Book Review: Lodewijk Petram’s The World’s First Stock Exchange by The Finance Professionals’ Post

If you have the common, errant idea of the Dutch as universally meticulous, arrogant and deadly boring people, you will not be disappointed by L. Petram’s book, The World’s First Stock Exchange.  Happily of a “European” size—i.e. less than 300 pages—it might though bore you to death. What might have been the fascinating tale of colorful Conraad von Beuningen, a follower of Spinoza sent on ambassadorial missions to both France and England, and eventually Mayor of Amsterdam who went mad after losing his fortune in short selling, is reduced to the technicalities of how he avoided prohibition against short selling. Yet, it is necessary reading and a valuable reference source for scholars with a serious interest in markets, exchanges and financial history.

Concerning perceived arrogance, popular sources usually mention Antwerp’s stock exchange as the world’s first, yet Antwerp’s market is not even mentioned in the book.  The case for Amsterdam’s can be bolstered by qualifications such as  “continuously functioning.”  For a number of years the Amsterdam stock exchange traded in a single stock, namely, the stock of the Company of East Indies (VOC). Yet, VOC operated enormous fleets all over the globe, but also warehouses, trading stations, etc. and was a giant enterprise. Its profits, according to the author, reached more than 2 million guilders per year. Furthermore, VOC was a precursor for all joint-stock companies in the world. Unlike the previous joint-stock companies, which dissolved after dividing profits, VOC was an experiment in “going concern”, first authorized for twenty years but then constituted to run for an indefinite period. For the era, its shares were reasonably liquid and easily tradable. The seller and the buyer had to go to the notary for the sale to be entered in a special ledger. These records constitute the  “Who’s Who” of 17th century Dutch society.

As already mentioned, short selling was prohibited, but market operators initiated forward trading in stocks and then almost immediately in stock options, which allowed speculation on downward price movement without formally shorting the underlying. Soon, traders in VOC shares were speculating by using option combinations such as straddles (documented in the book). Finally, a kind-of repo market developed, permitting borrowing against securities in a stock portfolio.

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The World’s First Stock Exchange – Description

The World’s First Stock Exchange by Lodewijk Petram

The launch of the Dutch East India Company in 1602 initiated Amsterdam’s transformation from a regional market town into a dominant financial center. The Company introduced easily transferable shares, and within days buyers had begun to trade them. Soon the public was engaging in a variety of complex transactions, including forwards, futures, options, and bear raids, and by 1680 the techniques deployed in the Amsterdam market were as sophisticated as any we practice today.

Lodewijk Petram’s eye-opening history demystifies financial instruments by linking today’s products to yesterday’s innovations, tying the market’s operation to the behavior of individuals and the workings of the world around them. Traveling back to seventeenth-century Amsterdam, Petram visits the harbor and other places where merchants met to strike deals. He bears witness to the goings-on at a notary’s office and sits in on the consequential proceedings of a courtroom. He describes in detail the main players, investors, shady characters, speculators, and domestic servants and other ordinary folk, who all played a role in the development of the market and its crises. His history clarifies concerns that investors still struggle with today, such as fraud, the value of information, trust and the place of honor, managing diverging expectations, and balancing risk, and does so in a way that is vivid, relatable, and critical to understanding our contemporary financial predicament.

The World’s First Stock Exchange – Review

The World’s First Stock Exchange is an extremely accessible and clear description of a fascinating topic. Lodewijk Petram writes with the general reader in mind and carefully conveys the intricate details of the issues addressed in an admirably lucid way. It is one of the best explanations I have seen of various aspects of securities trading that are still relevant today.

(Ailsa Röell, professor of international and public affairs, Columbia University)

Petram’s The World’s First Stock Exchange is a very good example of that rare specimen, a financial history book for a popular audience. The reader gets a very good feeling of atmosphere, of time and place, and of the specific society that gave rise to our contemporary financial structure. (Joost Jonker, NEHA Professor of Business History, University of Amsterdam)

The World’s First Stock Exchange is a wonderfully textured account of the rise of stock trading in seventeenth-century Amsterdam. It is replete with the personalities, circumstances, wisdom, and folly of the men who fashioned from nothing our modern world of derivatives, repos, and naked short selling. It can be read for pleasure as well as instruction. (Gregory Clark, University of California, Davis, and author of The Son Also Rises)

The inventions of shares of stock and of a stock exchange are arguably as formative to the development of the world we live in as the discovery of the telescope or of the laws of motion. And those financial innovations were born in Amsterdam. Lodewijk Petram takes us back to 1602, when it all began, and shows how the major elements of the financial life of our time came into being. A clear and vital book. (Russell Shorto, author of Amsterdam: A History of the World’s Most Liberal City)

Petram’s informed and lively account of Amsterdam’s 17th-century securities market demonstrates that when it comes to investing and speculating we have not progressed much in four centuries. Although a company’s dividend may sometimes have been paid in East Indian spices as well as cash, in most respects Dutch financial markets were surprisingly modern, with not just shares and bonds, but also forward contracts, derivatives, even repo financing with haircuts. And, of course, the Dutch experienced frauds, bankruptcies, crises, and corporate governance problems. While modern Wall Street may have succeeded Amsterdam as the leading market, what goes on there is hardly new. (Richard Sylla, New York University Stern School of Business)

A fascinating book… I can recommend unequivocally to anyone with even a modicum of interest in the history of financial markets. (Brenda Jubin Investing.com)

… Petram does a fine job of bringing history to life and showing its relevance to modern financial crisis. Recommended for readers interested in the origins of the stock market. (Library Journal)

… In its focus on the 17th century Dutch stock market, The World’s First Stock Exchange gives a fascinating look at a remarkable episode in financial history. (Financial History 1900-01-00)

About the Author

Lodewijk Petram is an economist and historian and regularly publishes on financial history in Dutch journals and newspapers. The Dutch edition of this book won the Dirk Jacob Veegens Prize from the Royal Holland Society of Sciences and Humanities

World's First Stock Exchange

The World’s First Stock Exchange by Lodewijk Petram