RISK AND OPPORTUNITY COST OF CAPITAL
History of the Stock Market

Trading and speculating for value is as old as civilized mankind. In the third millenium B.C., history records speculation on grain harvests in Mesopotamia. Homer tells of the speculation of Trojans in buying wine for sale to soldiers, and the Greek philosopher Thales is rumored to have cornered the market on olive presses. The Romans formed stock companies to bid on Imperial contracts, and sold shares, called partes, to the public to raise capital.

In the Middle Ages, at the time of the Crusades, voyages from Spain to the Middle East were financed and speculated on by investors who occasionally earned profits as high as 1000%. The commercial revolution of the 16th through the 18th centuries, which gave rise to the merchant class, also stimulated interest in company formation, tradable ownership , and the concept of market value and accumulated paper wealth.

In 1635, when worldwide speculation in tulip bulbs panicked the markets everywhere, New York Governor Peter Styvestant was building a 1340 foot wall to prevent goats and hogs from straying into the lower east side of New York. This street and its coffee houses was destined to to be the meeting place of speculators, marine interests and, even pirates fencing their ill-gotten wares, and was known in its early days as the "street with the wall".

Wall Street rapidly become the center of trade of tobacco, wheat and, to a limited extent, securities and, in the late seventeen hundreds, its markets drew the attention of Alexander Hamilton as a means of refunding the Revolutionary War debt. He used the growing market there to give new liquidity to the obligations of the new Government to pay its bills, as a means of stimulating new private ventures.

By 1792, trading was formalized in a small room at No. 22 Wall St. When this small room could no longer accommodate the large group of investors interested in trading these Government Treasury Certificates, the meeting place was moved to a spot outdoors, near 68 Wall St. next to a buttonwood tree, that today evokes the name of an agreement signed by brokers to establish the New York Stock Exchange: the Buttonwood Agreement.

With vast immigration to the new country, and a burgeoning need for new industry, there were 295 publicly traded companies in the United States by 1800. These were financed chiefly on the New York Stock exchange and in the other smaller exchanges which grew up around it on Wall St. at that time.

The socio-economic function of the major exchanges, then and now, was to provide a place where buyers and sellers of business interests could meet, value, and trade their interests. The financial health of the growing country was dependent on its ability to find the means to finance new and speculative ventures by offering new opportunity in trade for opportunities which had served the past.

There were several corollary exchanges as well, with one exchange, which did business with speculators and investors "at the curbstone" on Wall St., arriving in their ornate horse drawn carriages. This exchange came to be known as the "Curb Exchange, and is now known as the American Stock Exchange. This exchange now incorporates the latest contribution to market liquidity, the NASDAQ computer-based securities market.


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