Perpetual Debt and Equity

The methods and structures used by financial institutions have not been around forever. They were not used by the Egyptians, Greek, Romans. There were no corporations in the Golden Age of Venice. Paper money is only a few hundred years old.

What is interesting (to me) is how even that simplest of financial instruments took a while before all the terms we use today became the norm.

Case in point, the bonds issued in 1624 by Lekdijk Bovendams, a municipal organization that built dikes in the Netherlands.

Why is this bond still paying interest 400 years later? Because 400 years ago the idea of a bond having a maturity date wasn’t yet the norm. That may sound simplistic, but so is the norm that ownership in shares of a company are perpetual.

Shares of a company are first and foremost a right to a share of the profits. If I pay a company 100 guilders for a share of the company, if the company lasts 400 years it should still be paying a dividend. In terms of cashflow, that is no different than a perpetual bond. The two differ in other rights, but those are immaterial for any company still operating 400 years later, where the original shares still exist.

When you dive into the history of corporations, you discover that corporate charters had expirations dates. So perhaps all this perpetuity is just a side effect when the norm 200 years later was for corporations to be perpetual. The terms of the equity and debt simply followed with that change, and by then debt typically had already adopted a maturity date and few companies had surived 200 years to bother asking if equity should be shorter than forever/perpetual.