Summer School 3: The first stock and perpetual life
10Digest
This podcast delves into the fascinating history of finance, tracing its roots back to the 17th century. The first chapter explores the birth of modern finance, focusing on the Dutch East India Company and the development of the stock market in Amsterdam around 1600. It highlights the role of Isaac Lamar, the first person to short a stock, and the company's response to his actions. The second chapter delves into the history of the world's oldest living bond, issued in 1624 by a Dutch water authority to fund dike repairs after a flood. It traces the bond's journey from Utrecht to the New York Stock Exchange and explores the significance of perpetual bonds in financing public infrastructure and other projects. The final chapter discusses the role of trust in the development of financial systems, highlighting how the Dutch East India Company and the perpetual bond required a level of trust in society and its laws that was unprecedented at the time. It also explores the inherent instability that can arise from the freedom to resell stock shares.
Outlines
The Birth of Finance and the Dutch East India Company
This chapter explores the origins of modern finance, focusing on the Dutch East India Company and the development of the stock market in Amsterdam around 1600. It highlights the role of Isaac Lamar, the first person to short a stock, and the company's response to his actions.
The World's Oldest Living Bond
This chapter delves into the history of the world's oldest living bond, issued in 1624 by a Dutch water authority to fund dike repairs after a flood. It traces the bond's journey from Utrecht to the New York Stock Exchange and explores the significance of perpetual bonds in financing public infrastructure and other projects.
Trust and the Development of Financial Systems
This chapter discusses the role of trust in the development of financial systems, highlighting how the Dutch East India Company and the perpetual bond required a level of trust in society and its laws that was unprecedented at the time. It also explores the inherent instability that can arise from the freedom to resell stock shares.
Keywords
Dutch East India Company
The Dutch East India Company, established in 1602, was the first multinational corporation and a major player in global trade. It held a monopoly on Dutch trade with Asia, primarily in spices, and played a significant role in the development of modern finance.
Isaac Lamar
Isaac Lamar was a Dutch merchant and director of the Dutch East India Company. He is known for being the first person to short a stock, betting against the company's success. His actions led to a dispute with the company and ultimately his exile.
Short Selling
Short selling is an investment strategy where an investor borrows shares of a company and immediately sells them, hoping to buy them back at a lower price later and make a profit. It is a risky strategy, as the investor could lose money if the stock price rises.
Perpetual Bond
A perpetual bond is a type of bond that does not have a maturity date, meaning that the issuer is obligated to pay interest payments indefinitely. Perpetual bonds are often issued by governments and corporations to raise capital for long-term projects.
Stock Market
A stock market is a marketplace where buyers and sellers can trade shares of publicly listed companies. It is a key component of modern financial systems, providing a mechanism for companies to raise capital and for investors to participate in the growth of businesses.
Trust
Trust is a fundamental element of financial systems, enabling individuals and institutions to engage in transactions with confidence. It is essential for the smooth functioning of markets and the stability of the financial system.
Q&A
What were the key factors that led to the development of the stock market in Amsterdam in the early 1600s?
The Dutch East India Company's need for capital to finance its voyages to Asia, combined with the availability of investment capital from wealthy merchants, created the conditions for the emergence of the stock market.
How did Isaac Lamar's attempt to short the Dutch East India Company impact the development of finance?
Lamar's actions, while ultimately unsuccessful, demonstrated the potential for short selling as a financial strategy and led to the first recorded instance of a company issuing a dividend to counter negative market sentiment.
What is the significance of the world's oldest living bond, issued in 1624 by a Dutch water authority?
This bond highlights the early development of bonds as a financing mechanism for public infrastructure projects and demonstrates the enduring nature of perpetual bonds, which continue to be issued by governments and corporations today.
How does the episode illustrate the importance of trust in the development of financial systems?
The episode emphasizes the crucial role of trust in enabling financial transactions, particularly in the context of long-term investments like stocks and perpetual bonds. It also highlights the potential for instability when trust is eroded.
Show Notes
Once upon a time, every business was a small business. It was run by the owner, maybe the spouse and the kids. Maybe they borrowed money from friends and relatives, but there was only so big it could get. Then came what can only be described as the big bang of economics. Over the span of a few decades, people figured out a way for businesses to sell ownership shares – otherwise known as stocks – and let people trade those shares. There was suddenly money to buy machines and expand.
Today, we head to the Netherlands around the year 1600. First, we'll visit the bridge in Amsterdam where some of the first stock trading took place. Then we track down the Dutch water company that's the source of the oldest "living" bond. It's the origin of stocks and bonds and the stock market and it leads directly to many of the financial innovations that we still have today.
This series is hosted by Robert Smith and produced by Audrey Dilling. Our project manager is Devin Mellor. This episode was edited by Planet Money Executive Producer Alex Goldmark and fact-checked by Sofia Shchukina.
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