Toulouse Mills and Early Shareholding

Organizing business activities within corporations was unnecessary for most of history. When businesses draw on a limited set of talents and resources, they do not become large enough to warrant becoming a true corporation, with fractionalized share ownership and owners who are distinct from management. Without the latter, even limited liability may seem pointless.

Prior to the Industrial Revolution, there were a few large corporations. Some were trading companies that dated to the 16th and 17th centuries. There is hardly any medieval history of corporations. However, one rare case is that of the Société des Moulins de Bazacle and other similar corporations operating mills in the French city of Toulouse. Much of the following comes from the study of these companies by French legal historian Germain Sicard and more recently by David Le Bris, William N. Goetzmann & Sébastien Pouget.

Société des Moulins de Bazacle

Medieval Toulouse was a grain milling town for the region of the Garonne in France. There, grain was milled at Bazacle, the site of a natural ford on the Garonne, the river which runs from the Pyrenees through Toulouse and then eventually Bordeaux and the Gironde estuary in southwestern France. In medieval times, the shallow ford was just outside the city walls and a wooden dam was built there. This dam regulated the flow of the river and just downstream of it, mills were built, first floating on the river and then along the riverbank. The dam was a necessary piece of infrastructure for the mills to operate.

Individual mills were typically owned in common among multiple people, in an arrangement known as pariage. The shareholders of the mills, or pariers, seem to have been wealthy prominent citizens and they most likely had little direct involvement in the mills themselves. In 1369, the pariers in the various mills of Bazacle agreed to share the profits of their mills amongst themselves. This was not the complete combination of their mills into a single concern and individual mills remained responsible for their own expenses but common expenses, like those incurred to maintain the dam, were borne by the new partnership.

In 1372, after one member was delinquent on debts to a merchant and it was ambiguous if his debts were incurred by, and became an obligation of, only him and his mill alone or the entire partnership, this association of mills at Bazacle was re-organized. Thus, the partnership transformed into a share company, the Société des Moulins de Bazacle.

Melchior Tavernier’s 1631 Map of Toulouse; Mills of Bazacle in the lower center of the map and those of Chateau Narbonais at the right, both along the river (source: Wikimedia Commons)

Shareholding

The new company was more than an informal partnership; it was treated as a legally distinct entity from its shareholders. It was similar to later joint stock companies in other respects too. Each share, known as an uchaux, entitled its holder to a share of the company’s profits paid out in a dividend, called a partison. That said, shareholding was not widely distributed; there were approximately ninety uchaux outstanding at the inception of the Bazacle company. Though fractional shares in the mills did trade hands too, so the total number of shareholders may have been larger.

Shareholders were from time to time required to contribute capital, through a contribution called a talha, when repairs or new investment was needed and even when merely meeting operational expenses warranted it. The dam was frequently in need of work. Floods destroyed the Bazacle dam in 1638 and ice floes in 1709.

The Moulins du Chateau Narbonais, a separate complex of mills in Toulouse, suffered from serious floods in 1641 that destroyed much of its infrastructure. The company behind these mills demanded a capital contribution, or talha, of 300 livres in 1641 and 714 livres in 1644. This was a large assessment levied on shareholders; compare it to a share price before the floods of 1,000 livres. Unsurprisingly, three years later, the mills were still ruined as shareholders were refusing to contribute more capital and those that were willing would not do so if these shareholders stood to benefit from their further investment without contributing themselves.

To break the impasse, a group of shareholders agreed to purchase the shares of the unwilling shareholders with the condition that the latter could repurchase these shares after six years at a price of 714 livre plus interest of 6.25% per annum. It was a success and the share price of the mills of Chateau Narbonais recovered to 3,000 livres after the recapitalization.

Management

To be recognized as legally distinct from its shareholders, it is fairly helpful for a company to have management in the hands of people other than its shareholders. This would have come naturally for the Société des Moulins de Bazacle since its shareholders were not generally involved in the company’s ordinary operations anyway. So, from the 14th century, directors were appointed, called bailies.

Elected at an annual meeting, these directors could make decisions on behalf of shareholders; they were appointed along with a corporate treasurer who was often a banker of sorts to the company, making advances to it when needed. Among their responsibilities, the bailies were responsible for determining the size of any talha. While they made key decisions, entered into contracts, and represented the company legally, the bailies delegated day-to-day management early on.

In time, bailies came to be overseen by conseillers. By the 15th century, the bailies turned into salaried managers and the conseillers, more like a board of directors. The development of a board of directors as distinct from management may have occurred to address the shortcomings of a widely distributed ownership among shareholders without the expertise or time to closely monitor the decisions of management. This form of management allowed the company to meet these composite objectives: employ managers distinct from shareholders while holding managers to account by shareholders, most of whom had limited involvement in the company.

Returns

In the first two centuries after the Société des Moulins de Bazacle’s organization, the share price varied considerably. In 1426, a share in the Bazacle company traded at 100 écus or about 112.5 livres. But then in 1451, a share traded hands at just 60 livres. After that, in the early 16th century, the price of a Bazacle company share rose, reaching 1,000 livres by 1530. Some of this increase was the result of a general inflation; still, even in terms of silver the share price was considerably higher after 1530 than before.

Dividends were also much higher. All of the profits of the Société des Moulins de Bazacle were distributed to shareholders. These dividends were funded by sales of grain. The companies, both those at Bazacle and Chateau Narbonais, received 1/16th of the grain milled at their facilities as a fee; this proportion of 1/16th was set by municipal regulation. The company’s share of the milled grain would accumulate in a granary until it was full, at which point the extra grain would be sold and a dividend, or partison, distributed with the money.

Not only share prices but even centuries-old records of the amount of dividends for the Bazacle company survive. The dividends paid by the Société des Moulins de Bazacle rose from the mid-15th century to the mid-16th century when they reached their peak in real terms. Share prices were rising too during this period. The mills no doubt benefited from the growth in the population of Toulouse, from 20,000 to 40,000 people between the 1440s and the end of the 15th century.

Dividends and the share price rose in tandem; the dividend yield of the shares, or the ratio of the dividend to the share price, averaged 5% over the company’s long history. In the 1570s, shares were trading hands for a real value of as much as 40 kgs of silver while annual dividends were worth about 2,000 grams of the precious metal. This is not to say every investor earned 5% per year reliably. Someone buying into the company at the peak saw worse returns. The real value of dividends and the share price both fell in the 17th century and didn’t recover until the 18th century.

There were also periodic disasters that could depress returns to shareholders for a while. An example was a particularly bad flood in 1875. Then, in 1888, the Bazacle company, still around after five centuries, suffered from a mill fire. The company used this as an opportunity to become a hydroelectric company and then listed its shares on the stock exchange in Paris. Like other utilities, the Société des Moulins de Bazacle was nationalized in 1946 and amalgamated into Électricité de France (EDF).

Lesson

There is some debate to be had as to the similarity of the Société des Moulins de Bazacle to a modern corporation and the market for its shares to the stock market today. To be sure, the mill companies of Toulouse were rather small and had a very limited shareholding; perhaps just a few dozen people owned a piece of these companies at a time. The companies may have even had their origins not as distinct for-profit ventures but as a solution for maintaining common infrastructure, needed for each mill to prosper, namely the dams. However, as a market for the shares put ownership of them in the hands of people who were not otherwise active in the mills and the fact that some shareholders of the Moulins du Chateau Narbonais were willing to invest more so long as they were financially compensated, the shares were clearly thought of as investments.

More from the Tontine Coffee-House

Read about another early corporation, the Dutch East India Company, and how bridges across the Thames were funded by means of tontines and annuities. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.