subscribe
Apple | spotify | Amazon | Player.FM | tuning
cast box | Podurama | Podcast Republic | RSS | Patreon
podcast transcript
More than 400 years ago, a group of Dutch investors had an innovative idea.
They were embarking on an incredibly risky endeavor and were looking to share ownership of the new venture to spread the risk.
Even better, each piece of ownership in this venture can be bought or sold to other investors.
Their innovations make them one of the most powerful economic forces in the world today.
Learn more about how stocks and stock exchanges were formed and how they work in this episode of Everything Everywhere Daily.
Most of you have some familiarity with stocks and stock exchanges. I'm sure many of you own stock in some company, either directly through a mutual fund or retirement account, or in a small business where you are a sole proprietor.
Stocks and stocks are actually different, but very closely related concepts.
Stocks are ownership of a company. When a company sells stock, it is selling partial ownership. The stock can then be purchased by individuals or other companies. So technically you're not buying a stock, you're purchasing a stock.
These stocks can be bought and sold based on market prices, depending on the company and country. A place where stocks are bought and sold is called a stock exchange.
To understand the origins of stocks, you must first know the origins of companies.
The corporation as we know it today is a relatively modern concept.
The company's origins date back to ancient Rome. But it was nothing like modern corporations.
The word 'corporation' comes from the Latin word ''.body,” It means “body,” and specifically in this case “the human body.”
There were several terms for organized groups in Rome, including Universitas, Corpus, or Collegium.
They may represent a variety of organizations, including burial societies, religious groups, social clubs, and merchant guilds.
In the late Republic, some collegia actually turned into organized crime, and in Julius Caesar's region, collegia had to be approved by the Senate and given legal authority.
Like modern corporations, these universities also had their own legal rights. They can own property, have their own treasury, and enter into contracts. Where they differed was in their ownership structure. Because they dealt with so many different types of organizations, they were more similar to cooperatives or non-profit organizations.
The idea of organizations able to act in their own rights was revived in the Middle Ages. At that time, the corporate ideology was not necessarily about making money or pursuing commerce. Many municipalities and churches were incorporated.
The idea was to create an organization that would survive on its members. The organization will survive forever. It was not a question of ownership or interest, but rather the creation of a legal framework and set of rules for a group of people. These companies didn't necessarily issue stock.
The City of London Corporation was founded in the 12th century.
One of the world's oldest companies is the Stora Kopparberg copper mining company in Falun, Sweden, founded in 1347.
There are companies in Japan that started much earlier, but these were family-run institutions rather than corporations with separate legal entities. bean? The history of Japan's Gumi Construction Company dates back to 578.
During the Tang and Song Dynasties in China, there was a form of business known as haben. These prototype companies had several investors who received a portion of the company's profits.
At the same time that institutions were consolidating in medieval Europe, something else was happening.
A market for buying and selling debt began to develop. The idea of debt, which will certainly be a future episode, goes back to writing. The Code of Hammurabi deals with debt.
This fan symbol was founded in Venice in the 14th century. A broker with a list of all available debts will try to match buyers and sellers. They also eventually got into the business of buying and selling government debt.
These were the first brokers to broker transactions between buyers and sellers.
The real innovation that created modern corporations and stock ownership occurred in the Netherlands in 1602.
The Dutch government granted a charter to the Dutch East India Company. This charter gave the company a 21-year monopoly on all trade in Asia.
Charters and trade monopolies were not groundbreaking aspects of the company. What changed the game was that the Dutch East India Company was established as a special type of joint stock company.
The company was not a partnership or cooperative. The company's ownership shares can be purchased by any citizen of the Dutch Republic and then sold on the secondary market. Ownership of a company and distribution of profits were proportional to the number of shares someone held.
The company had two classes of stock. 76 participants who are not managers of the company and Bewindhavers who are managers. The liability of all shareholders, including bewindhebbers, was limited to the amount paid.
Previously, in such commercial undertakings, bewindhebbers had unlimited liability and were liable to lose everything.
The Dutch East India Company also continued to operate. Previously, investors would come together for one voyage and share the profits and risks.
An issue of shares by the Dutch East India Company led to the establishment of the Amsterdam Stock Exchange just a few months later. It was the world's first stock exchange.
To be sure, there wasn't much of a stock exchange in the sense that there was only one stock being traded, but it was the first time that a company's stock was publicly traded on an open market.
The organization of the Dutch East India Company was a great success and was soon imitated in other countries. Other limited partnerships, such as the British East India Company, eventually traded their shares publicly.
One of the regions where the venture was perceived as risky was North America. Many of the early colonies established were limited partnerships. So these joint ventures were very natural for people living in the American colonies.
Notably, the Dutch West India Company, which founded New York City, was another company organized on similar principles as the Dutch East India Company.
By the 18th century, stock trading had become common in New York. But it was very informal. Traders would often gather at the city's Button Tree where they could meet one another to buy and sell stocks.
In March 1792, they met to resolve the problem that stock trading had become too disorderly and confusing. After several weeks of negotiations, on May 17, 1792, they signed what became known as the Buttonwood Agreement.
The main contents of the agreement are as follows:
We, as subscribers and brokers for the purchase and sale of public securities, do hereby solemnly promise and covenant that from this day forward we will not buy or sell any public stock of any kind to any person at a lower price. We will set the commission higher than 1/4% of Specie value and give each other priority in negotiations. We have this testimony in hand at New York, May 17, 1792.
This contract became the basis for the New York Stock Exchange.
The 19th century saw an increasing need for large-scale capital raising. Railroads, mining, and manufacturing were bigger businesses than ever before. They demanded an amount of capital that could only be raised on the open markets.
In England, the Limited Liability Act of 1855 and the Limited Partnerships Act of 1856 established the legal framework for the structure of publicly traded companies.
The New York Stock Exchange was trading over 300 stocks and bonds by the end of the Civil War and moved to its current location in 1865.
Over time, stock exchanges became larger and busier. More stocks were being traded, which meant more traders. The physical act of trading stocks has become extremely frantic, noisy, and specialized.
The exchange was open, with hundreds of traders shouting at each other, trying to buy and sell thousands of different stocks. To enable transactions even in chaos, various systems such as hand signals and colored coated jackets have been developed.
An important moment in the history of stocks and stock trading occurred on October 24, 1929, a day known as Black Thursday. At this time, the New York Stock Exchange lost half its value in one day.
The collapse of the U.S. stock market triggered a decline in stock markets around the world.
The United States also saw major regulatory reforms, including the U.S. Securities Act of 1933 and the Securities Exchange Act of 1934.
Stock trading is fundamentally about information. Throughout the 20th century, information technology continued to advance and was incorporated into stock trading.
In the 1970s, video monitors showing stock data were first added to the floor of the New York Stock Exchange.
Perhaps more importantly, in 1971 the National Association of Securities Dealers launched a new electronic stock exchange known as NASDAQ (National Association of Securities Dealers Automated Quotations).
There was no busy trading floor on Nasdaq. All work was done on a computer terminal.
For many years, Nasdaq was a very small exchange, but many technology companies that went public in the 1980s and '90s chose to list their stock on the Nasdaq exchange because it was cheaper.
It has now grown to rival the New York Stock Exchange in terms of listed stock value.
The New York Stock Exchange has computerized most of its systems but still has a trading floor, even though it is not really needed. During the 2020 pandemic, they switched entirely to electronic trading for several weeks.
As the Internet grew in popularity, stock trading shifted entirely from brokers to consumers. Now, ordinary investors can trade stocks directly from their computers as well as their smartphones.
In addition to technical changes, there have also been changes in the products available. In addition to individual stocks, it has become possible to purchase bundles of mutual funds that collect stocks purchased by fund managers, index funds that reflect indices such as Down Jones, exchange traded funds, and ETFs. A financial contract whose value is derived from an asset class, which is an asset that can be traded like a stock, a derivative, or an underlying asset.
It's important to note that when stock prices rise, companies sometimes split their shares to make prices more reasonable. The average stock typically sells in the tens or hundreds of dollars per share.
However, some companies have never split their stock, resulting in extreme prices for a single stock. As I write this, the price record for one share of stock is Berkshire Hathaway Class A, currently selling for $618,133.66 per share.
Stocks and the exchanges on which they are traded have become an essential part of the global economy. It is not only an important source of capital for businesses, but also a pillar of the investment and retirement funds of millions of people. It began 400 years ago in Amsterdam when Dutch stock traders traded single stocks.
The executive producer of Everything Everywhere Daily is Charles Daniel.
Associate producers are Benji Long and Cameron Kieffer.
Today’s review is from a listener. I| Dnd Goblin I| On Spotify. They are few:
hello. I recently listened to all the episodes. I would like to be the first Estonian member. Could you please do an episode or two about the Baltic region?
Hopefully, you will read this. jasper
Thanks, Jasper! There will definitely be episodes about Baltis in the future. I had the pleasure of visiting all three Baltic countries a few years ago, and also got to visit Saaremaa and Tallinn in Estonia.
Remember, if you leave a review or send us a boostgram, we may read it on air.