins. Is that a lot or a little? Who knows?

Still, the ground they do cover is worth exploring. Even corporation bashers may be reassured by one of the book's themes: that while corporations altogether may be more powerful than ever, they are getting weaker as individual entities. Wal-Mart Stores Inc. (WMT ) alone produces more economic value added than the economies of Pakistan or Peru. But it pales in comparison with Britain's East India Co., which, with its own army and navy, turned India into a corporate garrison, or the Royal African Co., a joint-stock outfit of the 1700s that was established expressly as a slave trader. So, conclude the authors, let's join Utopia's company promoter and sing: "Make the money-spinner spin! For you only stand to win."

Senior Correspondent Arndt covers companies from Chicago.

    Before it's here, it's on the Bloomberg Terminal.