OSR: Pamphlet: The Secret of Wealth (plus Bonds, Arbitrage, and More)

Pamphlet-writing is fun. Here's a 2-sided printable free pamphlet for Magical Industrial Revolution. It summarizes the compressed Joint-Stock procedures from the previous post. Clearly, the best way to get your players to participate in a ludicrous, convoluted, and math-based minigame is to make a pamphlet about it.

Link to Pamphlet

Also, have a bonus Memorandum of Association form, based on the wording of the 1865 Act. Who said D&D had to be fun? 

While you're here, why not read about financial instruments that I'm not even including in my game? One of my players - my actual, real-life players - read my previous post and said, "Wizards won't want to claim they own that even if they can."


Bonds are a debt instrument.* Bonds are another device for obtaining money. They are debt that can be sold and traded like a share. Instead of paying a dividend based on profits, they offer a fixed return per year. They are therefore less enticing to some investors, but may be favoured by risk-adverse, deep-pocketed, or widely spread investors.

*The Walther PPK is a Bond instrument, and Bond is a blunt instrument.

Bonds have a fixed Par Value, Maturity Date, and Interest Rate. When the bond's Maturity Date arrives, the company agrees to buy it back from whoever holds it at the Par Value. The Interest Rate of a bond is set when it is created, and must be lucrative enough to attract investment. If a company winds up, bondholders are paid before shareholders.

Bonds typically have maturity dates well into the future. 10, 20, or 30 year bonds are most common. The buyer must be confident the company will exist when the bond matures. The Hawkwright Frame Co. Ltd. will probably exist. Blast-O-Pow-Der Ltd. might not exist next week if the smoke coming from their workshop is any indication. Small or financially shaky companies have to offer higher interest rates. The Bank of the Realm sells government debt bonds with 2% interest; companies might have to offer 10% or 20% to make it worth the risk.

[Par value of a Bond] = [Capital Required] / [#of Bonds][Tempting Interest]

Say you wish to raise 1,000gp. You offer 1,000 bonds at an interest of 10%. The Par Value is therefore 10gp. Each Season, until the bond matures, you will need to pay 100gp in interest, and when the bonds mature buy back the whole lot for 1,000gp.

The long maturity of bonds makes them unsuitable for Magical Industrial Revolution, where the time scale is compressed and businesses regularly explode. Stock-jobbery, bubbles, and convoluted financial schemes can come and go in a single year, or even a single week, but bonds with long maturity dates aren't interesting (from a game design point of view) if the entire setting might not exist in ~8 years. However, as they enable plenty of real-world financial chicanery, I thought I ought to mention them.

The Bond Money Printer

You buy bonds with a yield of X. You go to the bank and use those bonds as collateral to get a loan with a nice low interest rate of Y. The bank is happy to offer you this rate because it means they're getting a slice of the bond without exposure to the same level of risk.

You use the loan to by more bonds with a yield of X. You go to the bank and, with your newly increased collateral, get a loan of with interest rate Y. And you keep doing this until the bank won't lend you money anymore, or until you get giddy and have to have a lie-down.

As long as X (the interest on bonds you own) is greater than Y (the interest on your loans), you're good. You're getting money for free. And bonds are stable. If you were smart, you bought extremely stable bonds, or even government debt (the most stable of them all, if you can get a low enough interest rate on a loan). But if, for whatever reason, X is no longer greater than Y, then you are in real trouble.

This is (allegedly) one of the factors in the 2022 UK Pension Crisis.

This scheme is nowhere near as profitable as some of the ones discussed in the previous post, but it is free money.


Arbitrage is a special kind of trade that relies on a price mismatch in two different markets. It's a bit complicated, but here's the simple (i.e. wrong) version.

If you buy iron bars in London, trade them for sea lion pelts in Seattle, then sell those pelts in Shanghai for tea, you're doing trade, and while you might make a colossal profit on each step, you also have to sail around the world, pay your crew, and accept a lot of risk. Everyone involved trades something they have for something they want. This, in theory, justifies the profit.

With arbitrage, you buy something and simultaneously (or as close to simultaneously as possible, given market conditions) sell it for a higher price. It's less risky (but can still fail) and generally exploits information only, not distance, risk, or inconvenience. You see that A wants to buy a stock at one price, and you know B wants to sell the stock at a lower price, so you run over, buy from B, sell to A, and collect the profit. Once people notice you're doing this, prices tend to converge. Why would they pay you when they can pay each other?

I normally wouldn't include this Shark-level concept, but arbitrage lies at the core of many schemes that turn out to be scams. The original Ponzi scheme promised returns based on stamp coupon arbitrage. Defunct cryptocurrency exchange FTX's unusually high returns were attributed to cunning risk-free international arbitrage. It's a way of making money that requires secrecy and cunning while generating (in theory) enormous profits.

In short:

  • If someone offers unusually high returns (20%, 30%, etc.), be extremely skeptical.
  • If they tell you they can offer such a high return because of arbitrage, put one hand on your wallet and back away slowly.
  • If they say it's risk-free arbitrage, laugh derisively while holding onto your wallet.
  • If they tell you their arbitrage method (what they're trading and where) sprint away while hooting like a gibbon.

Corporate Shadowfiles (and Corporate Download)

Over on twitter, Chris Williams recommended I check out Corporate Shadowfiles, a 1993 FASA supplement for Shadowrun. It holds up surprisingly well.

Corporate Shadowfiles is somewhere between an epistolary novel and a Socratic dialogue. It’s presented as a series of timestamped forum posts, where different runners offer their perspective on corporate finance, politics, and the world in general. It's not exactly immediately gameable content, but it's a good worldbuilding method, and it has some nice layout tricks like an indented navigation bar and a different visual style for each corporate background. 

It also has something to say about the world of Shadowrun and, by extension, the world of 1993 (or possibly the world of the late '80s, but it's close enough). It's insightful.

The book's replacement, 1999's Corporate Download is much less interesting. It's all metaplot. Corporate Shadowfiles spent around 113 pages on business concepts, leaving just 32 stylized pages for metaplot and fluff. Corporate Download deals with business in a vague and genre-reliant way in just 14 pages, then spends over 110 pages on metaplot and setting trivia that characterized the late '90s/early 2000s sourcebooks for all systems. Corporate Shadowfiles was written and designed by one author, the late Nigel D. Findley, and bears the signs of intention and craft. Corporate Download was written by 8+ authors, each taking on a chapter, with the expected result: a dreary forgettable paid-by-the-word mess.


OSR: Joint-Stock Companies, Investments, and Schemes

Most stock market advice starts at the bottom, at the level of the average investor. But RPGs, and particularly Magical Industrial Revolution, assume the PCs will be insiders, the ones running or founding a business. Advice is therefore harder to find; it's assumed experts will be handling this sort of thing in the real world. I'd like to present a few guidelines for 19th century business, simplified for RPG purposes.

The result does not need to be a functional economic system. It is set dressing. It does not need to react to the actions of multiple parties. It just needs to handle the needs of the PCs, generate some interesting plots, and spit out reasonable monetary values. The GM can handwave the rest.

The history of investment makes it difficult to draw the line between fraud and business. Who can say that is the shadowy machinations of a pack of criminals and degenerate gamblers, while that is the market functioning as intended? History is written by the victors, and the history of finance and speculation assumes that limited liability companies and joint-stock corporations were natural, inevitable, and useful developments.

George Cruikshank

Banking in Endon

After the last civil war, the Monarch of the time gave up the power to “meddle, shave, clip, or adulterate the currency of the realm”. The Minister of Finance (MIR pg. 53) sets fiscal policy, and usually follows the sober (or even moribund) advice of the Governors of the Bank of the Realm, who treat the economy like a dangerous and barely understood machine whose moving parts are liable to sever limbs and crush fingers. Government debt tends to be consolidated into large purchasable bundles whenever the parties switch power, typically after examining the books, discovering the spendthrift ways of their predecessors, going “augh!”, and drinking themselves to sleep.

Anyone can purchase government debt and earn a per-Season interest of 2%. The government wants people to give them money, so they have to offer more money in return, but they don’t have to offer much because the investment is extremely safe. If the Bank of the Realm fails, so fails Endon.

Many smaller commercial banks lend money, take deposits, offer a similar rate of interest, and offer loans. The Bank of the Realm loans enormous sums only, and leaves smaller and riskier ventures to other banks.

For a basic overview of fractional reserve banking, but in a different setting, see Dragon Banks.


Endon’s banks are generally happy to lend money to reputable individuals because the mechanisms for extracting money from debtors are both terrifying and efficient. None of the debtor’s assets are protected, so the bank can (with a stroke of a pen) seize and sell houses, shares, clothing, spellbooks, and equipment to pay outstanding debts. If that proves insufficient or too legally complex, a stint in prison may convince the debtor’s friends and relations to supply the necessary funds.

Loans are based on reputation, personal connections, and charisma. Dr. Hartwell has a reputation as an honest, sober, and reliable man – even as a Foreigner – and can trade that reputation for cash. He has no outstanding debts (not even to his tailor). Doyle Wormsby, despite being more honest, more frugal, and less inclined to criminal pursuits, couldn’t get a decent loan if he begged for it. Elizabeth Ramchander, as a woman, can’t get a loan at all. This is yet another reason social class is important in Endon.

Interest on loans starts at 3%. Otherwise, everyone would take out loans, reinvest the money in government debt, and reap the profits; an “infinite money glitch”. Interest on loaned money is not limited. If a PC is already in substantial debt, new loans can reach 50% or 500% per Season. Finding anyone willing to lend the money will be difficult.

Maximum Loans

  • Poor: 5gp
  • Lower Class: 200gh
  • Middle Class: 2,000gp 
  •  Upper Class: Unlimited

Loaning money to industrial wizards worries banks. How do you evaluate risk? The most ludicrous ideas – turning pigeons into whales, for example – might prove enormously profitable. Any idea could be the next Hawkwright frame...  or the next smoking crater. When an industrial wizard fails, they tend to take their collateral with them. And yet magical industry is enormously expensive. The rudiments (a small Magic Accumulator, Magic Battery, Spell Breeding Reactor, Enchantment Engraver, and a few spells) cost 6,500gp at least, in a setting where a skilled tradesman might earn 5gp in a Season.

With banks unwilling to extend the necessary credit, and private lenders charging exorbitant interest (or taking a personal interest, like the Lord Tarrigan-on-Burl), what is a budding industrialist to do?

Thomas Rowlandson

The Joint-Stock Company

A Joint-Stock Company is a way to raise money by spreading the risk and potential rewards over a large pool of investors. The company divides future profits into shares, sells those shares, uses the resulting funds to initiate or expand its business, and splits the resulting profits among all shareholders.

While Joint-Stock Companies (or similar schemes) can flourish without legal sanction (as the potential rewards are large enough to attract investors even without a legal framework), four elements can turn an informal speculative arrangement into a "natural right" and a pillar of the economy.

1. Limited Liability

Limited Liability means that the responsibility of stockholders begins and ends with their money. If the company fails, they lose their investment, but not one penny more. If the company fails, its creditors cannot claim more money than the company possesses. Unlimited companies exist, and have an easier time getting credit (see Loans above), but are much less popular.

The presence of a person of low character among the body of the shareholders posed no threat to the others. Shareholders were not expected to contribute talent, ideas, or character to the enterprise, simply money. The Times was voicing conventional wisdom on the subject when it argued in 1840 that the principal effect of joint-stock companies was ‘that persons engage in them who are ignorant of business, who may be also without ability and character, who may even be without money or means beyond the particular value of their shares.’ They were, the newspaper continued, ‘societies in which friendship, ability, knowledge, education, character, credit, even monied worth is in a great measure disregarded, and money, there mere amount and value of their shares standing in the name of each, is the sole bond of connexion between the proprietors.’ The joint-stock system was an attempt to ‘substitute money for mind’. 

-Creating Capitalism: Joint-Stock Enterprise in British Politics and Culture, 1800-1870, James Taylor.

2. Fictitious Personhood

Lawsuits against a sole proprietor or a partnership are relatively straightforward, but when a company is distributed across hundreds of shareholders and nebulous swarm of directors, and can survive the death or retirement of any of its constituent parts, some centralizing fiction is required. Making a company into a fictitious person enables the law to function without updating every statute. The consequences have yet to be tested in Endon. A company can open a bank account, own property, sue, and be sued, but can it vote? Fight a duel? Be sentenced to death?

3. Registration and Regulation

Every new company in Endon must provide some documentation to the government and to the public. While intended to prevent fraud, it merely makes fraud easier to track after the fact. Expecting shareholders to inspect accounts, question the identity and history of directors, and judge the merits of the business is perhaps too much to ask of the average Endonian citizen, who is assured by the newspapers, stock-jobbers, and friends that investment is both safe, morally correct, and necessary. It's the government's way of saying "caveat emptor"; it's on you, stock-holder, to judge the merits of a company, not on us.

To start a company, seven or more persons sign a Memorandum of Association, which is filed with a small and understaffed office near the Bank of the Realm. It is advisable to get an MP or two, or someone with a title, to add the lustre of gentility to the list. Each subscriber must take at least 1 share. Women can sign a Memorandum of Association, but, given Endon's biases, they'd better not if they want to make an enormous profit. Forming a company costs 5gp.

The maximum number of initial subscribers is twenty-five, but seven is pleasing to Endoners, because the eighth (a significant number) is the fictitious personhood of the company.

The Memorandum of Association must also include:

  • The unique name of the company, followed by the word "Limited".
  • The company's initial capital, before any shares are distributed or sold. The higher the value, the more reputable and lucrative the company may appear to investors. This amount (plus any capital generated by selling shares, etc, and any company assets) can be claimed by creditors in bankruptcy.
  • The company's purpose. In theory, any acts beyond this stated purpose are not lawful. In practice, sensible people add "And Any Other Lawful Business" to the end of the list of purposes, to cover any situation that might arise, so a mining company can lawfully enter the wollens trade or a railway buy a timber plantation.
  • The number of shares of the company, and the "par" price of each share (see below).
  • The fixed dates on which a company's dividends will be paid (see below).

A company must also maintain a Register of Shares, where the name, address, number of shares, and the registered number of each share, of each shareholder is recorded. Since updating this registry in real time is rarely feasible, it is typically only updated at meetings just before dividends are paid, or when a particularly large stakeholder sells out. This registry should be kept publicly accessible at the company's office.

A company must also release audited financial statements at least once per Season. There's effectively no penalty for releasing false statements as long as the company continues to operate profitably.

A company must have a constitution, which spells out the rights of shareholders, the number directors and managers, their compensation, the dates of general meetings, and any other details the founders wish to add. The more convoluted the constitution, the better. At company meetings (which must be held at least once per Season), shareholders can vote on proposals and elect company directors. One share equals one vote. In practice, meetings are held irregularly, directors vote for themselves or form blocs, shares are held by people with no interest in the underlying company, and the entire enterprise can be as undemocratic and opaque as a company's directors wish it to be. 

For more details, see the Companies Act of 1856.

[Various modes of deception] included the use of fictitious names; the use of respectable names without permission; the issue of misleading prospectuses and advertisements; the insertion of puff and reports of invented meetings into the newspapers; the prevention of shareholders’ meetings; the falsification of share transfer books; the creation of fictitious votes to outvote the real shareholders; the creation of false accounts to deceive shareholders; the declaration of dividends out of capital; and the employment of respectable agents to cloak the want of respectability of the company.

-Creating Capitalism: Joint-Stock Enterprise in British Politics and Culture, 1800-1870, James Taylor.

If all that's a bit confusing, have a song.

Some seven men form an Association
    (If possible, all Peers and Baronets),
The start off with a public declaration
    To what extent they mean to pay their debts.
That's called their Capital; if they are wary
    They will not quote it at a sum immense.
The figure's immaterial--it may vary
    From eighteen million down to eighteenpence.
        I should put it rather low;
        The good sense of doing so
        Will be evident at once to any debtor.
        When it's left to you to say
        What amount you mean to pay,
        Why, the lower you can put it at, the better.

They then proceed to trade with all who'll trust 'em
    Quite irrespective of their capital
(It's shady, but it's sanctified by custom);
    Bank, Railway, Loan, or Panama Canal.
You can't embark on trading too tremendous--
    It's strictly fair, and based on common sense--
If you succeed, your profits are stupendous—
    And if you fail, pop goes your eighteenpence.
        Make the money-spinner spin!
        For you only stand to win,
        And you'll never with dishonesty be twitted.
        For nobody can know,
        To a million or so,
        To what extent your capital's committed!

If you come to grief, and creditors are craving
    (For nothing that is planned by mortal head
Is certain in this Vale of Sorrow—saving
    That one's Liability is Limited),--
Do you suppose that signifies perdition?
    If so, you're but a monetary dunce--
You merely file a Winding-Up Petition,
    And start another Company at once!
        Though a Rothschild you may be
        In your own capacity,
        As a Company you've come to utter sorrow—
        But the Liquidators say,
        "Never mind--you needn't pay,"
        So you start another company to-morrow!
-Utopia, Limited, Gilbert & Sullivan

Alternatively, you can have tie Joint-Stock Companies to the Tempo of the game. At ¤, a company requires an Act of Parliament (MIR pg. 53), at a prohibitive cost of 40,000gp in bribes (though directorships and shares can count as bribes), but usually comes with a monopoly on some aspect of trade or business. At ¤¤, a company requires a much shorter act of Parliament and a fixed fee of 5,000gp. At ¤¤¤, the formation of a company is seen as a natural and inalienable right, like free association or spitting on Foreigners, and merely requires a 5gp registration fee.

4. The Stock Market

Endon does not have a centralized and regulated stock market. Stock trading occurs in coffee shops, taverns, goldsmiths, book-sellers, the back rooms of clubs, and on the street. Activity is concentrated on the streets north of the Bank of the Realm. Trades are slow. Side-deals are trivial. Nevertheless, it is a market, and it is growing every day. The world of brokers, stock-jobbers, and individual speculators is beyond the scope of this post.

George Cruikshank
Apologies for the low resolution. I can't find a better scan.


The 2% return on “banked” money sets a lower bound. Investors in Endon want to park their money somewhere profitable, so a company has to offer more than a 2% return to attract investment. This helps us set the minimum share price.

[Price Per Share] = [Expected Profit Per Season] / [# of Shares]x[0.02]

Say you (the director or directors) expect annual profits of at least 1,000gp. You create 1000 shares, splitting the profit to 1gp per share. Therefore, you can charge 50gp per share and find buyers, as investors make the same money by investing in your company as they would by “banking” the money, and can reasonably expect higher dividends. This initial value is called the “par” value. 

The profit per share is called the "dividend". Dividends can be paid out at any time, but must be paid out at least once per Season, assuming the company made any profit. Special dividends are a great way to drive up a share's price, attract interest, and boost a company's reputation.

Assuming you keep 51% of shares for yourself and sell the rest, that’s 24,500gp in your pocket (formally called “paid-up capital”), plus 51% of any profit the business generates. But this is only the beginning of our machinations, the basic and unprofitable case.

Scheme 1: Whales, Sharks and Rubes

I should point out that this type of scheme is currently illegal (or at least difficult), but was, for hundreds of years, an accepted and entirely legitimate way to do business.

Say you expect annual profits of at least 1,000gp. You create 1,000 shares and go to your wealthy friends, the Whales. “Whales,” you say, “this company is sound, and the stock is a real corker. Grade A-1 stuff. I have 300 shares for sale at 50gp per share.” You want to keep 700 shares for yourself, both to retain control of the company and to sell later.

The Whales buy the 300 shares and you make 15,000gp. The Whales don’t care if your company turns a profit. They’re not in it for the dividend. They’re in it for the public sale. You hire boosters, newspaper-writers, baronets, and Snedges in all forms to promote the company. The Whales also boost the company. If you are wise or honest, you never outright state what profit you expect to make or the dividend you expect to provide, but you let others work out the calculations for you. Perhaps you aim for the moon. Perhaps you hint at a reasonable valuation. If you are dishonest or ambitious, you can promise dividends of 10%, 50%, 100%, or any number you care to name. Balance greed with credulity.

Whatever the result, when you go to the public sale, the share price is higher than 50gp. Say it’s 100gp. You’d only need 2,000gp in annual profits to make the price reasonable (and you just made 15,000gp from the Whales), but the Whales are about to make all their money back. They sell their 300 shares for 100gp each, earn a profit of 15,000gp, and exit the scene. If they sell too quickly and too obviously, it could drive the share price down, but Whales can be patient, and the market in Endon is opaque and slow. You sell 100 shares to the public and get another 10,000gp.

Who buys these shares? Mostly Sharks. Sharks might not have the deep pockets and connections of the Whales, but they can sense opportunity (or think they can, which often amounts to the same thing). They buy the shares at 100gp and turn around and sell them to other Sharks or to Rubes. Some Sharks win, some lose, some use their resources to keep the frenzy going.

Rubes are in it for the dividend, or because they want to be Sharks, or possibly because they think this magic piece of paper will transform into a bar of gold overnight. Rubes believe the hype, wholly or partially, and drive the price of a share up. Today it reaches 200gp. Tomorrow, it falls to 120gp. Thursday, to 250gp. Rubes live in the realm of margin trades, of short selling, and of other mechanisms we don’t need to deal with here, because this system is focused on running a company, not on stock trading. 

Think of this system as a casino. Whales own the casino, the adjacent hotel, the catering service, the taxi company, the insurance company, the bank, the undertaker, and a timeshare in the Governor. Sharks are card-sharps and experienced dealers. Rubes are playing the tables.

But alas, the fabulous dividends promised do not appear. The share price falls. Oh well, it’s not your company’s concern (unless you have used the shares as collateral at their inflated market price instead of at their par value). But you didn’t do that, right? Riiight? See Scheme 3 below.

Historical Example 1: The Compagnie des Indes

To meet the Regent’s desires for additional finance to consolidate his political situation both at home and abroad, Law put to use Banque Royale’s new powers to begin the machinations in the stock of Compagnie d’Occident that were to create the Mississippi Bubble in Paris. First, he formed Compagnie des Indes during May 1719 by merging his Compagnie d’Occident, which had the monopoly of trade with the West Indies, with both Compagnie des Indes orientales and Compagnie de Chine. To give this new Compagnie sufficient capital to outfit 24 ships of 500 tons each, Law proposed to issued 50,000 new shares with a nominal value of 500 livres tournois each, for a total additional capital of 25m. livres. To market these, he formed a group of associates who each promised to subscribe 1m. livres and, on their behalf, contracted to purchase the entire new capital stock for them and himself. Moreover, Law promised that his group would subscribe for the new shares at 110 per cent of par, and he paid out 2.5 million livres (the ten per cent premium) as a guarantee, which he stood to lose if he did not make the subsequent payments.

On the basis of this wager, which was well publicised, the Regent issued the decree authorising the formation of the new company. Shares in the Occident had already risen to 98 per cent of par and, on the day following the publication of the decree, rose to 120 per cent of par. By this audacious bet, Law had gained a ten per cent return for his small group of wealthy supporters. Of course, it helped enormously that Banque Royale, which he controlled as well, had issued another 270.7m. livres in banknotes the preceding week. These extra funds were obviously used to bid up the price of Compagnie shares available for sale on the Paris bourse.

-Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, Charles Mackay

Historical Example 2: CryptoZoo

Cryptocurrency is great. Actually, let me rephrase. Cryptocurrency is terrible, but it's great at generating comparisons to early stock markets, as it's largely unregulated, full of speculators hoping to find greater fools, is trying to entangle elected officials, and acts as a horrible mirror of human greed and folly. Modern stock market regulation makes the Whale and Shark scheme difficult, but not in the crypto world. See this video for one Whale, Shark, and Rube scheme among many:
Parts 1 and 2 provide some background info, but aren't required for our purposes. Alternatively, here's the scheme (as far as I understand it) satirized in a 19th century pastiche.

Perhaps I should speak of Messr. Paul. He had a handsome, boyish face and a mop of golden curls, which, combined with a reputation for brawling, gave him an insouciant and meretricious charm. He gave the impression of being simple, if not an outright fool, but certainly not a malefactor or a conspirator, and with his constant capering and schemes, not to mention his profligacy, attracted a great following among young men and boys who imitated his manners and aspired to his imagined wealth. These willing sheep he regularly fleeced with one scheme or another, confident that spring would bring new lambs and time would bring new wool. In this he differed little from other promoters of the age, save that he was more successful than most.

As all the world was at this time caught in a whirlwind of stock-jobbery and speculation, Messr. Paul and his close associates initiated a scheme, to wit: create a business, list the shares secretly for sale at a low price, buy up a great many, and then use their personal influence and wealth to announce the business and the shares to the world, promise dividends beyond the dreams of avarice, and thereby drive the price up, up, up a thousandfold, up tenthousandfold. When the price reached a certain threshold, Messrs. Paul and company would sell (in small chunks, discretely) and reap a very great profit.

The details of the business itself are immaterial. It may as well have been a railway to Hindustan or an apparatus for turning cucumbers into sunshine. The business was merely a prop to sell shares – in the parlance of the time, “tokens” – to the credulous public.

A certain unscrupulous trader by the name of Messr. Jacob was consulted on the scheme. As a veteran stock-jobber, promoter, and “King” among speculators, he offered cunning advice on a few points, and was duly allotted a portion of the shares.  But Messr. Jacob sought to scheme against the schemers and secretly purchased far more than his allotted number of shares before the public announcement. Though this was entirely legal, it caused great consternation among the associates of Messr. Paul. If Messr. Jacob sold his shares quickly, before the time agreed upon by the other conspirators, he could collapse the price and run away with all the profit.  The conspirators therefore performed remarkable substitution. A new type of share was created, with the stipulation that one share of the old type was equivalent to one share of the new type, save that shares of the old type held by Messr. Jacob were not thus linked. In a stroke, Messr. Jacob was cut out of the whole business. When Messr. Paul and company promoted the new shares, the old shares remained worthless, as the business connected to them never began, even on paper.

This perfidious double-dealing enraged Messr. Jacob, who threatened to expose the whole scheme, yet at the same time, Messr. Jacob, by the means of intermediary agents and his own familiarity with stock-jobbing, put his initial scheme into practice and profited greatly. A great many speculators, knowing the shares were worthless but hoping to trade them to others, were ruined when the scheme collapsed more quickly than anticipated and the underlying business was revealed as yet another castle in the air. No doubt some fools believed the promises of Messr. Paul, but the loudest cries came from those who, if invited to the scheme early, would have gladly swindled their fellows.

Scheme 2: Stock Buybacks

After issuing shares and running a company for some time, you might find that you're making more money than expected. Instead of a 5% or 10% dividend per share, you're in a position to report a whopping 500% dividend. No one outside the company knows about it yet. All that lovely profit, shared with people who aren't you. What a waste.

You could allocate that money internally, turning it from profit into research, equipment, employees, savings, or some other useful purpose, and report a smaller dividend. You could fiddle the books to report all your personal expenses as business expenses (but you've probably done that already, see Scheme 4 below).

Or you could spend the company's money to buy the company's shares on the open market (discretely, ideally, to keep the price low). That way, since you also own stock, you'll get a larger share of the pie when the dividend is reported. Oddly, your shareholders will still be happy; as the supply of shares on the market drops, their price rises, which is what most shareholders care about. Dividends are nice, but a high share price is better. Consider someone who bought a share at 50gp and, a day later, sold at 60gp. They made a 20% profit. They don't have to worry if the company is sound; they earned their "dividend" immediately. 

Can a company own shares in itself? Absolutely. Shares are property, and a company is a fictitious person. This creates a bit of weird circular math, as the dividend paid on shares the company owns are profit... which is split among shareholders in the form of dividends. 

George Cruikshank

Scheme 3: Collateralized Loans

The stock a company owns is an asset, like a building or a plot of land, that it can use as collateral to get very large loans at very favorable rates from banks or other businesses. Banks see the market price of a stock, not the par price, but if you are prudent you'll keep that par price in mind when taking out loans. It was calculated on a reasonable profit expectation, not the whims of the market. If a company doesn't have any collateralized loans, the market price of a stock doesn't affect its prospects as much.

Say your company owns 100 shares with a par price of 50gp but a market price of 100gp. A bank will lend your company 5,000gp at, say, 5% interest without blinking. As long as you expect your dividend to be higher than 5%, you're making a profit on the loan. You can pay off the old loan, take out a new one, and keep the ball rolling without selling stock.

You can do this with stock you personally own as well, but again, this exposes you to more risk. The bank will, if they're wise, set a lower bound on a stock's price and force you to pay the loan in full if the stock drops to that value. If the stock is merely declining, you might be able to sell some or all of your stock to cover the loan. If it's plummeting, or if the entire market crashes, or if you owe money to multiple creditors with the same stock as collateral, it's time to find a scapegoat, file a winding-up petition, and start all over again.

Scheme 4: General Extravagance

So you've launched your joint-stock company and money is rolling in. While your company's constitution grants you and the other directors an enviable salary, and your shares give you a fat slice of any dividend, the rest of the company's money can't be used for your benefit, right? If you believe that, I've got a bridge to sell you.

Extravagance is more-or-less mandatory. Build an enormous solid office, with marble pillars and all the classical touches, to convince the public that your business is sound. It needs an atrium; every good business must have a titanic atrium, the physical manifestation of a financial bubble. Host lavish dinners. Pay for a company carriage, a company band, a company charity, a company house, the latest fashions, etc. Though your business could be conducted in rented rooms above a warehouse, and the savings passed on to your shareholders, you'll make far more money if you spend money like water. It's bizzare and entirely legal.

Of course, companies were supposed to operate an internal check against directorial corruption and extravagance. While shareholders did not take an active part in management, they did possess significant supervisory powers. Most company constitutions enabled them to appoint directors, fix their salaries, examine the company accounts and call special general meetings to discuss pressing issues, and many more gave them additional rights such as the power to hire and dismiss managers, to remove errant directors and to dissolve the company if it was losing money. But recent research has questioned the extent to which shareholders were able (or willing) to use these powers effectively, especially when companies became larger as the nineteenth century progressed. Shareholders found it difficult to summon the necessary voting power at general meetings to defy the wishes of the board, as directors were able to marshal proxy votes to get their way. Flashes of shareholder activism usually receded in the face of steady dividends. It therefore became increasingly difficult for the proponents of joint-stock enterprise to point to their companies as manifestations of democratic principles rejected by the British state.


Directors were thus free to conduct their companies' affairs as wastefully as they liked. But some argued that companies were inherently extravagant for another reason. For private firms, extravagance spelt ruin, yet with joint-stock enterprise, the rules were reversed. Rather than prudence and economy, show and display were necessary for the success of a joint-stock company because it was by these means that it won the trust and confidence of the public.

-Creating Capitalism: Joint-Stock Enterprise in British Politics and Culture, 1800-1870, James Taylor

‘The secretary’s salary, David,’ said Mr Montague, ‘the office being now established, is eight hundred pounds per annum, with his house-rent, coals, and candles free. His five-and-twenty shares he holds, of course. Is that enough?’

David smiled and nodded, and coughed behind a little locked portfolio which he carried; with an air that proclaimed him to be the secretary in question.

‘If that’s enough,’ said Montague, ‘I will propose it at the Board to-day, in my capacity as chairman.’

The secretary smiled again; laughed, indeed, this time; and said, rubbing his nose slily with one end of the portfolio:

‘It was a capital thought, wasn’t it?’

‘What was a capital thought, David?’ Mr Montague inquired.

‘The Anglo-Bengalee,’ tittered the secretary.

‘The Anglo-Bengalee Disinterested Loan and Life Assurance Company is rather a capital concern, I hope, David,’ said Montague.

‘Capital indeed!’ cried the secretary, with another laugh—’ in one sense.’

‘In the only important one,’ observed the chairman; ‘which is number one, David.’

‘What,’ asked the secretary, bursting into another laugh, ‘what will be the paid up capital, according to the next prospectus?’

‘A figure of two, and as many oughts after it as the printer can get into the same line,’ replied his friend. ‘Ha, ha!’ 

-Martin Chuzzlewit, Dickens

[Our Directors] have learned
The more we spend on offices and fees;
Lawyers, surveyor's bills, a mile in length;
Acres and acres of advertisements;
The more we pay contractors, and delay
Closing accounts, the richer we shall be.
"Our company despises thrifty ways,"
Said Mr. Swindlebank the other day.
"Our means of making wealth are limitless;
The faster we can spend the more we're trusted."
-True Forgiveness: A Drama In Three Acts, Edward Howard

Scheme 5: Equity Dilution and Round-Tripping

Your Whale, Shark, and Rube scheme (Scheme 1, above) went so well that you'd like to do it again. There's only one problem. You don't want to sell stock you own, and you don't want to sell stock the company owns. You could buy back stock (Scheme 2, above), but that's inefficient. Can't you just... make more shares? Change 1,000 shares to 2,000?

You can. Just issue 1,000 new shares. You'll have to hold a meeting and existing shareholders may have to vote on it, but as we've seen that's no impediment. Holders of your old shares will be hopping mad, as the value of their shares just dropped, but if you're very persuasive and the promised dividends are high enough, the price will stabilize. Skeptical Sharks and Whales might question your company's need for an infusion of ready cash. Aren't you profitable? They might ask inconvenient questions, open books, drive the price down, and collapse the whole business. It's risky. But it can also enable an almost comical degree of financial chicanery.

Note that this is not a stock split, which is where you divide each existing share into two or more parts, to make them cheaper and easier to trade. You want your shares to be affordable, to attract the largest number of possible buyers.

Instead of diluting your stock, why not start another company? Acme Land Co. Ltd, meet the Acme Railroad Co. Ltd. This enables even more (mostly legal) schemes. 

  • Acme Land buys an invention from your Uncle Harry for 50,000gp and sells it to Acme Railroad for 100,000gp. "Knowing" it's worth 100,000gp, a different company you don't control buys the invention for 90,000gp, and thinks they've got a bargain.
  • Agents of Acme Land and Acme Railroad are seen constantly buying and selling land in a region. In fact, they're just moving the same parcels of land around for the same price, but the activity gets people interested in the area. Land prices skyrocket, and both companies sell out for a tidy profit.
  • Before you and the Whales sell your Acme Railroad stock, you have Acme Land buy some of the publicly available stock to drive up the price.
  • Acme Land takes out a collateralized loan against its stock, then uses the loan to buy worthless equipment from Acme Railroad Co. for an inflated price. Acme Land declares bankruptcy and winds up, but Acme Railroad got all the money, leaving creditors to fight over the remnants, and everyone else (whose liability was limited) in the clear. This isn't illegal as long as there's a veil of plausible deniability.

There are more schemes in heaven and earth than can be contained in this post, but I hope this has been an informative introduction to 19th century (and 21st century) finance. If you've got any favorite mostly legal schemes, post them in the comments.

Insurance, Banking, and Exchanges

Any business which can sell shares but also acquires money directly (in the form of bank deposits, insurance premiums, or currency and stocks to be exchanged) has a strong (some might argue overpowering) incentive to misuse those funds, and the leverage to escape penalties for their misuse.

The number of possible schemes these business enable is beyond the scope of this post, and also beyond the comprehension of this author. If you want to write an RPG about running a fraudulent insurance company, I'm all for it. Good luck.

William Heath

Final Notes

What a mess. Who is to blame? The people?
After noticing the fact that about once every ten years the British public finds itself worth several hundred millions less than it had supposed, and that people do not learn wisdom by the disappointments they undergo, because each new delusion has such distinct characteristics that it cannot be identified with its predecessors, and though, like every delusion, it is monstrous when found out, it remains a remarkable discovery - but, asks the Times: -

“Who are really at the bottom of this huge mischief? The true authors are they who are bringing down their own house over their heads – the public themselves. Such is the universal rivalry, and such the habit of expenditure all about us, that people will not be contented with the tedious 3 per cent. – a little more just now – and their souls crave for the more solid and savoury profits of the trader. But to trade is to lose caste, and for the means of living to lose life itself. So the universal wish is, with a little cleverness and happy audacity, to reap the rich harvest of trade without undergoing the primaeval sweat of the brow. People want their 6, or 8, or 10 per cent., and more, if the wish be lawful. So they want something which, under some convenient neutral name, shall yield to them the interest, not of trade, but of speculation. The machinery which has now broken down, not without abundant warning, has only been devised to supply this want, though it has, no doubt, fed the flame. Everybody who has shared the general fascination thinks he can stop in time. This is impossible. The public are gregarious in their tastes and in their misfortunes. All instincts of speculation, as well as its processes, keep the victims in the train and forbid escape.”

-Victoria Magazine, V7, 1866

Or the capitalists?

Numerous historians have argued that the reforms of 1855-6 were the fruit of a decisive shift in the state’s economic policy priorities. In his aged but still influential thesis, James B. Jefferys claimed that the limited liability legislation marked the ‘victory of the investing classes over the industrialists’. A united front of commercial and landed interests, professionals and MPs, frustrated by the lack of profitable investments open to them in the early 1850s, conspired to secure the passage of limited liability to extend outlets for rentier capital. Such a reform was possible, David C. Itzkowitz has more recently argued, because of the emergence of new attitudes to joint-stock investment. Encouraging us to view the limited liability legislation in the context of the ‘domestication’ of speculation which occurred in the first half of the nineteenth century, Itzkowitz writes that ‘henceforth, speculation increasingly came to be seen as a reputable activity and speculators as respectable economic actors’.

The framework of law was therefore restructured in order to encourage what was now seen as a legitimate, and in fact beneficial, form of economic behaviour.

-Creating Capitalism: Joint-Stock Enterprise in British Politics and Culture, 1800-1870, James Taylor

I don't know. As they say, the game is rigged but it's the only game in town. At least now, you know some of the rules.