The World's First Stock Exchange

By Silber, Kenneth | Financial History, Spring 2014 | Go to article overview

The World's First Stock Exchange


Silber, Kenneth, Financial History


By Lodewijk Petram, Columbia Business School Publishing, 2014 304 pages with illustrations, notes, bibliography and index

TALK ABOUT a ground-floor opportunity. In 1602, residents of the Dutch Republic could buy shares in the new Dutch East India Company (Vereenigde Oost-Indische Compagnie, or VOC), which had been granted a monopoly on Dutch trade with Asia. In so doing, they were participating in the beginning of the first real stock market.

Whereas previous shipping ventures typically focused on a single voyage, the VOC had a longer time horizon: initially 20 years, with an option for investors to cash out after 10. (The company lasted nearly two centuries.) Lest that timeframe worry investors, the VOC's directors included a provision, not explicit in earlier enterprises, for "conveyance or transfer" of shares - meaning they could be sold.

The World's First Stock Exchange, by Dutch economist and historian Lodewijk Petram, is a lucid and absorbing account of how a sophisticated equity market developed in 17th century Amsterdam. Trading in VOC shares gave rise to market makers, brokers, forward contracts, short selling and options trading. There were bear raids, worries about widows and orphans, lawsuits and a frantic scramble for information even without phones, cable news and Bloomberg terminals.

The market had barely gotten off the ground before cases of fraud were being litigated. A man named Hans Bouwer was an innovator in securities crime, working with a corrupt VOC bookkeeper to sell the same shares to multiple people. The legal wrangling that resulted helped to clarify several points. Among them was that the buyer of a share was not responsible for investigating the history of transactions in that share.

Petram traces the rise of a Jewish community of traders and investors, with roots in Portugal and Spain, distinct from the Protestant community that initially dominated the Amsterdam market. He argues that the rise of brokers resulted in large part from the need for intermediaries between these groups, as market participants no longer did business only among people they knew well.

The 1688 book The Confusion of Confusions, by Joseph Penso de la Vega, a Jewish Amsterdam merchant of Spanish background, has shaped modern awareness of the early Dutch stock market. Petram suggests that claims for this classic as a history or investment guide may be exaggerated, but that its value lies in its uniqueness and sense of drama. …

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