History of Stocks

With all the tools and technology available to meet the increasingly complex demands of the financial markets today, it may seem as if stocks are a modern concept designed for the modern finance world. Yet the core idea behind shares and investors is as old as the concept of business and trade, existing since the earliest human civilizations. Here’s a (very) condensed version of the fascinating history of the concept of stocks, which will hopefully not only fulfill a sense of curiosity but also provide a picture of why owning stock is such a powerful financial tool for building wealth.

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Early investments

In Mesopotamia, clay tablets from as early as 2500 BCE provide records of merchants entering into contracts with various people exchanging financial resources for an agreed-upon share in the profits of the business. These agreements are among the earliest examples of the concept of financing a business venture by dividing it into parts and selling those parts to other people. For the ambitious merchant just starting out, this was a way to fund his operations so he could take his venture further than he could on his own. And for the people backing him financially, they were willing to take the risk for the possibility of an eventual payout.

Early shareholding companies

In the 14th century, In Toulouse, France, the Société des Moulins de Bazacle was formed when mill owners along the Garonne river signed a profit-sharing agreement when they pooled their savings together to finance the construction of dams as well as handle the maintenance costs. This led to the creation of 96 uchaux, or shares, which entitled the shareholder to 1/16th of grain milled. These uchaux were anonymous, allowing the quick transfer of ownership, and could be bought and sold at prices that depended on how well the mill was doing at the time of the transaction. In response to the failure of one of the millowners to pay a debt to one of the merchants, the Société was one of the first organizations in Europe to elect bailies as a de facto board of directors to make decisions independently of the shareholders, essentially recognizing the organization as a separate entity and thus providing certain protections for the shareholders. Long before concepts such as discounting to present value or risk adjustment were defined and formalized, shareholders in Toulouse were already making financial decisions based on these ideas.

Early stock exchanges

Traditionally, any time people wanted to exchange financial securities, the exchange would occur between two individuals by mutual agreement. In Bruges, in present-day Belgium, many of these exchanges took place at the inn of the Van der Beurze family. Eventually, the inn became a place where merchants could view exchange rates, and where anyone wishing to buy or sell a financial security could unite under the same roof and pair up. This was not a formalized institution established with the express purpose of permitting such trades, but it fulfilled the basic functions of what we know as a stock exchange today. In fact, the Van der Beurze family has given its name to the stock market in multiple languages (bourse in French, borsa in Italian, börse in German, birža in Russian, børs in Danish…). 

Early IPOs

The Société des Moulins de Bazacle might have been one of the earliest examples of a shareholding company, but any history of the concept of stocks and the stock market would be remiss not to mention the Dutch East India Company. At the time, most companies would only raise capital from a small private circle of investors, or would be much smaller in scale, frequently only pooling their resources for one voyage at a time. The Dutch East India Company, also known as the Vereenigde Oostindische Compagnie (VOC), was formed in 1602 and allowed any Dutch person to purchase stock in the company, with no minimum investment. While the VOC charter stated that the company would provide shareholders the option of exchanging their shares for cash after ten years, it also permitted the transfer of shares to another party before that ten-year period. As such, the VOC expanded and formalized many of the practices of its predecessors. 

Early stock market indices

As such companies and practices became increasingly widespread and complex, and more and more stock exchanges arose around the world in cities such as London, Tokyo, and New York, investors wanted new ways to track how the markets were doing overall. In 1884, American journalists Charles Dow and Edward Jones selected a group of 11 railroad companies and 2 industrial companies to create the Dow Jones Railroad Average. The first average of purely industrial stocks, which they called the Dow Jones Industrial Average, appeared in 1896. Since then, the Dow Jones has constantly shifted as companies and industries are reevaluated, with companies with higher stock prices exercising a greater influence on the index. Such indices have been tradable since the 1970s.

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Of course, there are many other noteworthy institutions and historical developments that have played major roles in shaping the concept of money and how it moves. And now, with Hush, we hope to take you to the next step by empowering you to benefit from these practices.

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