December 2025 Economic Theory Part III. By David Kowalski

Disclaimer: These words are the author’s personal views and do not reflect the Labor Guild’s opinion.

This is Part 3 of a series so if you begin at this point you may be a bit confused. If so, I encourage you to go back to Part I.

I hope you find this part interesting because this is where I tell you about how these models were implemented and how they worked out. I will also be pulling in elements of my Labor History class to show the reasons and the effects of their implementation.

In my very first Labor History class, I talked about how Guild (Unions) came to be. You see, in early times natural bonds were formed in families, by sharing the arduous agrarian work, to protect crops and harvest as well as family protection, they were called “family bonds”.

When these tasks became too great for one family, such as when marauders from other lands came to confiscate crops due to bad harvest in their own land; it was necessary for families to join together and form “artificial bonds”. You saw these “artificial bonds” form around societal needs and necessity. Some of there early uses were the Vikings that sailed in convoys for protection from foreign enemies, which were called “Frith Guilds”. In the old western movies, you remember the posse chasing the bad guys after they robbed the local bank. Well, in those days there were no federal deposit guarantees in place, which meant whoever had money in that bank really got screwed. Again, societal need made it necessary for all those stakeholders to form a bond to take back what belonged to them. Thus, people organize around issues of the day that are important to them and procure the remedies that are necessary to improve their lives. This is a natural tendency and happens everywhere. Other names for a Guild could be called Unions, collaborations, associations, and yes even a church, where like-minded people gather to worship and tend to the sick and downtrodden of their group.

This idea of Guilds began to develop, and it seemed to happen around workers’ trades. Masons were one of the first, cordwainers (leather trades), blacksmiths, bakers, brewers, and so many more, each having their own patron Saint.

They eventually set up their own Council and ran the daily business in London having a Chief Magistrate which ran it and settled legal disputes. They even regulated the business within the city of how many Guilds and businesses could exist so they would not create competition to cause others to fail.

With the development of trade with Holland and Germany in 1407 (85 years before Columbus set sail for the New World) Guilds came together and pooled their capital into one of the early trade ventures and was financed under the name of “Saint Thomas A’ Becket” also known as Merchant Adventurer. This is the first we see the power of “pooled capital”, and it will be interesting to see how it developed into what it is today.

With the expansion of trade during this time it was necessary to support the infrastructure of that trade. More wharfs were needed and oversees Embassies were needed to help manage trade and foreign relations. Government alone was not able to fund everything, thus, it was necessary to combine capital, to invest and help pay for such projects. At this point, it was not only the Guilds who invested but also the public. The decision was made to pool capital with entities other than the Guilds. This became the defining difference between Guilds and Corporations. From the very moment Guild capital was pooled with private capital; was the moment of birth of “corporations”. In essence, the Union is the older sibling of the corporation and was born of the same mother. Thus, begs the question. What is our mother’s name? “Societal need or necessity”.

By the 1550’s the corporate model made a major turn which is still employed today. The use of a Charter, approved by the State, which allowed companies to do business under a name formed by pooled capital. It also allowed companies to sell stock to private investors. Because the law dealt with the named corporate entity, it limited liability on the directors of the corporation who thus could not be sued personally for any decisions made by this entity. The East India Company received its Royal Charter from Queen Elizabeth on December 31, 1600, making it the oldest among several similarly formed European trading companies. In 1600 the East India Company (E.I.C.), was one of the first to develop a corporate model and was given the monopoly on the new trade routes and became the most dominant entity of the day. The most lucrative trade good was opium, as the East India Company, smuggled opium from India into China, causing the China Wars of the 1800’s. The East India Co. in effect, became the first drug cartel.

The company rose to account for half of the world’s trade, particularly trade in basic commodities that included cotton, silk, indigo dye, salt, saltpeter, tea and opium. And, of course, later on, the slave trade. The company also ruled the beginnings of the British Empire in India. The E.I.C. set up private factories in foreign countries, smuggled opium to China from India, and collected the taxes for the Mughal of India. The E.I.C. even had its own jails and judicial system, coined its own currency, and built an army of 250,000 which was then two times the size of England’s troop strength. The East India Company also lent money back to the sovereign. The cost of occupation of India led to brutal tax policy and the Indian Rebellion in 1857 as well as a famine that caused the deaths of 10 million people. This corporation eventually became so powerful it was a threat to the British government. A move was made to control it, but with a third of Parliament owning shares of stock in the company, this was not likely. However, they came to realize something had to be done, because the company had let things get so bad the British had, had enough. Even though the Company had brought in a steady stream of cash to both Britain and their stockholders, (many of them in Parliament) they were now losing money. Members of Parliament could not lose their investment, nor could they stand by and watch one third of the population of India starve to death; nor could they dissolve the company because it controlled too much money. Thus, the government annexed the company into the government structure (basically started a process to nationalize the company) and began to take over the army and assets in an effort to dissolve the company. However, it was not until 1874 that it was fully dissolved. I believe this is the first example of “Too Big to Fail”. The government and the stockholders had too much money to lose, so they annexed it.

This is the first example we see of unbridled and unrestricted capitalism and there have been many more since then. However, this gives us a taste of what was to come. So powerful was this economic model that it was compelled to change its mother’s name from “Societal Need” to “Profit Maximization”. And this, is the essence of what we fight about today. Job one, for any corporation is to achieve a profit and job two, is to maximize that profit, period.

With all the great achievements capitalism has made throughout history, one must also look at its flaws. Next time I will talk about the economic development of America, and how the adoption of British property rights law influenced our country during the Antebellum period. Which I like to call “America’s adolescence; a time in which we determined what kind of a country we wanted be.