September 14th, 2017

 Athens in 400 BC: think about the context that led to 400 BC. Even though the
Mediterranean was not completely safe, it was better for sailing on than the Atlantic. The
only reason there was a bronze age was because traders were bringing tin in and ending
up in Cypus where the tin and copper were being welded together to create bronze. It was
always mercantile in the Mediterranean.
 The soil in Athens was not great for growing anything other than olives. You don’t have
many parts of Greece suited to growing crops. The Greek civilizations would have to
import food because of this which meant that there would be trading involved. This
required the food to be shipped in.
 Hypothesized among classicists: Trojan war was fought because the black see was the
source of grain for a lot of city states and because of Troy’s location it had access to the
black sea and could charge for this access.
 You have an area that is already a trading area and there is evidence that the transition
between to the two ages was because of a resource shock.
 Egyptians used iron for jewellery because of the softness which made it easy to mold into
jewellery. Iron was more valuable than silver or gold in the Egyptian era as jewellery –
not as tools.
o You have other changes occurring in this era.
o Around 700 BC – the idea of coins was proposed by king creesas. Silver was
previously used by weight as money. You would use silver to buy stuff and the
silver was weighed and the purity was examined.
He came up with stamping the seal indicating the value on the piece of metal. As
long as you trusted the number that was stamped by the ruler, you no longer had
to spend your time weighing silver.
 Hack silver was used in Ireland in 1600 AD.
 The idea of coin spread to different places at different rates which makes trade more
efficient because you don’t have to waste time weighing the silver.
o This was around the time Solon was running things in Athens. He decided that
Athens should become a trading state.
o He figured out what the right kind of infrastructure to put in place – to support
private trading activities.
 It was profitable to be an entrepreneur because of Solon.
 He set the conditions for productive entrepreneurship to be more profitable
than unproductive entrepreneurship.
o The Athenian state paid for the ports
o Athens made most of its wealth by being a place that traders came to. They never
got greedy and taxed to a rate that would push people to trade elsewhere.
 Athens becomes the major trading centre and they pass the Phoenicians as the great
traders.
 Solon in 700 BC had a high opinion of trade.
 Plato and Aristotle could afford to have a low opinion on trade.
o Aristotle’s father had been the court physician to Alexander the Great allowing
him to be very nicely placed in society. Alexander financed a lot of Aristotle’s
philosophical ideas.
 o He can be regarded as the first academic that relied heavily on government grants
for everything he was doing.
 Athenian pottery was actually a descendent of the rough pottery of what the Athenians
had used to export their oil.
o You had standardization in how trade was conducted as the ships were okay to
ship anything as long as it fit within certain dimensions.
o You end up with business growing in Athens
 By the time of Socrates and Plato (300-400 BC), you went from trade being a reputable
way of making a living to one that philosophers looked down on
o It was regarded as socially unacceptable for one Athenian citizen to be employed
by another Athenian citizen.
o It was more democratic than anywhere else in the world at the time.
o If you were running your own business, none of your employees could be
Athenian so they were generally slaves. Over time, the businesses became to be
run by slaves or ex-slaves. It was dominated by current slaves, ex-slaves or
resident aliens. You have a sociologically interesting structure building up.
 If they weren’t sole-proprietorships, they were partnerships. Confusing talking about the
two because there’s a spectrum running from sole proprietorships to corporations and in
each of the stages in that spectrum, each stage differs in the nature of the organization.
 Sole-proprietorship in Athens meant that it was one guy who owns the business. There is
no distinction between the individual and the business. This becomes more important
from sole-proprietorships to partnerships. Partnership is a well-defined business structure.
Here, we are taking about the most basic form. It has well defined properties. Generally
small, although it doesn’t have to be (2-3 people). Generally like this because of
partnership arrangements. A partnership does not outlive the partners. If one of the
partners dies or leaves for any other reason, the partnership has to be dissolved and the
remaining partners have to set out a new agreement. There is no way you could have the
equivalent of the corporation because you have to dissolve the partnership and start all
over again. A partnership has a life span.
o It has mutual agency. The partners are agents for the partnership, any partner can
enter into contracts and make decisions on behalf of the partnership. The can
commit the business to something.
o Unlimited liability for all of the partners. Any one of the partners is fully
responsible for paying all of the partners debts. There is no separation between the
assets and debts of the partnership and the individual. All personal assets are
regarded as supporting business activity putting you at risk if the partnership goes
bust.
 Socrates’ father who was a stone mason. Suppose that he was not good and he went bust
as a sole-proprietorship. He will not be able to say that he has a pile of gold outside of
these walls. That gold is still part of the business. There is no separation between you as
an individual and the business you run. You could not shield the assets in one part from
debts in another part. The way the individual makes his income is part-and-parcel of who
he is.
 Limited Liability Partnership began to appear in the Mesopotamian period.
 Legal systems were aware of the concepts of the partnership – comes back in when we
talk about Rome.
 Corporation is a business organization which suits certain kinds of business activity.
o Idea of a railroad is a nice one to use because of the characteristics.
 Railroads are well suited to the corporate form.
 Railroad is not something you put together expecting to close down in a
couple of years. You establish it with a long term objective in mind. If you
are going to get that involved with that much physical capital, you are
taking the long term view so you need a structure that is going to be
around long term. It is usually the case that the corporation is engaging in
a type of production activity that requires a lot of physical capital. If you
are engaging in an activity that requires a lot of physical capital, you need
a lot of financial capital which means you need a lot of investors. You’d
want to spread the cost of the investment over a large number of people.
Therefore, by the nature of their production of activity they require their
finances to be drawn from a large number of people.
 Think about if it was a partnership and someone wanted to take their cash
out, you cannot just close the railroad and sell off part of the tracks. You
need a structure that makes it easy for any one of their investors to get
their cash out without selling any of the capital.
 Think about the nature of the business that railroads are in – physical
capital intensive making it financial capital intensive, making it investor
intensive. If you bring all of these things together, the corporation makes
sense. Contracts are with the railroad and not with the managers. There are
benefits to the investor as well as they are able to get their money out.
o Corporations fit well with types of businesses like railroads. Argument that the
crisis in 2008 happened because there were too many financial corporations
allowing them to take larger risks because the owners were not liable. Before
financial firms were allowed to adopt the corporate structure, assets were at risk
and the financial structure was more conservative with their strategies because
they did not have as much risk. When the people running the firms are isolated
from the consequences they made they started taking more risks. Some people
argue that financial corporations should be partnerships.
o Large number of owners – not a large number of managers. Anyone who owns
shares in a corporation is technically an owner of the corporation
o The share gives you a claim on a part of its profit stream rather than the
corporation.
o Shares of a corporation can be sold freely on the open market and the corporation
does not have to be involved in any way.
o The owners of the corporation can change as many times as it wants without it
effecting the business. Ownership changes freely and easily.
o Unlimited life
o Limited liability: the liability of stockholders is limited to the amount each has
invested in the corporation – the value of your shares. You are not personally
liable for any of the remaining debts.
o Separate legal entity: they are persons but not citizens – they cannot vote. A
corporation is a legal person which means that they can enter into contracts and
the contract is with the corporation and not with the individuals of the
 corporation. You can sue a corporation because it is legally a person which allows
you to avoid suing every person and manager like you would have to in a
partnership.
o Relative ease of transferring ownership rights
o Professional management: investors in a corporation need not actively manage the
business, as most corporations hire professional managers to operate the business
o Ease of capital acquisition: a corporation can obtain capital by selling stock or
bonds.