Book review: The First Stock Exchange (not quite) - Lodewijk Petram

Como diz o resenhista, o livro não é o que parece. Ele trata das primeiras interações de títulos e ativos financeiros, ou seja, relações de mercado, na Holanda do século 17, mas não da primeira bolsa do mundo, que só surgiria depois, e não na Holanda, mas na Inglaterra.

Em todo caso, trata-se de uma história relevante para todos os que lidam com história econômica. O próprio resenhista é um especialista no assunto.

Paulo Roberto de Almeida 

Published by EH.Net (December 2015)

Lodewijk Petram, The World’s First Stock Exchange.  New York: Columbia University Press, 2014. vi + 296 pp. $30 (cloth), ISBN: 978-0-231-16378-1.

Reviewed for EH.Net by Ranald Michie, Department of History, Durham University.

The subject of this book is the world’s first stock exchange, which the author locates in Amsterdam in the seventeenth century. As becomes apparent in the text (pp. 181-82), no stock exchange was formed in Amsterdam at that time. The Amsterdam Stock Exchange Association was not established until 1876 and it did not occupy its own building until 1913. Both these events were long after stock exchanges had been founded in numerous other cities in the world, such as London and New York. What the author confuses is trading in corporate stocks and a stock exchange.  The former is a market whereas the latter is an institution. This difference matters because of the important contribution that rules and regulations make to reducing counterparty risk, eliminating price manipulation, addressing trading abuses and ensuring the permanence and continuity of opportunities to buy and sell.  That leads to a question that this book does not answer. Why was a stock exchange not formed in Amsterdam in the seventeenth century given the early start that was made there in establishing a market for stocks and the need to respond to all the problems it led to for those involved?  Clues are provided in the text to such a question but it remains unanswered because it is not asked.

The failure of the author to distinguish between a market and an exchange, and then discuss why the former did not lead to the latter in seventeenth century Amsterdam, is a pity because the book contains much of interest and relevance. The material that the author uses is largely that generated by disputes between those involved in this early stock market whether they were investors, brokers or dealers. Using this legal material provides a great deal of depth to an understanding of this early stock market but the overall result is rather episodic. Lacking the material produced by an institution such as a stock exchange, as there was none, there is no sense of development. Instead, there are a series of glimpses into a world in which the owning, buying and selling of corporate stocks gradually emerged from the shadows and took on a tangible form. The way this is presented is at variance with normal academic practice. Despite being based on a Ph.D. the focus is on telling a story based on the life and times of individuals, and extrapolating far beyond the evidence gleaned from the court records and business papers available. This makes the book very readable but at the expense of analysis and explanation.

Central to the narrative is the VOC (the Dutch East India Company), as it was the shares issued by it which provide the material out of which the early stock market in Amsterdam grew. As a trading company sending ships to Asia, its business prospects were highly uncertain, being exposed to the vagaries of weather and war as well as those of long-distance commerce, making its dividends a great unknown until formally declared by the directors.  At times large dividends were declared while at others none resulted, while payment could be in anything from commodities like cloves, government bonds, or actual money. It was this uncertainty that generated a great deal of market activity as it attracted speculative interest, driven by news and rumors, as well as those looking for a permanent investment, willing to accept both losses and profits over the long run.

In turn the very volatility associated with VOC stock gave it a liquidity that attracted another class of investor. These were people, such as the merchants, with temporarily idle funds who looked for a suitable investment while waiting better paying opportunities. The stock market that developed in seventeenth century delivered this. Increasingly it became possible to trade in VOC shares not only for immediate delivery but also forward, providing opportunities for those with spare funds to employ them in this market or those in need of such fund to access them. Contributing enormously to the operation of this market was the use of options and the appearance of a growing number of brokers and dealers, as these provided those trading in VOC shares with a continuous market and ways of either increasing or reducing the risks that they took. These developments are expertly documented in this book and the reader is provided with a wealth of evidence detailing the way the market operated in the seventeenth century. That makes the book an invaluable addition to the literature on the history of securities markets.

The conclusion reached by the author is a rather negative one as he says little of value about the developments that took place in share trading in Amsterdam in the eighteenth century. The stock market was confined to the shares of one company, the VOC, with only one other being formed, the Dutch West India Company (WIC), which was not a success. In addition, the interpretation presented here focuses on the speculative element of share trading, which is inevitable given the material that is relied on. Disputes were usually generated when one party to a deal looking for a way of reneging on it when the outcome meant a large loss for himself. What is lost in this approach is the connections between the market in VOC shares and the wider money market and the complex world of international payments. There are hints of these connections in the book but they are not taken up. Reflecting the weakness of this element of the book is the lack of understanding of the developments being made in the rival stock market in London from 1694 with the formation of the Bank of England, as its shares could provide the depth and breadth that those of the VOC lacked, as it was a proxy for the debt of the UK government.

Ranald Michie is author of The London Stock Exchange: A History (1999) and The Global Securities Market: A History (2006), both published by Oxford University Press. He is currently completing a book entitled British Banking: Continuity and Change since 1694, also for Oxford University Press.  He recently retired from Durham University as emeritus professor and is currently teaching at Newcastle University Business School.

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