The Fruits of Civilization (31-2) Stock Markets

Stock Markets

The origins of the joint-stock company are lost in the mists of history. Roman companies that were organized to collect taxes and provision the Empire traded shares intermittently. In the mid-12th century, a 300-year-old water mill in southern France divided its ownership into shares.

During the 12th century, French banks had traders who managed agricultural debts on their behalf. This was the first systematic instance of brokerage.

From the mid-13th century, Venetian bankers traded government securities. By the mid-14th century, the Venetian government was concerned enough about the trade to outlaw spreading rumors which might raise the price of government debt.

The Dutch East India Company was the first venture to issue shares of stock to the general public. The reason was simple: risk. Few of the earliest voyages to the far East made it back. Investors grew trepidatious of financing individual ships on these perilous ventures. To engender investment, in 1602 the Company issued shares for its fleet, and a stake in the profits the Company made. Soon thereafter, Dutch traders creatively pioneered various derivatives, and invented short selling – a practice which the Dutch authorities banned as early as 1610.

The South Sea Bubble soured the British authorities on joint-stock companies not under the royal thumb. Despite the Bubble Act’s ban on issuing shares, the London Stock Exchange formed in 1801: more a lobbying endeavor than stock exchange at its onset. The British government finally relented on share issuance in 1825.

The first American stock exchange was founded in Philadelphia in 1790. As the burgeoning hub of continental trade, New York’s stock exchange, founded in 1817, quickly overshadowed Philadelphia’s.

Industrialization on the European continent lagged behind Britain and the United States primarily because the French and Germans did not trust their financial institutions at the time. While the continental European entrepreneur was no less clever or diligent than his English or American counterpart, he had less access to capital.