How Did Stock Markets Develop?
Stock markets developed over the last few centuries into companies issuing shares and investment opportunities to shareholders. Stock markets very much drive modern economies but the ideas behind them are a few centuries old. Nevertheless, the concept of investing into firms or organizations that reap rewards for shareholders engaged in trading is an ancient one and goes back millennia.
Investments and shared ownership ideas have been around for millennia. Already in the Old Assyrian period, about 4000 years ago in what is today Turkey and Northern Iraq, there were investment families living in the city of Ashur, in northern Mesopotamia, who conducted trade transactions with representatives, often from the same family, in Anatolian cities such as Kanesh. These family firms would also have investors who would pool money that would then fund trade caravans. Successful trade would bring great reward for investors. Similarly, in the Roman and Classical period, enterprise, often dealing with long-distance trade, would involve wealth families jointly investing and holding shares in trade endeavours.
In the Medieval period around the 12th century, in France, debt held by banks would be traded. Similarly, the Venetians in the 13th century traded government securities, similar to bond markets. Soon, companies began to issue shares as a means to also finance their enterprises, somewhat similar to the Old Assyrian trade colonies. This practice continued to spread in Western Europe, with England and Holland creating trade houses that would issue shares for companies during the 16th century. This led to the emergence of the idea that companies can also be owned by shareholders, creating formal joint stock companies that would have many individuals rather than a single family business. The biggest changes, however, occurred in the early 17th century, when the Dutch East India Company issued shares that were distributed to the public for purchase and investment. While having shares in a company goes back to antiquity, this development was pioneering because it was persistent trade of shares in a public format that enabled a market around shares to develop. Amsterdam soon became a new entrepreneurial center that not only developed the idea of a market where shares would be traded but also it developed other forms of investments that we have today, including options and more speculative growth investments about the direction in which the company may go. The emerging stock market in Amsterdam began to have formal trading hours and soon even a book, called Confusion de Confusiones, written in 1688 by Joseph de la Vega, described how to actively trade in the stock market.
The idea of a stock market began to spread throughout Europe. London soon emerged as a key center, with traders at first meeting in a coffeehouse in the early 18th century. The coffee house became very active for trade and soon was completely take over by traders who formalized the name "stock exchange" in the English language.