History of the Stock Market

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What is the stock market, and why was it formed?  For many people, investment is seen as a way to change their lives and assure their future.  Some see only potential, while other see desperation and loss.  In the past, the stock market was for the elite and the wealthy.  So who formed the modern stock market, and what were their intentions?

Although the idea of holding shares in a joint venture has been around as long as humans have been trading, the world’s first publicly traded company was the Dutch East India Company. Stockholders held a certain percentage of the company so that even if some exploratory ships were lost, the investors’s profit was not.   This was counter to the times when it was usual practice for one investor to outfit a voyage and then collect the returns on that voyage.  However, because so few of the ships were returning, the Dutch East India Company was formed to shield each investor by distributing both the profit and the loss of ships across many investors, thus assuring at least a portion of success for everyone.  This introduced the modern concept of “limited liability“.

This system has been seen in France, Belgium, and Italy as early as the 13th Century.  However, it was not until the rise of America’s second stock exchange, the New York Stock Exchange (NYSE) that trading truly began in earnest.  Although many European cities had their own stock exchanges (London, Amsterdam), the NYSE on Wall Street has become synonymous with capitalism since its formation in 1817.  Why was New York so prominent?  Probably because the London Stock Exchange hadn’t been able to trade stocks since a trading ban was put in place in 1801 until 1825 due to the number of fraudulent companies and the lack of regulations that trading had previously seen.  The NYSE soon became a world trading headquarters, while London remained a mainstay of European trading.

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