What do stocks, bonds, mutual funds, and exchange traded funds all have in common? No, not that you’re getting rich off of them (although that’s a good guess), but something different. Like all concepts in history, these things can be traced back to a single points in time and place. Similar to the massive enterprises of today that started in garages and basements, your portfolio had quite a humble beginning. Due to a handful of Dutchmen over 400 years ago, you have the freedom to win (or lose) it all in the stock market. This is the story of the world’s first stock exchange. It is the beginning of the 17th century. In Europe, this period was marked by the rise of imperialism. By now, all major European powers had fully broken through the stranglehold of the medieval age and were beginning to expand vigorously outside of its own continent. The Spanish and Portuguese had already set up colonies across the Americas, and amidst their blitz had summated considerable fortunes. The vast reserves of Spanish and Portuguese gold and bullion were the apple of Europe’s eye; however, other countries had to look elsewhere for these riches. While the Iberian powers focused on the west, the others looked eastward.
The 17th century was the golden age for the Dutch Republic. By 1602, the Dutch nation had only been independent from the Spanish crown for 21 years, this new country was already distinct from its neighbors; its political structure was quite the opposite of its absolutist counterparts. The Dutch Republic was divided into multiple autonomous states, with the only form of true unified governance coming from its states general. These states were also divided into smaller delegations ruled by their urban elite - thereby giving less power to their central government. The fact that the Dutch Republic's elite were urban, instead of countryside, was a key factor in the formulation of the first stock exchange.
In other countries where land was plentiful, individuals comprising the most elite echelons of society would commonly invest their wealth into their countryside estates. In the Dutch Republic - a small and highly urbanized country - this was simply an impractical method for making money. Instead, the elites would invest their money into more modern ventures, such as shipping, banking, and industry. This method of investment made the Dutch exceptional traders and sailors, giving them a competitive advantage in both fields against other European powers at the time. The Dutch Republic was a maritime superpower, having more ships than Great Britain, France, and Spain combined. By the 17th century, Dutch traders were the most lucrative in the world, with their endeavors stretching from Africa to the Orient.
In 1602, the Dutch states general took action to officially charter the Dutch East India Company. This was not just a move to capitalize on the profitability of the spice trade, but a political one as well. The English had charted its own East India Company, and the Portuguese were harassing their trade by colluding with Hanseatic merchants. The chartering of the company made it a permanent and semi-autonomous corporation that would have a de facto monopoly on all trade in Asia. This company, however, needed money - desperately.
Being that the Dutch fully embraced a decentralized government, it had little ability to levy substantial taxes for state affairs. The government and the Dutch East India Company were keenly aware of this, so, they had to rely on its wealthy urban elite to buy company stock. Prior to the charter, stock would commonly be traded in coffee houses, private residences, or even under trees. A venture this immense would require tens, if not hundreds, of investors. So, the idea was simple - erect a building with a courtyard large enough to fit such a spectacular amount of traders and brokers. It would be a place where the well-to-do and entrepreneurial could exchange stocks, aptly (and obviously) called a stock exchange. Coinciding with the chartering of the Dutch East India Company, the world’s first stock exchange was built among the cobbled streets of Amsterdam.
The rest is history. The Amsterdam Stock Exchange served as the model for all stock exchanges created in the following years. It was the first place where hundreds of investors could meet freely to buy and sell stock in any company that issued stock. Today, it is no longer known as the Amsterdam Stock Exchange, but instead as Euronext, as a name change came after the 2000 merger of the Amsterdam, Brussels, and Paris stock exchanges. Almost all trades globally go through physical stock exchanges just like the one in 17th century Amsterdam, and maybe even some of yours. So, next time you win big or lose it all in the market, just remember to thank (or curse) those Dutch financial pioneers.
Sources:
Beattie, Andrew. “The Birth of Stock Exchanges.” Investopedia, April 17, 2007. https://www.investopedia.com/articles/07/stock-exchange-history.asp.
“Dutch East India Company | Dutch Trading Company.” Encyclopedia Britannica. Accessed January 7, 2018. https://www.britannica.com/topic/Dutch-East-India-Company.
“Dutch Republic | Historical State, Europe.” Encyclopedia Britannica. Accessed January 7, 2018. https://www.britannica.com/place/Dutch-Republic.
“Economic History of the Netherlands (1500–1815).” Wikipedia, December 27, 2017. https://en.wikipedia.org/w/index.php?title=Economic_history_of_the_Netherlands_(1500%E2%80%931815)&oldid=817371096.
“Euronext Amsterdam.” Wikipedia, December 6, 2017. https://en.wikipedia.org/w/index.php?title=Euronext_Amsterdam&oldid=814052795.
“The Dutch in the 17th Century.” Accessed January 7, 2018. https://faculty.history.wisc.edu/sommerville/351/351-08.htm.