The First Public Stocks Were Issued to Reduce Risks Related to Pirates fact

The Age of Piracy, The Slave Trade, the Spice Trade, and the Birth of the Modern Public Stock Market

The rise of piracy and the birth of the public stock market roughly intersect, this is because the first public stocks were essentially a type of insurance against pirates.^[1][2][3]

The trade of goods by ship, led to both the rise of piracy as pirates plundered trade ships and the rise of publicly traded companies as people could diversify risks related to sailing the seas by investing in a trading company rather than a single trade ship. The first modern insurance was maritime insurance, and it arises from this era and for the same reason.^[4]

While piracy wasn’t the only risk trade ships faced, it was a major risk. Thus, we can say the first publicly traded companies were formed to offset the risks of piracy. The first modern stocks acted as a form of pirate insurance, and so the first modern insurance was a form of pirate insurance. We tell this odd story below.

TIP: We are discussing the first modern public stocks and insurance, the first stocks and insurance in the west come from around the 13th century and are best told through the story of the birth of modern banking.

TIP: The pirates weren’t just rogue gangsters of the sea; they were often hired by other nations in the spice trade to plunder the ships of their rivals. Sir Francis Drake, a successful privateer who was seen by some as a pirate, was a politician in the Elizabethan era. Parenthetically, all the pirates from the video game Uncharted 4 were real including Captain Henry Every, another hired pirate. Also, as the game’s plot recounts, some pirates were early liberals who formed their own utopias like Libertatia, the Anarcho-liberal pirate utopia described in the book A General History of the Pyrates. You can see why one would need pirate insurance.

Stocks as a Form of Pirate Insurance?

Stocks, which had only been traded privately before the Dutch East India Company (one of a few East India trade companies) began trading its company publicly via the first stock exchange in 1602, can largely be seen as a method of diversifying risks related to trade via ship, specifically the spice trade.^[5]

About 2/3 ships participating in the spice trade did not reach home with their spice cargo intact, but those that did were insanely profitable.^[6][7]

Business people realized that, if they pooled their money, they would diversify their risk. One of the major risks, aside from things like shipwrecks and natural disasters, was the risk of piracy.

Piracy had started earlier, and so did the use of stocks to reduce risk, but the rise of publicly traded stocks contributed directly to a bigger trade market and a rise in piracy. It also led to an increase in the slave trade.

TIP: According to wikipedia, “Piracy wasn’t the only risk the trade ships faced, but it was one of the main risks. At the time, it was customary for a company to be set up only for the duration of a single voyage, and to be liquidated upon the return of the fleet. Investment in these expeditions was a very high-risk venture, not only because of the usual dangers of piracy, disease, and shipwreck but also because the interplay of inelastic demand and relatively elastic supply of spices could make prices tumble at just the wrong moment, thereby ruining prospects of profitability. To manage such risk the forming of a cartel to control supply would seem logical. The English had been the first to adopt this approach, by bundling their resources into a monopoly enterprise, the English East India Company in 1600, thereby threatening their Dutch competitors with ruin.” ^[8]

TIP: Piracy is linked to trade in three distinct but only roughly defined eras relating to the growing trade and the effects of wars between nations involved in piracy and trade. The rise of the English Sea Dogs and Dutch Privateers: 1560–1650 includes government-sanctioned pirates. The Age of the Buccaneers: 1650–1690 includes slightly more liberal pirates who championed principles of the enlightenment; a radical left. The Golden Age of Piracy: 1690–1730 involves the nations dealing with the spice and slave trade.^[9]

TIP: I suggest looking at this List of pirates to understand the character of pirates of each era better.

Piracy and the Slave Trade

Unfortunately, one of the other high-ticket items that were “traded” across the seas was slaves and indentured servants. Interestingly, about 90% of pirates are estimated to be former slaves although many of the 10% were Europeans, often hired by other nations to steal from other nations. The rise of the slave trade, just like the rise of the stock market, intersects with the rise of piracy.^[10]

FACT: Slavery in America began when the first African slaves were brought to the North American colony of Jamestown, Virginia, in 1619, to aid in the production of such lucrative crops as tobacco. Slaves, like stocks and spices, had been traded earlier and had been present in America since at least 1501. The intersection of the rise of slavery in America, the rise of trade, the rise of piracy, and the rise of stock markets are all related to the New World economy which began to boom in this time. Notably, none of the these were necessities. Much of the new trade revolved around luxuries like spice and tobacco.^[11][12]

The South Sea Bubble of 1720 and the End of the Golden Age of Piracy

The stock market, trade, and the piracy business were in full swing from the time the first IPO was created in 1602, through the creation of the South Sea Company (a British joint-stock company founded in 1711, created as a public-private partnership to consolidate and reduce the cost of national debt), and until the end of the Golden Age of Piracy in the early 1700’s.^[13]

The South Sea bubble of 1720 was the first real challenge for the stock market, and this left many unemployed sailors who went out and became pirates. From here a new era of trade ramps up and so does a new era of piracy.^[14]

1. Piracy in the Atlantic World
2. Golden Age of Piracy
3. Atlantic slave trade
4. Marine insurance
5. the Dutch East India Company
6. the spice trade
7. History of the Stock Market
8. (Dutch) Roever, Arend de (2002), De jacht op sandelhout: De VOC en de tweedeling van Timor in de zeventiende eeuw, Zutphen: Walburg Pers.
9. List of pirates
10. Pirates and Slavery in the New World
11. SLAVERY IN AMERICA
12. TIMELINE OF SLAVERY IN AMERICA 1501-1865
13. South Sea Company
14. The South Sea bubble of 1720