History of Finance

The Royal Exchange in London, established by Sir Thomas Gresham in 1571, was the first purpose-built center for merchants to trade commodities in England. Gresham’s vision was to create a central trading hub that would rival the Bourse in Antwerp. The Royal Exchange became a gathering place for traders dealing in various commodities, such as spices, textiles, and metals.

As the center of commerce in London, the Royal Exchange contributed to the growth of the city as a global financial center. It facilitated not only trade but also the exchange of information and ideas among merchants, laying the groundwork for the modern commodities markets. The Royal Exchange has been rebuilt twice after fires destroyed the original building in 1666 and 1838.

The Dutch East India Company formally announced its IPO in the corporation’s founding charter on March 20, 1602. The company invited all Dutchmen to invest when shares became available for purchase in August 1602. The general public’s ability to invest in this share offering was what made this first “IPO” so unique, as previously companies raised capital from small groups of wealthy investors. When the IPO subscription period ended on August 31, some 1,100 investors had purchased shares in the IPO.

Isaac Le Maire was originally on the Dutch East India Co. (VOC) board of directors, but stepped down in 1605 amid controversy. To exact revenge on the VOC, he began a short-selling campaign (i.e. “bear raid”) designed to bring down the company’s share price. Some historians consider this an early form of shareholder activism, as Le Maire felt the company was making decisions against the interest of shareholders, and felt the only way to gain their attention was through shorting the stock.

The Dutch East India Company’s (VOC) paid its first dividend to shareholders in 1610. While the company was formed in 1602 and benefitted from an incredible monopoly on trade, it was only after incessant demands from shareholders like Isaac Le Maire that the VOC finally agreed to pay a dividend eight years after its IPO. However, this first dividend was paid in spices. Shareholders received “mace at a value of 75% of the nominal capital”. The VOC’s first cash dividend was not paid out until 1612.

The roots of modern stock markets can be traced to early 17th century Amsterdam, where investors in the Dutch East India Company needed a forum for trading shares on the secondary market. The Amsterdam Stock Exchange opened its doors for trading in August 1611.

Sveriges Riksbank, a.k.a. The Bank of Sweden, was established in 1668 and is considered the world’s first central bank. The bank was founded by Johan Palmstruch, who had also founded Stockholms Banco, the first bank to issue banknotes in Europe.

According to the bank’s website: “one of the Riksbank’s tasks was to maintain price stability. Between 1668 and 1897, the law included a clause on price stability. The Riksbank was to “maintain the domestic coinage at its right and fair value”.

The Bank of England was founded by a parliamentary act in 1694 to generate funds for England’s war efforts against France. Granted a royal charter, the bank functioned as a joint-stock bank with limited liability, and until 1826, no other joint-stock banks were permitted in England and Wales. This unique position, along with being the government’s banker, provided the bank with substantial competitive advantages.

In the hype of treasure hunting, new companies began popping up that claimed to help treasure hunters stay under water for longer periods of time, theoretically making it easier to find treasure.

Almost all of these companies were fraudulent, among other new companies creating revolutionary “technology” for strange things to aid treasure seekers and the investors funding their missions. The crash in 1696 was epic in proportions. In 1693 there were 140 English & Scottish companies listed on the exchange. During the 1696 crash, 70% of those companies were wiped out.

The Dojima Rice Exchange, established in 1697 in Osaka, Japan, is considered the world’s first futures market, using contracts tied to the prices of rice!

The Mississippi Bubble was a financial crisis that took place in France during the early 18th century. Sparked by speculative investments and the wild visions of Scottish financier John Law, the Mississippi Company aimed to exploit the vast potential of France’s colonies in Louisiana. The bubble eventually burst in January 1720, triggering liquidations of fictitious company that tanked the French economy.

Dutch broker Abraham van Ketwich launched the first “mutual fund” in 1774. The fund was named “Eendragt Maakt Magt”, which translates to “Unity Creates Strength”. The fund consisted of 50 bonds that were equally weighted and diversified across 10 different categories/sectors (banks, turnpikes, etc.). The fund also had a low expense ratio of 0.20%.

The Commonwealth of Massachusetts issued the first known inflation-indexed bonds in 1780, during the Revolutionary War. The inflation-indexed bonds were issued to soldiers as a method of “deferred compensation” for their service.

Congress approved the “Bank of the United States” (BUS) in 1791, with a $10 million capitalization, 80% privately owned and 20% government-owned. Amazingly, the IPO was on… July 4, 1791 and helped bring the newly founded United States out of financial turmoil.

America’s first financial panic in 1792 is primarily known for the duplicitous actions of one William Duer. Duer used his friendship with Alexander Hamilton and former Treasury position to convince people he could offer guaranteed returns, opposed to the risky United States stock. Eventually the scheme blew up and Duer died in debtor’s prison in 1799.

The Buttonwood Agreement, a two-sentence contract, marked the beginning of organized securities trading in the United States.

The Panic of 1819 is considered America’s first Depression. This was largely driven by the America government’s need to pay off the heavy debts it incurred to finance the War of 1812 against Britain.

British investors starved for income from low consol yields rushed into Emerging Market bonds (from new Latin American countries gaining independence from Spain). This speculative fervor eventually expanded into Latin American mining stocks and new UK joint-stock companies. The period was riddled with fraudulent schemes and startups launched to take advantage of speculator’s enthusiasm.

Gregor MacGregor was deemed the ‘King of Con-Men’ by The Economist for pulling off the ‘greatest confidence trick of all time’

MacGregor earned this title by finding an uninhabited piece of land on the coast of Honduras, creating a fictitious country called Poyais, and selling over a billion dollars worth of ‘Poyais bonds’ in London by misleading investors with lies about how Poyais was a developed society.

In 1841, in the bustling heart of New York City, entrepreneur Lewis Tappan laid the groundwork for the first credit rating agency: The Mercantile Agency. Over time, The Mercantile Agency evolved into the renowned R.G. Dun & Co., which, in a twist of fate, merged with its primary competitor, the Bradstreet Company, in 1933. This merger marked the birth of the modern credit rating powerhouse we now know as Dun & Bradstreet.

The invention of the telegraph, credited to Samuel Morse, revolutionized long-distance communication and had a significant impact on the financial industry. It allowed for faster transmission of information, including stock prices and financial news, which was essential for the functioning of the growing financial markets.

On April 3, 1848, the Chicago Board of Trade (CBOT) was founded with 82 members, initially promoting trade among them, functioning as a meeting place to resolve disputes and discuss commercial matters. In 1858 and 1859, two critical developments changed the CBOT’s trajectory. In 1858, a new department for classifying and certifying grain grades boosted buyer confidence and market development. In 1859, the CBOT became a state-chartered private association, empowering it to implement trading rules among members and regulate grain trading and inspection.

Edward A. Calahan, an employee of the American Telegraph Company, invented the stock ticker. This machine revolutionized the way stock market information was disseminated to investors by enabling almost real-time reporting of stock prices and transactions.

The Foreign and Colonial Government Trust (FCGT) was established in London in 1868. Launched in a period of historically low yields, like today, investors were forced to “hunt for yield” in riskier investments. True to its name, the firm focused on loans to foreign governments both within, and outside her majesty’s realm. The FCGT is also the world’s oldest closed-end fund still in operation today.

The second iteration of London’s “Royal Exchange” (1871), The London Metal Exchange (LME), was founded in 1877 above a hat shop in Lombard Court. The exchange was established to provide a centralized marketplace for trading copper, tin and pig iron.

The impetus for founding the LME stemmed from overcrowding at the Royal Exchange, which forced the overflowing mob of traders to congregate at the nearby “Jerusalem Coffee House”. According to Reuters, this is where the tradition of “ring and kerb” was established:

Charles Dow and Edward Jones created the DJIA on May 26, 1896. The index initially included 12 of the most prominent industrial companies, such as General Electric and American Cotton Oil.

America’s central bank was founded through the Federal Reserve Act of 1913, which was largely a reaction to the Panic of 1907.

Many experts have opinions on what age of finance we are in today, but one thing is for certain - it will always change.

Having a solid plan that works towards your goals, while also incorporating the flexibility needed to respond to large economic changes is critical.

Working with a qualified financial advisor can help you do this. If you are curious how we can help, visit the links below!

I hope you enjoyed this timeline!