Celestial Navigation, Insurance and the Joint Stock Company

Posted by PITHOCRATES - July 10th, 2013

Technology 101

(Originally published November 30th, 2011)

Despite Precise Celestial Navigation a lot of Ships and Valuable Cargoes still got Lost at Sea

Open sea navigation was once very perilous.  It took a long time before ships ventured from sight of the shoreline.  And a lot of technology.  Boats used to go the long way across the Mediterranean Sea.  Because being in open water at night without any visible landmarks was very dangerous.  So they hugged the coastline.  Adding days to every voyage.  And more danger.  Because the longer at sea the greater the risk there was of sinking.  Especially when you were skirting the rock-infested shallows of the shoreline.

The Sumerians charted the stars.  The Greeks continued this work, producing charts that could tell you what latitude (north/south position) you were at by looking at the stars and planets.  By measuring the angle of the stars and planets above the horizon.  The Arabs created one of the first tools to measure these angles.  The kamal.  Knowing this angle you could do a little math and look at a pre-calculated table of values.  And get your latitude.  Better instruments followed.  The cross-staff.  The astrolabe.   And then the sextant.  The gold standard of angle measuring until the advent of Global Positioning Satellites (GPS).  Calculating longitude (east/west position) was a bit more complicated.  Because the earth rotated.  Which required some more skillful measuring and more calculations.  And/or a reliable and accurate clock.  To adjust your results by the time of day.  As the time as well as the stars moved from east to west as the planet rotated.

The Chinese developed the magnetic compass.  A helmsman steered his ship by the compass.  The navigator checked the angles of celestial bodies (sun, moon, stars and planets), checked time and the ship’s speed to fix the ship’s position.  By determining latitude and longitude.  The navigator fed course headings and course corrections to the helmsman.  Armed with these skills, tools, celestial charts and tables, the navigator could do a little math and navigate a ship across a vast ocean day or night to any port in the world.  Transporting valuable cargoes safely and timely across the globe.  Pretty impressive for the time.  But despite this precise celestial navigation, a lot of ships still got lost at sea.  As well as their valuable cargoes.

The Joint-Stock Company and Insurance Reduced the High Risks of Transoceanic Shipping

No matter how well a navigator could fix a ship’s position there were some things he just couldn’t do.  Such as avoid an uncharted reef.  Prevent a mutiny.  Fend off pirates.  Fend off enemy warships.  Make storms go away.  Or even see through dense fog.  Simply put being on a small wooden ship in the middle of an ocean was very dangerous.  Which poised quite the problem for early global trade.

It was a huge investment to put a ship to sea.  It took another huge investment to fill a ship with valuable cargo.  And if that ship didn’t make it back to sell that cargo it was very bad news for the investor.  A lost ship could financially ruin them.  So not only could you get rich in this new global trade you could become impoverished.  Which made rich people reluctant to finance this early trade.  Because it was so risky.  Two things helped to reduce this risk to manageable levels.  Insurance.  And the joint-stock company.

A group of investors could buy stock into a company that was going to make numerous voyages on various ships.  In exchange for a share of the profits from this trade each investor paid a share of its cost.  Thus the joint-stock company spread the risk to multiple investors, reducing the risk to any one person.  So one lost ship would not cause financial ruin to any one investor.  Thus encouraging investment into this lucrative new trade of transoceanic shipping.  And with the advent of insurance, shippers could insure each voyage for a small affordable fee.  By collecting this small fee on every voyage the insurer could pay for the few ships and cargoes lost at sea.  Not the investors.  Thus further encouraging investment into this very risky endeavor.

The smartphone you can’t live without today most likely came to you via a large container ship from a port across some ocean.  It made a long and perilous voyage to get to you.  Which wouldn’t have been possible without celestial navigation, insurance and the joint-stock company.  The things that made transoceanic shipping possible.  Most of which are still in use today.  As they were when brave mariners took to the open seas in those small wooden ships of yesteryear.

www.PITHOCRATES.com

The Line of Diocletian, the Byzantine Empire, Italian City-States, Banking, Usury and the Protestant Reformation

Posted by PITHOCRATES - January 3rd, 2012

History 101

Europe began to Awake from its Slumber of the Dark Ages in about 1300 Italy

Once upon a time the only lending was to help someone in need.  Such as someone with a poor harvest to survive the winter.  We did it out of the goodness of our hearts to help others in need.  So to charge interest for a loan like this would have been cruel.  Taking advantage of someone’s misfortune wasn’t the Christian thing to do.  Or the Jewish.  Or the Muslim.  That’s why no one then charged interest for loaning money.  You just didn’t kick a person when he or she was down.  And if you did you could expect some swift justice from the religious authorities.  As well as the state.

Rome was once the center of the civilized world.  All roads led to Rome, after all.  Then Diocletian split the Empire into two in 285.  Along the Line of Diocletian.  Into East (Greek) and West (Latin). The West included Rome and fell around 486, ushering in the European Dark Ages.  Meanwhile the Eastern half, the Byzantine Empire, carried on.  And skipped the Dark Ages.  Its capital was Constantinople (named in 330) .  Formerly Byzantium.  Modern day Istanbul.  Where all Asian overland trade routes led to.  This city of Emperor Constantine.  His city.  Who reunited East and West.  And adopted Christianity as the Empire’s new religion (381).  Located at the crossroads between Europe and Asia, trade flourished and made the Byzantine Empire rich.  And long lasting.  Until weakened by the Venetian-financed Fourth Crusade (1202–1204).  (The Latin Christians’ attack on the Greek Christians was fallout from the Great Schism of 1054 where Christianity split between Latin Catholic and Greek Orthodox).  And then falling to the Ottomans in 1453.

Europe began to awake from its slumber in about 1300 Italy.  Great city-states arose.  Genoa.  Pisa.  And Venice.  Like those early Greek city-states.  Great ports of international trade.  Rising into trade empires with the decline of the Byzantine Empire.  Where these Italian merchants bought and sold all of those Asian goods.  Putting great commercial fleets to sea to bring those Asian goods into Genoa, Pisa and Venice.  Getting rich.  But to make money they had to have money.  Because in the international trade game you had to first buy what you sold.  Which included the cost of those great merchant fleets.  And how did they pay for all of this?  They borrowed money from a new institution called banking.

That Europe that Slumbered during the Dark Ages Arose to Rule International Trade

Modern finance was born in Italy.  Everything that makes the commercial economy work today goes back to these Italian city-states.  From international banking and foreign exchange markets to insurance to the very bookkeeping that kept track of profits and losses.  It is here we see the first joint-stock company to finance and diversify the risk of commercial shipping.  London would use the joint-stock company to later finance the British East India Company.  And Amsterdam the Dutch East India company.  Where the Dutch and the English sent ships across oceans in search of trade.  Thanks to their mastery of celestial navigation.  And brought back a fortune in trade.  Putting the great Italian city-states out of business.  For their direct sea routes were far more profitable than the overland routes.  Because the holds of their ships could hold far more than any overland caravan could.

The Catholic opposition to usury (charging interest to borrow money) opened the new banking industry to the oppressed Jews in the European/Christian cities.  For it was one of the few things the Christian rulers let the Jews do.  Which they did.  Even though it was technically against their religion.  And they did it well.  For they had an early monopoly.  Thanks to that same Catholic Church.  Then came another schism in the Christian church.  The Protestant Reformation.  Where, among other things, Protestants said the Old Testament did not bind them to all rules that the Jews had to follow.  Then John Calvin took it a step further and said commercial loans could charge interest.  And, well, the rest is banking history.

Europe was then the dominant region of the world.  That region that slumbered during the Dark Ages arose to rule international trade.  Thanks to their navigational abilities.  And their banking centers.  Which financed their trade.  And the great things to come.

The Enlightenment led to the Modern World, Limited Government, the Industrial Revolution and Beyond

With the fall of the Byzantine Empire and the rise of the Italian city-states, Greek thinkers left the Byzantine Empire and went West.  To those rich Italian city-states.  Bringing with them great books of Greek knowledge.  The intellectual remnants of the Roman Empire.  Translated them.  And massed produced them on the new printing press.  And kicked off the Enlightenment.  Which then spread throughout Europe.

The Enlightenment led to the modern world.  From limited government.  To the Industrial Revolution.  And beyond.  All thanks to those Italian city-states.  International trade.  And banking.

www.PITHOCRATES.com

Celestial Navigation, Insurance and the Joint Stock Company

Posted by PITHOCRATES - November 30th, 2011

Technology 101

Despite Precise Celestial Navigation a lot of Ships and Valuable Cargoes still got Lost at Sea

Open sea navigation was once very perilous.  It took a long time before ships ventured from sight of the shoreline.  And a lot of technology.  Boats used to go the long way across the Mediterranean Sea.  Because being in open water at night without any visible landmarks was very dangerous.  So they hugged the coastline.  Adding days to every voyage.  And more danger.  Because the longer at sea the greater the risk there was of sinking.  Especially when you were skirting the rock-infested shallows of the shoreline.

The Sumerians charted the stars.  The Greeks continued this work, producing charts that could tell you what latitude (north/south position) you were at by looking at the stars and planets.  By measuring the angle of the stars and planets above the horizon.  The Arabs created one of the first tools to measure these angles.  The kamal.  Knowing this angle you could do a little math and look at a pre-calculated table of values.  And get your latitude.  Better instruments followed.  The cross-staff.  The astrolabe.   And then the sextant.  The gold standard of angle measuring until the advent of Global Positioning Satellites (GPS).  Calculating longitude (east/west position) was a bit more complicated.  Because the earth rotated.  Which required some more skillful measuring and more calculations.  And/or a reliable and accurate clock.  To adjust your results by the time of day.  As the time as well as the stars moved from east to west as the planet rotated.

The Chinese developed the magnetic compass.  A helmsman steered his ship by the compass.  The navigator checked the angles of celestial bodies (sun, moon, stars and planets), checked time and the ship’s speed to fix the ship’s position.  By determining latitude and longitude.  The navigator fed course headings and course corrections to the helmsman.  Armed with these skills, tools, celestial charts and tables, the navigator could do a little math and navigate a ship across a vast ocean day or night to any port in the world.  Transporting valuable cargoes safely and timely across the globe.  Pretty impressive for the time.  But despite this precise celestial navigation, a lot of ships still got lost at sea.  As well as their valuable cargoes.

The Joint-Stock Company and Insurance Reduced the High Risks of Transoceanic Shipping

No matter how well a navigator could fix a ship’s position there were some things he just couldn’t do.  Such as avoid an uncharted reef.  Prevent a mutiny.  Fend off pirates.  Fend off enemy warships.  Make storms go away.  Or even see through dense fog.  Simply put being on a small wooden ship in the middle of an ocean was very dangerous.  Which poised quite the problem for early global trade.

It was a huge investment to put a ship to sea.  It took another huge investment to fill a ship with valuable cargo.  And if that ship didn’t make it back to sell that cargo it was very bad news for the investor.  A lost ship could financially ruin them.  So not only could you get rich in this new global trade you could become impoverished.  Which made rich people reluctant to finance this early trade.  Because it was so risky.  Two things helped to reduce this risk to manageable levels.  Insurance.  And the joint-stock company.

A group of investors could buy stock into a company that was going to make numerous voyages on various ships.  In exchange for a share of the profits from this trade each investor paid a share of its cost.  Thus the joint-stock company spread the risk to multiple investors, reducing the risk to any one person.  So one lost ship would not cause financial ruin to any one investor.  Thus encouraging investment into this lucrative new trade of transoceanic shipping.  And with the advent of insurance, shippers could insure each voyage for a small affordable fee.  By collecting this small fee on every voyage the insurer could pay for the few ships and cargoes lost at sea.  Not the investors.  Thus further encouraging investment into this very risky endeavor.

The smartphone you can’t live without today most likely came to you via a large container ship from a port across some ocean.  It made a long and perilous voyage to get to you.  Which wouldn’t have been possible without celestial navigation, insurance and the joint-stock company.  The things that made transoceanic shipping possible.  Most of which are still in use today.  As they were when brave mariners took to the open seas in those small wooden ships of yesteryear.

www.PITHOCRATES.com