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Foreign. Hi, I'm Andy Tempte, and welcome to the Saturday Morning Muse. Start your weekend with musings that are designed to improve financial literacy around the world. Today is October 11, 2025. Last week, we concluded our exploration of insurance's democratization by asking an important question. Where did all the insurance premium go? By 1910, insurance companies were collecting hundreds of millions of dollars annually and managing massive investment portfolios to ensure that they could pay future claims. The answer to our question lies in securities markets, particularly stocks, which represent ownership stakes in other companies. But here's what we need to understand first. You hear about the stock market all the time, but what exactly is a share of stock? And where did this concept originate? Before insurance companies could invest in corporate equity, somebody had to invent the idea that company ownership could be divided into shares and traded on secondary markets. So over the next few weeks, we're going to explore the historical journey from the first shareholders to the first equity securities markets to the modern definition of stock ownership. Our story begins not in the London coffeehouses that we've been talking about, but, as you might expect, way back in ancient Rome. So Picture Rome around 200 B.C. the Republic is expanding rapidly, conquering new territories and building the infrastructure of the future empire. Roads must be constructed, aqueducts built, temples erected, and taxes collected from newly conquered provinces. But here's the problem. The Roman government at the time didn't have a large, permanent bureaucracy to manage all of these projects. The Romans developed an ingenious solution. They contracted with private companies called publicani. These weren't modern corporations, but they operated on a surprisingly similar principle. Multiple investors pooling capital to undertake projects too large for any individual, with each investor owning a proportional share of the enterprise. The organizational structure was called societas publicanerum, literally societies of public contractors. And here's how they worked. Wealthy Romans would contribute capital to fund a specific government contract, perhaps collecting taxes from the province of Sicily or building a section of road. Each investor owned a share of the company proportional to their capital contribution. Profits or losses from the venture would be divided among shareholders based on their ownership stakes. What made this remarkable was the separation of ownership from the operation of the business or the project. Not every shareholder needed to be actively managing the tax collection or road construction that was going on. Some investors were passive shareholders. They provided capital and received their share of profits or absorbed their share of losses without daily involvement. This separation of ownership from management is the fundamental innovation underlying all modern stock ownership. And these companies, they could be enormous. The publicani who collected Taxes from the province of Asia, which is modern day Turkey, managed one of Rome's largest revenue sources. The shareholders in these ventures included some of Rome's wealthiest and most powerful citizens, and their business dealings were sophisticated enough to be discussed in the Roman Senate. Now, let's fast forward 1400 years to medieval Venice, around 1200 CE. The city is a maritime trading powerhouse, but ocean voyages required substantial capital. Ships, crews and cargo all cost money, and voyages lasted months or even years. Few individual merchants possessed both the capital and the willingness to risk everything on a single expedition. Italian merchants developed the Comenda contract, an arrangement between a traveling merchant and a capital provider. The investor would provide all the voyage capital, paying for the ship, crew and cargo. And the traveling merchant would contribute their labor, expertise, and willingness to spend months at sea facing storms, pirates and disease. Profits would be split, typically 75% to the investor and 25 to the traveling merchant. What's interesting here is that the merchant received 25% of profits despite contributing zero capital. Why? Because medieval merchants were solving a problem that the Romans didn't face. How to value labor and expertise alongside pure monetary contributions. The traveling merchants 25% share compensated them for their skill, effort, and the physical dangers that they faced during months at sea. Now, note that this wasn't a lending contract. The capital provider wasn't guaranteed any repayment. They were accepting genuine equity risk. If the ship sank or was captured by pirates, they lost their entire investment. But if the voyage succeeded, they shared in the profits. Based on a pre agreed formula that valued both money and expertise. The Commenda solved several problems simultaneous. Simultaneously, it allowed merchants with expertise but limited capital to undertake ambitious trading expeditions. It gave wealthy individuals with capital but no maritime expertise a way to participate in profitable trade ventures as equity partners. And it distributed risk. An investor could spread capital across multiple Comenda contracts rather than betting it all on a single voyage. Sound familiar? This is the same risk pooling principle that we explored in our insurance series. But instead of pooling risk to protect against losses, the Commenda pooled capital and risks to pursue profits. The capital provider was an equity owner. They shared in both the upside and the downside of the venture. Now, what connects Roman Publicani and Venetian Commenda contracts is their shared recognition that equity ownership could be divided among multiple parties. But they approached the division differently. These systems worked because they established clear, predictable rules, even if those rules weren't always strictly proportional to the cash invested. The Roman system was simpler and more directly proportional to capital, whereas the Commenda was more sophisticated, recognizing that valuable contributions come in forms other than money. But both gave equity owners clarity about what they owned and what they could expect if the venture succeeded and what to expect if the venture failed. This predictability was essential for attracting equity capital. Without clear ownership stakes, profit sharing rules, investors would demand higher returns to compensate for the uncertainty about whether they'd be treated fairly. Now, the Roman and medieval systems couldn't solve the problem of transferability of these ownership stakes. If you became an equity owner in a Roman tax collection contract or a Venetian trading voyage, you were locked in until the venture concluded. Your capital was tied up for months or even years, and you couldn't easily sell your ownership stake to somebody else if you needed the cash. This lack of liquidity, the ability to turn equity shares into cash, quickly created real costs. Equity investors demanded higher returns to compensate for having their capital locked up for extended periods of time. And it meant that only the wealthiest citizens could participate. You needed to be rich enough that tying up capital for years didn't threaten your financial security. We will call this the liquidity premium in future episodes, as we're talking about equities. The Roman publicani and medieval commenda contracts established principles still fundamental to modern equity securities today. First, multiple investors can pool capital for ventures too large for individuals, each owning a proportion share. Second, ownership stakes can be divided based on capital contributions, creating clear equity positions. Three, passive shareholders can participate without managing daily operations. Four, equity owners share proportionally in both profits and losses. And finally, clear rules for dividing profits and assuming losses make ventures more attractive to equity investors. What they hadn't solved yet was this liquidity problem. How to let equity owners exit their positions before ventures concluded. That solution would emerge in the Dutch Republic of the early 1600s, when maritime trade, financial innovation, and a desperate need for capital converged to create something entirely new. The first permanent joint stock company with transferable shares of equity ownership. Next week, we'll discover how Dutch merchants, facing the enormous capital requirements of Asian trade, invented the modern corporation and how Amsterdam became home to the world's first real stock exchange. So until next week, I wish you grace, dignity and compassion. My name is Andy Tempte. This is the Saturday Morning Muse. You can find the show on all the major streaming services as well as out on YouTube. Please like, subscribe, rate, and most important importantly, share this public good with your friends, your neighbors, your colleagues, and maybe a family member. The show was produced by Nicholas Tempte, and we'll see you next time on the Saturday Morning Museum.