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To exit their initial investment, members had to match up with buyers – without benefit of a functioning market or of pre-structured low-cost transactions. Networks based on kin and family connections always assisted in this. The transfer of interest was subject to approval by the EIC, approval that in the first few years was not always granted without delay. This was not an adequate solution for the widely held corporation that the EIC turned out to be. The option for full exit was somewhat facilitated by the institutional structure of the EIC that served as a participatory meeting place for potential sellers and buyers. In a way, the regular meetings of its Courts were a good marketplace for company shares. There, potential buyers could locate a seller, obtain information on the quality of the goods (shares) offered by learning about the state of affairs in Asia, and get some sense of the market price of the goods. These meetings functioned more like annual fairs than like modern capital markets. It is important to remember that the sale of shares was subject to approval by the corporation and to registration in its books. I have constructed a database, the first of its kind, of transactions in EIC shares based on reports in the EIC minutes on transactions that were presented for approval in the EIC Court. In 1607, the number of such transactions was 47. For the period until the introduction of the new EIC Charter in 1609, I identified 100 transactions altogether, not including the allocation of shares in profits to employees (See figure 6). Taking into account that the EIC minutes for the period 1604-1606 were lost and that 1600 and 1609 were not full years, the annual average can be extrapolated to be around 40 transactions. This number is high for an environment that was devoid of a stock market. Still, liquidity was limited. If a transaction could not materialize, either for lack of approval or for failure to match a buyer, the investor had to hold his share until the end of the voyage, hoping that it would be successful and that there would be a final settlement of accounts for the voyage. Thus, the more viable exit option at this stage in the history of the EIC still involved opting out of a specific voyage rather than exiting the corporation altogether. The real challenge for the promoters of the EIC, because of the exit option at the end of each voyage, was not to convince investors to subscribe £68,373 for the initial voyage, substantial as that sum was by contemporary standards, but rather to maintain the relationship so that investors would be forthcoming in future voyages. Almost £400,000 was raised in the years 1603-12 for voyages 2 - 12, about six times the initial investment. With free access to an effective market, the liquidity of VOC shares was higher than that of EIC shares. But the liquidity of EIC shares was higher than any historians, economists or legal scholars have hitherto attributed to pre-1688 England.

Throughout much of the 17th century, the shares of the EIC were trades in company meetings, on a personal basis or by ad-hoc matching. There is no evidence of the creation of an infrastructure for a secondary share market in EIC shares or in the shares of any other corporation before 1688. After the Glorious Revolution, things changed. A market in government debt emerged, as described above. Thereafter, a handful of corporate shares, the EIC, Bank of England, Royal African Company and Hudson’s Bay Company, free rode the government bond boom and were traded in this market place in the 1690s. Only with the South Sea boom of 1720 did a larger number of companies, mostly short-lived bubbles, make use of the English stock market.(Morgan and Thomas 1969; Neal 1990; Chancellor 1999; Michie 1999; Harris 2000)

5. Conclusion

The analysis of the formation of the EIC and VOC and of the development of the stock markets in England and the Dutch Republic confirm the general thesis that law and the State matter. The Dutch government bond market developed more than a century earlier than the English because of a variety of demand and supply side factors, including the federal structure of

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